Why a gas tax is good for you
Twenty months ago, when plenty of folks were reeling at $48-per-barrel oil, energy economist Philip Verleger predicted that the price was headed for $60. A prolific author, Verleger served in the Treasury Department under President Carter. Verleger, who now runs a consulting business out of Aspen, Colo., and is a visiting fellow with the Institute for International Economics, explains why more pain could be ahead at the pump.
Are the politicians wrong when they accuse the industry of market manipulation?
People on Capitol Hill always say, "Big Oil," and I think they're referring to the Exxons. And they're wrong, but they may be on to something in terms of the big suppliers of gasoline. The big integrated companies have been very careful over the years about playing by the rules. It's not so clear that the people who now dominate the manufacture of gasoline, or refining, in the United States are as careful.
Last summer . . . after the energy bill passed, Valero [the nation's No. 1 refiner] announced it was going to quit using MTBE [a clean-air additive that has caused water pollution problems]. The press release almost begged the refiners it competes with to join in cutting gasoline outputs [because volume would fall with the sudden removal of MTBE]. I said at the time that could raise gasoline prices by 80 cents or $1 a gallon, and that's what we're talking about now.
You focus on mundane topics like refining rather than the big debate over whether world oil supply has peaked. Why?
Peak oil is an interesting abstract subject. But neither you nor I will find out if we are peaking in our lifetime. My focus is on how prices get determined. And peak oil has nothing to do with it. What's pulling the price up is gasoline. It's the [Environmental Protection Agency]. It's the [Federal Trade Commission]. And Detroit.
If Intel comes up with a new faster chip, they work hand in glove with Microsoft and Dell so that the whole thing works seamlessly. That's been the great innovation. If the computer industry had developed the way the auto industry and the oil industry developed together, you'd still be using a typewriter.
They're fighting. There's a battle over who bears the cost of clean fuels that started in the late 1960s and continues today. The auto industry, through the [EPA], has forced the oil industry to bear the burden of spending the money to make the low-sulfur fuels. So the [refining] industry has met the specifications, but they didn't expand capacity. And the auto industry didn't pay any attention, and they kept making these cars that need to use more gasoline. So it's an absence of coordination that's gotten us here.
You criticize the way the FTC has handled past oil industry mergers, forcing the big companies to spin off refineries to smaller companies that did not expand capacity. What did the agency do wrong?
What the FTC should have done is get an agreement in these mergers to expand refining capacity. Instead, the FTC has a one-size-fits-all merger policy. They say there's going to be too much concentration, you've got to divest. And this has created more problems for the economy than you can shake a stick at. The American consumer would be much better off if the FTC were shut down.