President Biden’s attack on oil refiners illustrates why efficient government economic planning is impossible, including and perhaps especially in a democratic regime. Except if he is a saint or if he is restrained by strong moral principles and a binding political philosophy, a democratic ruler focuses on the next election—or, at best, on the next few elections, but that amounts to the same for a gerontocrat. He would typically risk the future of his country if not of the planet if necessary to win the next election.
Biden’s immediate political interest is that his party controls Congress after the mid-terms and allows him to exercise more power. He rightly fears that the voters, many of whom think that the president is omniscient and omnipotent, will punish him for the high fuel prices due to a war launched by his Russian counterpart.
The Financial Times reports (“Joe Biden Tells US Oil Refiners Rising Profits ‘Not Acceptable’ as War Rages,” June 15, 2022):
US president Joe Biden on Wednesday took aim at refiners for not producing more petrol, saying their rising profit margins “at a time of war” were “not acceptable”.
In letters sent to seven oil companies including ExxonMobil, BP, Shell and Valero, Biden called for “immediate actions” to supply more fuel, and said the administration was prepared to use “all reasonable and appropriate” tools to help increase supply in the near term.”
Use the Defense Production Act? Decree price controls that would generate shortages and socialist waiting lines? Ask the army to take over gasoline production?
The only way private oil companies can find it profitable to increase production is if the price they get and their profits rise in the short term. In the long term, of course, their excess profits will be competed away on a free market. If they fear that their temporary excess profits will be expropriated, they will never increase production, neither today nor at the next emergency; or they will do it out of fear of “their” government, but don’t expect much efficiency from coercion.
President Biden’s letter to refiners does a bit more than reveal his economic ignorance and the impossibility of democratic economic planning. It is also cartoonish:
“I understand that many factors contributed to the business decisions to reduce refinery capacity, which occurred before I took office,” Biden wrote in his letters.
It is not clear what Biden is blaming his predecessor for. What is clear is what he wants to do: both to reduce oil production in the long term, a kernel of the Democratic environmentalist wishes, and to increase it in the short term when his political interest requires it. Like his predecessor, he is willing to say anything, however incoherent, to promote his political interests.
READER COMMENTS
Monte
Jun 18 2022 at 11:45am
Pierre,
Public trust in government is at a historic low. Most voters today believe the president has become increasingly irrelevant. Otherwise, you couldn’t be more right.
Pierre Lemieux
Jun 18 2022 at 1:51pm
Monte: There may be a confusion here. The typical individual does not trust the current government, but he idolize the government as it should be, that is, if individuals exactly like him were in power.
It’s a good idea that you had to bring the Pew survey in this conversation. I think this survey can be interpreted in a way consistent with what I am saying. When Republicans and Democrats were not so polarized, the typical individual thought that he could trust the government “most of the time” (since Democrats or Republicans were likely to be in power “most of the time”). Both Hayek and Schumpeter thought that everybody was becoming socialist. Now that the two sides, without really being more different (it’s probably the contrary), are most polarized, more individuals don’t agree with “most of the time.”
Monte
Jun 18 2022 at 7:02pm
Yes, and Schumpeter accurately summed up their psychopathology with this quote:
Thomas Lee Hutcheson
Jun 18 2022 at 12:20pm
In the spirit of amity, I propose that every criticism of Biden or whoever for wrongly blaming high gas prices on greedy oil companies should also be coupled with a criticism of whoever is most convenient personification for claiming that Biden or recent (unwise but mild) restriction on petroleum production and transportation is responsible for high gas prices.
Pierre Lemieux
Jun 18 2022 at 1:27pm
Thomas: Your point is well taken, but didn’t I mention that, in the short run, oil prices have risen because of the war in Ukraine and thus not because of Biden? However, I should have mentioned that oil companies have been stingy on new investments lately (think of frackers and exploration) because they believe that, in the long run (the horizon for investment), governments all over the world will put more and more restrictions on oil production and subsidize more and more the production of other forms of energy.
Thomas Lee Hutcheson
Jun 18 2022 at 10:00pm
Those two expectations would produce contradictory actions. If I expect future restrictions on investment in new production, I should be MORE eager to invest now on in the recent past before the restrictions get worse. Expectation of Biden-type restrictions would not have produced stingy investment in the past. Expectations of future restrictions on demand, e.g. a tax on net CO emissions, however WOULD lead to reduced investment.
Thomas Strenge
Jun 20 2022 at 2:43pm
Thomas: It depends on the time horizon for the investment. There is a bottle neck in refining capacity, but a new refinery takes years to permit and build before it begins to pay back its investment. The Dems have threatened to outlaw gasoline powered cars by 2030. Would you make a 10+ year multi billion investment in such an environment, or take the cash?
Pierre Lemieux
Jun 18 2022 at 1:58pm
Thomas: It just stroke me that you were perhaps reaction more to the feature image of the post than to what I actually wrote. I did choose the feature image to illustrate what not to believe.
vince
Jun 18 2022 at 2:49pm
Biden has engaged us in the war. What would gas prices be if we stayed out of it? And what would food prices be?
vince
Jun 18 2022 at 3:07pm
Blaming coporate greed for gas prices is so very communist and totalitarian. I suppose Biden should dictate exactly what profit the companies should be making. And he should also dictate government approved salaries. And it should disregard all the shareholders who are relying on those profits to boost their 401Ks so they don’t have to rely on government handouts for retirement.
Exxon earnings per share were -5.25 in 2020 and 5.39 in 2021. It might be $6 this year. At a base price per share of 75 in 2019, that’s about a 2.7 percent return, the same one could get from a 20 year treasury bond investment. Basically, no reward for risk taking.
Bernie Sanders complained that gas price is high in relation to crude oil prices. He should try putting crude oil in his gas tank. As if he has a clue about the production process and production costs.
Matthias
Jun 20 2022 at 10:51pm
Blaming corporate greed for high prices has a certain logic and consistency to it. At least.
But blaming corporate greed for rising prices seems exceedingly silly. That would only work, if the scapegoats used to be less greedy in the past.
Jose Pablo
Jun 18 2022 at 4:40pm
This is so schizophrenic you can only laugh at it (I think “cartoonish” is way too nice).
The same President that wants to phase out the whole oil industry, even using for that the FED, offering support to increase supply. The very same President that promised to ban any construction of new oil pipelines. The very same President that promised to stop any further upstream project.
As Einstein used to say: “two things are infinite …”
I have an idea for the President (for free): what about introducing a (another) subsidy to the oil industry linked to an increase in production (obviously “local” production) and, at the same time, a (another) tax on oil consumption (or on CO2 emissions … or something like that)
Jose Pablo
Jun 18 2022 at 5:09pm
Another idea to increase production is to increase prices … it normally works wonderfully.
Another idea to reduce production in the long term is to nationalize the oil industry: it has worked wonderfully in Mexico and Venezuela.
After all, “if you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.”
Maniel
Jun 20 2022 at 8:23pm
Jose,
At times like these, I find it comforting to turn to H.L. Mencken. Definition:
“A politician is an animal which can sit on a fence and yet keep both ears to the ground.”
vince
Jun 18 2022 at 5:22pm
Nice Sahara Desert joke. Sadly truthful.
“I have an idea for the President (for free): what about introducing a (another) subsidy to the oil industry linked to an increase in production (obviously “local” production) and, at the same time, a (another) tax on oil consumption (or on CO2 emissions … or something like that)”
Or maybe a subsidy to give them incentive to produce more, and then a windfall tax–equal to the subsidy. A typical government-type solution.
Zeke5123
Jun 20 2022 at 9:00am
You make the statement gas prices increased due to Putin’s war. That is incorrect as it is written as that sentence conveys that there is a single cause of increasing prices.
Prices were rising long before Putin’s war. Maybe some of that was the market pricing in the war, but it seems equally as plausible there was also:
1. Increased demand
2. Decreased supply
For No. 2, I blame in part Biden. He has ushered in a lot of unfavorable rules for oil (eg SEC ESG rules, Keystone, permitting process, CAFE standards) while at the same time being vocally anti-oil (ie rhetoric matches actions). Is it a wonder there’d be less investment in an industry when (1) it is harder to make that investment and (2) where the government’s desired goal is to make that investment not worthwhile?
Biden is not responsible for all of the gas price hike but he is surely responsible for some of it.
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