Biden’s Bizarre Plan to Reduce Gas Prices

R ecently, Americans have had to face a harsh reality: high gas prices. The president has been looking into ways to reduce the cost of fuel. His first solution was to ask the Federal Trade Commission to investigate whether oil companies were engaging in “price gouging.” His second move was to release federal oil reserves.

None of these decisions is adequate to reduce gas prices. Requesting that the FTC scrutinize oil companies is a waste of taxpayers’ money. The release of federal oil reserves only creates uncertainty in the market, and therefore distorts the regular operation of the economy. The core of the problem is that the president misunderstands the fundamental role prices play in our economy, which leads him to implement the wrong solutions.

Prices have two main functions. First, they convey information to everyone in the economy. They specify the underlying conditions of supply and demand of different resources within an economy. In this sense, elevated gas prices indicate to both drivers and oil producers that there is high demand, low supply, or both. People may or may not recognize exactly what is causing high gasoline prices, but nevertheless, they will understand that there is currently a supply-and-demand imbalance.

Second, prices also provide incentives. They encourage people to change their behavior correspondingly with the conditions of supply and demand. Because of today’s high prices, drivers have an incentive to reduce the use of gas and cut potential waste. Some might consider using public transportation or carpooling to work with friends.

At the same time, the rise in gas prices also encourages oil companies to increase production, although that response cannot be taken quite so much for granted as in the past. Oil companies now operate in an era of fossil-fuel skeptical ESG investors, and even shareholders who are not driven by such concerns have, in recent years, placed increased emphasis on increased cash payouts even if that is at the expense of investment in production. Additionally, fossil-fuel companies are having to contend with activist pressure on the banks that might normally fund new projects, pressure that may be supplemented before long by regulatory pressure.

Even though gas prices are high right now, there is little President Biden can do about it. These elevated prices are informing and incentivizing people to act on the current gas supply and demand imbalance. Any attempt to control or reduce gas prices by unconventional methods will mute essential market signals, causing more harm than good in the long run.

Pressuring the FTC to investigate oil companies should be the very last resort. Simply put, it is a waste of money. The FTC will need time and resources to conduct the kind of investigation the president is asking for. Plus, it’s highly doubtful that the agency will find any evidence of illegal conduct by oil producers, but taxpayer money will have been frittered away just so the government can be shown to have been “doing something.”

So far as raiding the Strategic Petroleum Reserve is concerned — a highly unusual step to be taking in the absence of an emergency — it is hard to think that it will make much of a difference given that the amounts involved are relatively trivial. Even if they were not, it’s hard to see this as a step in the right direction. An attempt by the government to regulate the oil supply is, in reality, just another way of trying to control oil’s price. There is no need to tell anyone how pernicious and worthless the gas-price controls implemented in the ‘70s were.

Biden’s plan to reduce gas prices is so counterproductive that doing nothing would be a better option. If he wants to “do something,” the most he can do is to back off his green agenda. And certainly, the last thing Biden should do is waste money putting a government agency in charge of looking for something it will not find and using government’s coercion to alter the functions of the market.