Many people have misconceptions about how gasoline is priced. Therefore, they blame the wrong people for the high prices. The price of gasoline is based mainly on how much it costs to produce and transport oil and gasoline.
MYTH: GOVERNMENT CAN CONTROL GAS PRICES
Most people think government has the power to do anything it wants. But government does not have the power to control gasoline prices, without causing economic woes much worse than high prices. The gasoline lines of the 1970s were caused by government price controls, because the market price of gasoline rose higher than the regulated price of gas. When this happened, no companies made any gasoline, because they would have lost money by doing so. When the price controls were repealed, the shortages and gas lines disappeared.
This happens because government has no power to control a market. Markets are made up of millions of individual buying decisions made by millions of people. So government can't control prices or wages. But government can cause undesired effects in a market by trying to regulate it. It can raise gasoline prices through import duties, environmental regulations, and various kinds of taxes.
If a government has total control over exports, it can control gasoline prices in OTHER countries by controlling how much oil it allows to be exported. But it hurts its own economy when it does so. The existence of OPEC is a wrong against the world, committed by greedy governments.
MYTH: OIL COMPANIES CAN CONTROL OIL PRICES
Most people believe that an oil company executive can issue an order, and change all of the oil prices in the world. But, unless there is only one oil company in the world, competition prevents this. When the one oil company raises prices, the others will immediately make more money by NOT raising prices. No single oil company is large enough to control the market for oil. But OPEC is large enough to control oil prices.
MYTH: OIL COMPANIES BENEFIT FROM HIGH PRICES
Because government passed laws limiting tax deductions for losses incurred by large companies, most of the money being spent to rebuild the equipment destroyed by hurricanes Katrina and Rita must be counted as "profit" instead of loss-recovery. They MUST spend this money to bring down prices in the future.
MYTH: GAS STATION OWNERS PROFIT FROM HIGH GAS PRICES
Owners rarely have control over prices. They have to take the market prices in the area. If they raise prices, they get no business. If they lower prices, they lose money and run out of gas. Also, they often are not allowed by their franchise contracts to set their own prices.
Most station owners make their money on car repairs or convenience sales, rather than gasoline. The differences in gas prices from one community to another are usually due to the actions of local government. Gas prices are higher where local governments have higher real estate taxes, higher business taxes, more environmental regulations, or higher regulation and disposal fees.
MYTH: OIL COMPANIES SHUT DOWN REFINERIES TO INCREASE PROFIT
That is so stupid. Profit is the price multiplied by the quantity sold. If they shut down refineries, they reduce the quantity sold. So this myth doesn't make any sense.
At present, about a fifth of the refining capacity in the US is shut down. Many of the refineries that are off line are still damaged from hurricanes Katrina and Rita. Others have been shut down by the EPA, or by government inspections. And many are shut down by government-mandated upgrades.
MYTH: GOVERNMENT CAN TAX OIL PROFITS TO LOWER OIL PRICES
This one is even stupider. Without a profit, there is no reason to have a business. If government taxes the profits of ALL oil companies, the tax becomes a fixed cost of producing oil, and ALL of the oil companies can then RAISE their prices to make up the loss in profit.
MYTH: GOVERNMENT CAN RELEASE STORED RESERVES TO LOWER OIL PRICES
Calculations show that, because the WORLD market is raising oil prices, the price of gasoline would be reduced by only 8 to 10 cents a gallon.
MYTH: ENDING THE IRAQ AND AFGHANISTAN WARS WILL LOWER OIL PRICES
Dream on. The wars have very little effect on oil prices. The military demand for oil is not that large, and the enemy combatants do not have enough control over oil production to change the prices. So this is a red herring added by the anti-war crowd.
MYTH: BUSH AND CHENEY ARE MAKING MONEY OFF THE HIGH OIL PRICES
A president or vice president can't make ANY money off the oil business. They are required to DIVEST all such ties and investments before assuming office. George Bush and Dick Cheney have obeyed this law. So this is nothing but a LIE, perpetrated by people who hate George Bush. There should be laws against propagating such lies.
MYTH: THE ONLY THING GOVERNMENT CAN DO ABOUT IT IS FUND ALTERNATE ENERGY
There are several things wrong with that argument:
Government funding will not cause alternative energy to come into being. A market for alternative energy, caused by high energy prices, will cause the production of alternative energy to begin without government intervention.