Newsom’s Fast-Tracked Oil Bill Will Raise Gas Prices

A man pumps gas in Irvine, Calif., on April 1, 2022. (John Fredricks/The Epoch Times)

Commentary

Gov. Gavin Newsom’s oil bill to reduce gas prices at the pump actually will increase them. It’s simple economics: Increase regulations, potential tax increases, and uncertainty into any market, and the price of its goods will go up.

That’s precisely what will be the result of Senate Bill 2, introduced by state Sen. Nancy Skinner (D-Berkeley), but advanced by Newsom. It passed both houses of the Legislature over the last week and was signed by the governor on March 28.

In the language of the Assembly Floor Analysis of March 27, it imposes three things:

1. “Mandates extensive data reporting to the California Energy Commission (CEC) from various specified entities along California’s oil and gasoline supply chain.” That will be an “extensive” new burden on oil companies, the cost passed on to consumers.

2. “Authorizes the CEC to establish a maximum gross gasoline refining margin (max margin) and penalty on gasoline sold by refiners in the state, pursuant to certain findings.” The “penalty” really is a tax increase. It, too, will be passed on to consumers.

3. “Establishes a new division and advisory committee at the CEC, and requires various reports and assessments by the CEC to be submitted to the Legislature regarding the current status and future managed decline of transportation fuels.” That’s another massive new bureaucracy, and the costs will again be passed on to consumers.

Then there’s the uncertainty of how SB 2 will be implemented. It will cause the oil companies to hesitate investing in their rickety old refineries, which will break down more often. The breakdowns will cause shortages, leading to price increases. The new CEC bureaucracy that’s supposed to track all this stuff will issue reports. The reports will blame the oil companies. A “penalty” (tax) will be imposed. Newsom, Skinner, and other politicians will posture. Prices then will rise even higher.

Even the anti-oil Los Angeles Times ran an op-ed last November by Gregory Brew titled, “We can’t afford to shutter California’s aging oil refineries yet.” He is a historian of oil and a postdoctoral fellow at the Jackson School of Global Affairs at Yale University. He wrote:

“These facilities’ infrastructure is aging — several refineries have been operating for more than a century — and production is interrupted when machinery fails. In April, when state refineries shut down for seasonal maintenance, gasoline imports to California rose to near-record levels, sending prices soaring. Shutdowns in October again sent prices shooting upward.”

Bogus Numbers

I always read the bills when I’m writing about them. Often there are amusing passages, especially in the section that begins: “The Legislature finds and declares all of the following ....” In the case of SB 2, here’s the first finding, a whopper:

“(a) From August to October of 2022, Californians experienced some of the highest gasoline prices ever recorded in the state, even though the price of crude oil declined, state taxes and fees remained unchanged, and gasoline prices did not increase outside the western United States.”

But as Gregory Brew noted, as quoted above, it was the refinery “shutdowns,” causing shortages, not “price gouging,” that boosted prices.

And as to crude oil itself, here’s a chart from the U.S. Energy Information Administration:

Notice the prices in Aug.–Oct. 2022 still were about 50 percent higher than in early 2021. And as I wrote last Dec. 14 in The Epoch Times:

“[T]hese companies lost record amounts during the spring of 2020, when the COVID-19 lockdowns cut the price of oil to $0 per barrel. Would the L.A. Times survive if subscribers and advertisers paid $0 for its services?”

And on March 3, I wrote an update, quoting a similar analysis by economists from Chapman University, including school President Emeritus Jim Doti. They wrote:

“Chevron incurred annual losses of $33.5 billion in 2020-21. Those losses are almost as much as its ballyhooed profits of $35.5 billion this year. Even that profit of $35.5 billion isn’t all that great when one considers that those profits as a return on sales were 15 percent — not far off the S&P 500’s average return on sales of 14.2 percent over the same period.”

This Is Socialism

The great economist Ludwig von Mises wrote the best refutation of socialism in 1922 in his essay, “The Impossibility of Economic Calculation under Socialism.” Basically, he said only markets can set prices through competition in trying to please consumers. When government takes over a market, it can’t figure out what price to charge because central planning has no way of knowing what consumers want. The planners never can figure out if more washing machines or trucks are needed.

Moreover, under markets, when the entrepreneurs make a mistake, they lose their money. Under socialism, a mistake is a massive cost to the whole society. And mistakes under socialism, obviously, are common.

In his great 1948 economic treatise, “Human Action,” Mises wrote there are two “patterns” of socialism; please excuse those long German words:

“The first pattern (we may call it the Lenin or the Russian pattern) is purely bureaucratic. All plants, shops, and farms are formally nationalized (verstaatlicht); they are departments of the government operated by civil servants. Every unit of the apparatus of production stands in the same relation to the superior central organization as does a local post office to the office of the postmaster general.

“The second pattern (we may call it the Hindenburg or German pattern) nominally and seemingly preserves private ownership of the means of production and keeps the appearance of ordinary markets, prices, wages, and interest rates. There are, however, no longer entrepreneurs, but only shop managers (Betriebsführer [factory leader] in the terminology of the Nazi legislation). These shop managers are seemingly instrumental in the conduct of the enterprises entrusted to them; they buy and sell, hire and discharge workers and remunerate their services, contract debts and pay interest and amortization. But in all their activities they are bound to obey unconditionally the orders issued by the government’s supreme office of production management. This office (The Reichswirtschaftsministerium [Reich Economic Administration] in Nazi Germany) tells the shop managers what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell.”

(Mises, who was Jewish, was a longtime economic adviser to the government of Austria until he fled to Switzerland in 1934 after Hitler’s takeover, helping Austria avoid Weimar Germany’s post-World War I hyperinflation. Mises in 1940 found refuge in the United States.)

Newsom’s new SB 2 price monitoring and potential tax obviously are of the second pattern of socialism. The oil companies technically still will own their refineries and distribution networks, but really only will be “shop managers ... bound to obey unconditionally the orders issued by the government’s supreme office of production management,” to quote Mises. In California’s case that’s the “new division and advisory committee at the CEC,” to quote SB 2. The new division, to return to Mises’s words, will tell the oil companies “what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell.”

Socialism Never Works

As always happens under socialism, shortages will become more severe and prices will soar even higher. To quote Mises one last time, this is from 1944’s “Omnipotent Government: The Rise of the Total State and Total War”:

“Only to bureaucrats can the idea occur that establishing new offices, promulgating new decrees, and increasing the number of government employees alone can be described as positive and beneficial measures.”

(Note: the links above to the books are to free online versions. “Human Action” is a long treatise on economics. But “Omnipotent Government” is 289 pages and written for regular intelligent readers, with short chapters such as “Socialism in Russia and Germany,” meaning the Soviet Union and Nazi Germany. It was written as World War II was ending and Mises was trying to restore freedom in the post-war world. This book was similar to “The Road to Serfdom” of the same year, which had the same intent. It was written by Mises’ student Friedrich von Hayek, winner of the 1974 Nobel economics prize. The Mises Institute has many of Mises’ books for free, and great articles about him and what’s called the Austrian School of Economics. The prize to Hayek heralded a new appreciation of free-market economics at the time, leading to the elections of Margaret Thatcher in the United Kingdom in 1979 and Ronald Reagan in the United States in 1980. A new revival of free-market theories is long overdue.)

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.