Excerpt Of The Day: Mac Johnson Slaps Around O’Reilly And Explains Why Gas Is So Expensive

Taxes cost you about $0.42 per gallon on average. So the next time you hear Sen. Chuck Schumer (D.-N.Y.) worrying about the price of gas having an impact on “working families,” such as those who I imagine work for him, just remember that the Federal government could lower the price of gas $0.184 per gallon overnight, if it simply suspended the excise tax it impacts upon those poor working families. State governments could reduce the cost by more than $0.22, if they really wished to.

Is it marketing and distribution making prices rise? Nooooooo. Although advertising on “The O’Reilly Factor” undoubtedly is expensive and delivering gas to every street corner in North America is quite a feat, these items are only a small part of gas costs: just $0.11 per gallon this last March. That’s pretty amazing when you consider the post office can’t get a lightweight and non-flammable letter to your neighborhood for less than $0.39.

Well then, maybe it is refining costs that have made gas so expensive. You’re getting warmer. Refining costs shot up noticeably after Hurricane Katrina, since several refineries were knocked out by the damage to the Gulf Coast. Most of our refineries are concentrated there because people on the East and West Coasts are too good to have to look at them. To ease the Katrina price crisis, the government suspended all sorts of very important and wise rules telling the petrochemical engineers that run the refineries how to best make gasoline. The price then dropped suddenly, proving that regulation does not affect cost much.

But now the rules are back in place. And the government added some new ones. Most fuel in the U.S. must now contain ethanol, which is expensive, cannot be transported in pipelines and is a pain in the barrel to work with. So costs have gone back up, and then up some more.

Well that just leaves crude oil costs. Have they gone up? Well, yes, apparently they have. In the three years in question they have gone from about $0.70 per gallon to $1.34 per gallon — a 91% increase. Perhaps the rise in crude oil prices was an underreported story, and thus missed by Mr. O’Reilly? Together with the increased costs of refining by Congressional committee, the increase in crude oil prices totally explains the price of gasoline, without the need to examine if Exxon had a second shooter on the grassy knoll.

However, Mr. O’Reilly rejects the idea that the price of crude should affect the price of gasoline, because it is just a “paper price.” I’m not sure what other sort of price he thinks there is (a “street price,” perhaps?) but Mr. O’Reilly, a graduate of Harvard, thinks that the “paper price” is some sort of new-fangled hocus pocus created by speculators: “These speculators operate in the so-called commodities markets. They gamble on where the price of oil and other tangible assets will be months from now. These Vegas-type people sit in front of their computers and bid on ‘futures’ contracts.” — Mac Johnson

*** Update #1 ***: More on gas prices from National Review:

“Harvard economist Joseph Kalt found that price controls in place from 1974 to 1980 kept domestic production 0.3 to 1.4 million barrels per day lower than it otherwise would have been, and the Congressional Research Service estimates that the windfall tax on oil profits from 1980 to 1988 decreased domestic production by 3 to 6 percent.

Those are just the kinds of numbers we don’t want to see if keeping gas prices low is our goal. The only way to put downward pressure on prices over the long term is to make sure supply can match demand — and that means encouraging domestic oil and gas production, not discouraging it. Hastert, Frist & Co. have it exactly backward.

If Congress really wanted to be helpful, it could allow drilling in the Arctic National Wildlife Refuge and oil exploration on the continental shelves off the western and eastern coasts of the U.S. It could also streamline the onerous regulatory process that has kept the U.S. from building a single new refinery since 1976.

And it could undo the ridiculous ethanol mandate in last year’s energy bill. For years, Congress has required that gasoline contain “oxygenates” to make it cleaner. One such oxygenate, ethanol, is made from corn (among other things). It has accordingly been the traditional additive in the Midwest, while coastal regions have found it cheaper to use the petroleum-based MBTE. No longer. The energy bill requires the use of 7.5 billion gallons of ethanol each year by 2012; at the same time, Congress has denied liability protection to makers of MBTE, who have become a favorite target of tort lawyers. The consequence has been to end domestic MBTE production almost altogether. But since the ethanol industry hasn’t been able to pick up the slack yet, we’ve gotten shortages — and higher gas prices.” — National Review

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