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Tom West: Now is no time to surrender to OPEC

Like you, I've noticed a bigger dent in my wallet lately each time I fill my car up with gas. Also like you, I haven't done anything about it -- yet.

Like you, I've noticed a bigger dent in my wallet lately each time I fill my car up with gas. Also like you, I haven't done anything about it -- yet.
It's still essentially a shock. For the past 19 years, ever since Ronald Reagan deregulated the price of oil, a cost of a gallon of gas has fluctuated between $1 and $1.35. This range stayed in place even though politicians across the nation tacked on gas tax hike after gas tax hike.
Some readers may be too young to remember that in 1980 independent presidential candidate John Anderson drew a lot of attention when he proposed a 50-cent- per-gallon tax on gasoline. Anderson was never elected, but his proposal almost became law piecemeal. Today, Minnesotans pay 42.7 cents per gallon in state and federal taxes. When our politicians start looking for someone to blame for the high cost of oil, they might want to try looking in a mirror. Meanwhile, in an unregulated market, the producers' share of gasoline revenue actually dropped.
OPEC's collusion is indefensible, but it is hardly surprising that, as the pain increased, eventually OPEC got its act together for a while and pushed the price out of the traditional range. Predictably, two things will happen as a result of that action. First, more oil wells will come on line as marginal wells again become profitable. Second, the longer the hike stays in place, the more likely people will be to rethink their driving and car-buying habits. The changes won't be drastic. Don't expect anybody to be trading in their Expedition for a Geo, but maybe instead of the largest SUV, an average-size SUV capable of getting 17 to 20 mpg will be the next purchase.
Those are the kinds of things that one expects to happen when consumers get direct price signals from their suppliers. At least this time around, our politicians -- who are great at offering sympathy to the troubled masses -- aren't blaming the "greedy oil companies" for the price run-up. Americans spent six years alternating being sitting in gas lines and paying ever-escalating prices because of all the demagoguing on who was profiting the most from high gas prices.
Then Reagan was elected president, and one of his first acts was to deregulate gasoline prices. Liberals put up a hue and cry rarely heard in this country. To hear them tell it, we were going to have "rationing by price" and the price of a gallon would be $2 by the end of 1981. It didn't happen. OPEC and the "greedy oil companies," who actually prospered under the government tangle of regulations, suddenly found themselves facing renewed dog-eat-dog competition.
The politicians are already trying to figure out what they can do to "send a message" to OPEC without doing anything that will mess up the system created by Reagan 19 years ago.
People who rely on home heating oil are hurting, and we all should have great sympathy for them as they make the necessary adjustments in their budgets and spending habits. Switching to natural gas or adding a solar heater to the house is not inexpensive and will take several years to pay for itself.
What would be wrong, however, would be to step in and artificially hold down the price or subsidize the higher prices through government edict or selling off the Strategic Petroleum Reserve (a temporary fix at best). Then OPEC wins.
Letting the market play itself out means that we still have a chance in a few months for supply and demand to come back into line, and for the price to drop back down to the normal range of the past two decades. OPEC's recently announced production increase may be a step in this direction.
It's an economic war out there internationally. Always has been. And the United States has been winning it overwhelmingly over the past 20 years. It doesn't make sense to surrender now.
In fact, it might make sense to apply some of those same principles to some other sectors of our economy -- like health care. Be that as it may, I'll pay the extra tenspot for each tank of gas for now, and figure out other ways to economize on my budget.
Tom West is the executive editor of the Budgeteer News.

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