The Minister of Trade and Industry is living in a time warp when he announces “his determination to hold prices below $3 per gallon” for gasoline. (See The Tribune Business Section of Tuesday, March 11, 2003). Presently the oil companies importing gasoline receive 33 cents per gallon, the retailers receive 44 cents per gallon and the government gets $1.20 per gallon.
Price Controls have a sordid past and most progressive nations have left them to history’s dustbin. But, the same time more price controls are being mooted for the oil industry, it is staggering to learn that Government taxes on gasoline can be in excess of 100% of the cost. Maybe the all-caring government should reduce its margin?
However, the long lines at gas stations today (March 11) is evidence of panic induced by an irresponsible statement by a Minister of government. Rumours were flying that station owners would strike if they are not allowed to maintain their profit margins so motorists reacted as one would expect in anticipation of shortages, illustrating free market forces.
Different forces at work
There are many factors leading to increasing oil prices at this time, from the Venezuelan unrest, the extreme cold up North, and the potential war in the Middle East. With this in mind, it is irresponsible to jump to conclusions about who is making too much profit or being unfair with their pricing. In a nutshell, when supplies are limited, prices rise. When supplies are abundant, prices fall.
Simple economics right? Not according to Minister Miller.
It is instructive to look at the prices and supply of gasoline in America when President Carter instituted Price Controls. Most people in their forties and older remember the lines at the filling stations across the USA.
Mr. Roger Ream, the Director of Seminars for The Foundation for Economic Education had this to say in 1981:
However, as experience has shown, the primary effect of the controls was to diminish the amount supplied. They caused shortages and discouraged competition. Exploration and production were curtailed, so that eventually the effect of the price ceiling was actually to hold the price of oil above its unhampered market level. Soon after President Reagan decontrolled the price of oil (removed the ceiling), the price began to come down. When the control was removed, production increased, additional supplies were brought to the market, and competitive forces led to lower prices. Things did not happen as it seemed obvious they would. The so-called experts were wrong. This was because the controlled price was not, in effect, just a ceiling on the price, but a ceiling on the quantity supplied. It was a disincentive to producers. The control held down the supply, not just the price. Remarkably the ceiling was removed and the price fell.
The factors determining the price of fuel do not include the Minister of Trade’s pronouncements of what margins the oil industry should maintain. Supply and demand are the determining factors, and no individual can control either. Supply and demand also determine the price to the consumer.
Government’s Double Standards.
Both The Nassau Guardian and The Tribune recently carried half page ads from The Bahamas Electricity Corporation (BEC) explaining why electricity bills will increase as a result of rising oil prices. However, no information is forthcoming from the Ministry of Trade and Industry that BEC will hold the line on their surcharges.
Until the oil crises is over, the best consumers can do is to become conservation minded, an appropriate response to rising energy costs. Carpooling is one option and turning off unnecessary lights and setting air conditioning thermostats higher are others.
What this does show though is Government’s double standard. Businesses shouldn’t make money, but government and its agencies can do whatever they like.
A word for the poor.
Mr. Miller portrays himself as a protector of the poor man, when in fact the consequence of his recommendations are additional hardships for the poor.
So please Mr. Miller, stop trying to help.