Don’t expect oil price controls, no matter who wins

Decades ago, during a presidential election, I designed a homemade political button that read “54 40 or Fight.” That was the slogan of those who wanted the United States to take over all of Oregon, which is now Oregon in the United States and British Columbia in Canada. Candidate James K. Polk adopted the slogan, but after his election agreed to a reasonable compromise that basically cut across the border. I like to imagine a Canadian Mountie telling some moose they had to stay north of the border.

The point is that campaign promises are like castles in the air. Candidates sometimes mean it, but often they are simply courting the favor of a voting bloc. Moreover, they can be convinced after the election that their promise was unrealistic, as in the case of Jimmy Carter, who claimed he would withdraw American troops from Korea but was dissuaded from doing so after taking power. In other cases, a president does not have the power to fulfill a promise. Donald Trump said he would save jobs in the coal industry, but the biggest threat to them was competition from natural gas, not government regulation. And of course, any promise can face legal and regulatory obstacles; Joe Biden’s efforts to forgive student loans stand out here.

However, the two and a half presidential candidates are thinking about, or at least promising, a lot when it comes to oil and gas. Let’s focus first on efforts to lower energy prices. Donald Trump has proposed reducing the regulatory burden on the oil industry and is calling for “drill, baby, drill.” Kamala Harris argues she would fight price gouging, although it is not clear whether this means price controls on oil, as some have suggested.

Had Trump been re-elected, Putin might not have invaded Ukraine and the price of WTI might not have risen by about $25, but by and large neither he nor Joe Biden have much influence on global oil prices, although presidents tend to take credit for favorable decisions, like King Canute ordering the tides to go out. (A later article will discuss other policies that could affect U.S. oil and especially gas prices.)

I’ve always said that nobody thought price controls on oil and gas were a good idea since they were discredited in the 1970s, but some liberals have revived the idea. I’m reminded of an op-ed that appeared in a business paper a few decades ago, written by two MIT economists. The headline was something like, “Carter’s Oil Price Controls, Then and Now a Bad Idea.” I suspect the headline was written by a young editor who simply assumed that only a Democrat would impose price controls, but in fact, “Nixon was the right guy,” as the bumper sticker read. He imposed economy-wide wage and price controls, but quickly dropped them—except for oil. (Natural gas prices were regulated under a 1954 court ruling.)

The vast majority of economists argue that price controls are generally a bad idea because they discourage production and encourage consumption, which creates or worsens shortages. One of my political scientists said that this was basically allocating supplies by time rather than money: you could no longer pay for oil, but instead had to wait in line. But Nixon was also for energy independence, and price controls on oil undermined that aspiration: lower domestic prices, higher consumption, and less extraction and production.

When price deregulation was proposed, some activists argued that once price controls were lifted, oil companies would be able to drive up prices as much as they wanted. However, when Reagan loosened prices, it led to more drilling and production, particularly of natural gas, which entered a long period of oversupply and low prices. It is shocking to think that this economic theory would prove to be correct.

Will President Harris impose some sort of price regulation on oil and gas? Hopefully not. I suspect it’s more of a case of “arresting the usual suspects,” as Claude Rains said in “Casablanca.” Every period of high oil prices brings high oil profits and calls from politicians to investigate the industry for anti-competitive behavior and price gouging. One wonders if each investigation simply changes the date of the report of previous committees, none of which have found significant evidence. Events in the Middle East, Venezuela, China, and Russia are primarily responsible for price spikes, and even at its most influential, the oil industry has had minimal influence in these cases, at least since BP’s nationalization of Iran’s oil holdings in 1951.

So frankly, I would expect that while President Harris might be unfriendly to the oil industry (I’m going out on a limb with that prediction), it’s unlikely that price controls will be imposed. More likely, another commission will be empowered to investigate the situation, cut down a few trees, print a thick book of testimony, but try mightily to give birth to a mouse, as Aesop would say.