Those who cannot remember the 1970s are condemned to repeat them. Even if you’re too young to remember the Disco Decade, you’ve doubtless seen pictures of cars lined up waiting to pump scarce gas at filling stations.
We’d suffer that again if Rep. Dennis Kucinich, D-Ohio, and five colleagues get their way. They’ve introduced HR3784, the Gas Price Spike Act. It would, in the bill’s language, “impose a windfall profit tax on oil and natural gas (and refined products) and to allow an income tax credit for purchases of fuel-efficient passenger vehicles, and to allow grants for mass transit.”
Mass transit like New Mexico’s Roadrunner trainboondoggle? The tax would be from 50 percent to 100 percent of the “surplus earnings.” It would be administered by another mammoth new government bureaucracy, the Reasonable Profits Board.
As reported by TheHill.com, Rep. Kucinich explained, “Gas prices continue to rise, creating a hardship for the American people. At the same time, oil companies are making record profits gouging their customers. This bill would tax only the excess profits and create forward-thinking transportation alternatives.”
Similar excuses were made in the 1970s for controlling the oil and gas industries. In 1971, President Richard Nixon imposed wage-and-price controls that mostly expired after a few months. But the controls on gas prices remained throughout the 1970s and were the real cause of the gas “shortages” and long lines at the pump. The “crisis” ended in 1981 as soon as President Reagan ended all price controls on oil, after which prices actually dropped as production — and profits — increased.
It’s true that the Arab oil embargo of 1973 and the Iranian hostage crisis of 1979 caused shortages, but those were temporary. The real, long-term cause was the government meddling in the market.
Moreover, consumers really aren’t being “gouged” at the pump. Gas in 1971 cost about 31 cents a gallon. At that time, the price of gold was $35 an ounce. Also in 1971, President Nixon took America off the gold standard. Since then, gold has soared to $1,724 an ounce (as of Jan. 26), or 49 times the 1971 price. If gas had risen as much, it would cost more than $15 a gallon. That means those bad old oil companies actually have made themselves more efficient and so have reduced prices (if denominated in gold).
As we have pointed out, since World War II the price of oil has averaged about 15 barrels per ounce of gold. Currently, it’s about 17 barrels — still close to the 15/1 ratio.
This month, reported Bloomberg BusinessWeek, Iran has been shipping oil to India for gold, avoiding sanctions on Iranian banks involving dollars and effectively bringing back a quasi-gold standard.
The upshot is that the real reason for rising oil and gas prices in recent years is that the dollar has been debased by the U.S. government. Oil profits have risen accordingly. If the Federal Reserve Board would end its “quantitative easing” (inflation) programs and stop printing so much money, prices would stabilize. Controlling profits through a new Reasonable Profits Board would cut supplies and raise prices, possibly sparking 1970s-style lines at the pump.