9/25/00 4:45 p.m.
Gored by Energy Prices
Mislead by the lure of the quick fix.

Mark Brandly, an adjunct scholar of the Ludwig von Mises Institute, teaches economics at Patrick Henry College.

eorge W. Bush accuses the Clinton-Gore administration of having no energy policy. He's wrong to this extent: Government policies endorsed by Clinton-Gore, from taxes to regulations to land lock-ups, are the reasons that energy prices remain high. Al Gore's recent proposals would further increase government involvement in oil markets at the expense of the public.

Last Friday, at Gore's insistence, President Clinton agreed to release 30 million barrels of crude oil from the government's Strategic Petroleum Reserve (SPR) in order to provide price relief. In a ploy designed to help Gore's election chances, the SPR oil will be released from Mid-October to November 1. Energy Secretary Bill Richardson calls this "the right time to do this." He's right, if the goal is to boost Gore's presidential campaign.

While prices have dropped since Gore's request for a sale of SPR reserves last Thursday, this does nothing to change the underlying reality. OPEC has boosted output this year by a total of 3.2 million barrels a day in a failed attempt to lower oil prices. The world consumes 30 million barrels of oil every 10 hours. Tapping the SPR for this trivial amount of oil will have only minor effects on energy prices.

Of course, Gore is not proposing that the government scrap the nearly 600 million barrel SPR and free oil markets from government intervention. Clinton and Gore promise that for every barrel of oil removed from the SPR, more than a barrel of oil will have to be returned later. This guarantees that the SPR will grow, giving future administrations increased opportunities to try to manipulate oil prices for political advantage.

Gore also wants to have an energy assistance program for "low-income families." Clinton complied by releasing $400 million of assistance on Saturday, as well as releasing a government-controlled home-heating oil reserve. They can't pass up an opportunity to spend tax dollars and buy some votes, using other people's money, in the November election. This proposal would not decrease prices either, but merely shift the burden to taxpayers and increase the government's role in oil markets.

The Clinton-Gore team is completely ignoring the government's role in creating high-energy prices. Taxes on gasoline start when oil is produced and continue through the production process, ending with stiff taxes at the gasoline pump that average over 40 cents a gallon. These taxes, combined with the regulatory burdens on the oil industry, penalize oil producers and raise energy prices. It is hard to escape the conclusion that Gore promotes these policies as part of his long-running attack on the internal combustion engine itself.

In addition, Gore accuses the oil industry of "unfair profiteering," noting that oil companies' profits have doubled in the past year. It's true, profits have nearly doubled from 3.6 percent to 6.8 percent, but they are still slightly below the industry average in the U.S. and substantially under the profit levels in some industries.

Not that this should indicate anything troubling. If the oil industry did have higher than normal profits, that would signal producers to increase their exploration and development. The increased production would drive prices and profits back down. Condemning high profits, or even worse, taxing away profits, eliminates the incentive to increase the supply of oil, which is needed to reduce gasoline prices.

Gore further demands that the U.S. pressure OPEC to "get serious about the supply and the price of oil." As OPEC oil ministers have pointed out, the U.S. government shoulders much of the blame for the lack of OPEC oil. Trade sanctions on Iran, OPEC's second largest producer, and Libya have severely limited foreign investment in those countries, decreasing exploration and development and reducing their output capacity. And don't forget the decade long trade sanctions on Iraq, a country second to only Saudi Arabia in estimated oil reserves. While Iraq has finally been allowed to sell oil, sanctions, along with the exorbitant 33 percent U.N. tax on Iraq's oil exports, have prevented Iraq from obtaining the capital needed to develop its reserves. While it would take years of investment for Iraq to develop its oil capacity, lifting the sanctions now would help future consumers.

OPEC produces 40 percent of the world's oil but is blamed for all of the oil price increase. Think of the irony: The Clinton administration has condemned reductions in OPEC output while praising reductions in U.S. production. When OPEC reduces output, it's taken as an assault on its trading partners. However, U.S. policies that ban exploration and production in Alaska and offshore reduce U.S. output, increase OPEC's role in world markets, and drive up oil prices.

Consumers should be warned that there is no quick fix to this situation. It took years of government intervention to create these problems. We can, however, take the right steps now. A sound policy would let OPEC members develop their oil interests, creating competition within their cartel and lessening their market power. The U.S. should expand its own reserves by allowing development in areas currently banned. Finally, lifting the tax and regulatory burdens would allow oil producers to profit from serving consumers by increasing production and reducing prices.

That is an energy policy worth supporting.