The California Senate’s first hearing on gasoline prices was held Wednesday and his plan “was met with a dose of skepticism” according to Politico. Senate Energy, Utilities and Communications Committee chairman Sen. Steve Bradford told the committee that “we must ensure our actions that we take first (do) no harm to consumers.”
Nothing was resolved at the hearing. Nor will anything be resolved at the next hearing. Until policymakers realize that perpetually high gas prices in California are not the product of a nefarious industry preying on its customers but due to a misguided tax regime and regulatory agenda.
Gov. Gavin Newsom got the wreck rolling when last fall he assured Californians that “oil companies are ripping you off,” and claimed “their record profits are coming at your expense at the pump.” He wants lawmakers to pass a bill that punishes oil companies if they don’t comply with a government price structure that will be based on the politics of the moment.
“If they won’t lower their prices,” he threatened, “we will do it for them.”
A little more than a week before the first hearing, the governor’s press office bragged that “lots of progress is being made on @CAgovernor’s price gouging penalty proposal to hold Big Oil accountable.”
“No other subnational government in the world has proposed such an aggressive measure to hold Big Oil accountable so the governor and Legislature are committed to getting the details of this right.”
But lawmakers aren’t yet buying it. Progressive Sen. Dave Min told the committee that “we don’t really have a smoking gun as far as I can see that shows intentional collusion.”
Fuel prices are determined by markets, which set the price of everything bought and sold, and when those markets are skewed by public policy, prices are either artificially inflated or artificially lowered. When the information that market prices convey is distorted by government intervention, it tends “to make us poorer,” says Hoover Institution policy fellow Daniel Heil.
”When prices don’t reflect” changes in consumer preferences or “when inputs become more or less scarce” – in other words, when policies cause prices to rise or fall, or they interfere somewhere along the process of moving goods to retail markets – the “result will be shortages or excess,” he said.
Every day Californians see the effects of government actions on retail gas prices. They are directly affected by a noxious brew of taxes and regulation.
First, California has the highest gasoline taxes and fees in the country, with more increases coming, as 2017’s Senate Bill 1 hikes taxes every July 1 for a decade. A significant amount of each dollar paid for gas in this state is funneled to a government fisc, and there seems to be little interest in relieving this burden.
Second, prices, perpetually steep due to layers of rigid state regulation, have grown higher as the Newsom administration and state policymakers have discouraged new and ongoing oil production in the state. Supplies have grown short as the oil industry has retooled “operations away from gasoline to activities that will prove to be more profitable in the long run,” says UCLA economist Lee Ohanian. These companies know that their “time in California is limited.”
Jimmy Carter deregulated the natural gas market in 1978, and the result was a 30% decline in consumer prices. Deregulation of other markets during his presidency, which included removing federal yokes from the commercial air travel, railroad, trucking and telecommunications sectors, also brought lower consumer prices.
Imagine, then, how much relief California consumers would get if state oil industry regulations were relaxed and the taxes paid by consumers cut. It’s frustrating, though, because that sort of progress is so unlikely. Sacramento might not be warming to Newsom’s proposal to penalize private companies, but it’s also in no mood to do what’s right for consumers. It rarely ever is.