No

by Roger Quinn

Created on: August 09, 2009   Last Updated: August 12, 2009

Price controls never work. In fact, the U.S. has tried something like this before. In response to the oil crisis in 1973, Congress passed a law creating a price ceiling for crude oil. The result was a decrease in production of gasoline in the U.S. and long lines at the pump. The government soon saw that its price ceiling had failed and repealed the laws. It is unfortunate that our government has such a short memory.

Creating an artificial price has other potential impacts such as causing OPEC to cut production, slowing the research of alternative fuels, and reducing the demand for fuel efficient cars thereby slowing the production of efficient vehicles.

Putting a cap on the price of gas would have disastrous effects on the petroleum industry. While most people seem to think the oil companies make too much money, it is important to remember that these same companies are spending billions of dollars trying to find alternatives to oil. Oil companies know that petroleum's days as the primary fuel source in the world are numbered, and in order to survive in a world that uses little oil, they must find an alternative source of energy to sell.

Unfortunately we are not to the point where clean energy sources are profitable and we need the profits of oil to develop new sources. A price ceiling would dramatically cut down profits and consequently cut down research dollars. We could end up furthering our dependence on oil. Not only would we jeopardise years of advancement in clean energy research, but we could also lose years of production breakthroughs in the efficient vehicle market.

Price controls on gasoline has the potential to set back research and production of fuel efficient vehicles after years of advancement. A price ceiling on gas would lessen the demand for cars that do not use much gas. Suddenly the market of small cars and trucks, as well as hybrids and even flex fuel vehicles would become unprofitable.

Car companies would have no incentive to produce small cars nor would they have immediate reason to put as much research into alternative energy cars. Upcoming electric cars, such as the Chevy Volt, would never see the light of day with a sudden drop in gas prices. While research in these new vehicles would not entirely come to a halt, it would surely slow down.

A scenario very similar to this has already played out. America enjoyed the lowest fuel prices in the world during the 1990's. The average price of a gallon of gas hovered around $1.50 in the United States, while in Europe it was just over double that price. European consumers and auto manufacturers adjusted to this fact by demanding and producing more efficient vehicles.

In the U.S., we made Suburbans. While it was fun to drive these monstrous SUVs, it was not practical and soon the results caught up to us. Gas prices doubled and our Big Three went bankrupt. While they may be on the road to recovery now, imagine if that same scenario played out again, only this time instead of supply and demand causing prices to rise, the lifting of a price ceiling or a massive shortage was the cause. Gas prices would not double, they would triple, maybe more. Our economy could not survive that sort of disruption.

Domestic companies and consumers would not be the only ones to feel a price ceilings effects. OPEC would be hurt by the reduction of oil purchased by U.S. companies and could cut back themselves. The result would be a severe oil shortage that would affect the entire world. Prices everywhere would go up and along with rising energy prices, a slowing economy.

International trade would slow down almost immediately. Counrties which depend on trade, basically all of the developed nations, would see severe economic downturns. While it may seem farfetched, a price ceiling on gasoline started at home could slow down the entire global economy.

Price ceilings rarely have any measure of success in the American economy. Even when mildly successful they usually bring an unintended consequence down the road. Why should Congress try to disrupt the natural cycle of supply and demand again?

We are in a position right now to shift our economy away from fossil fuels such as oil and gasoline, and turn toward a future of clean, renewable, and most importantly, cheap energy. We cannot stop this process now.

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