Mr. President, today I am introducing legislation to give the President the temporary authority to freeze the price of gasoline and other petroleum products at their levels just prior to the…
Mr. President, today I am introducing legislation to give the President the temporary authority to freeze the price of gasoline and other petroleum products at their levels just prior to the devastation wrought by Hurricane Katrina on the Gulf Coast of the United States. This authority would expire once supplies of these products have been restored to their pre-hurricane levels.
Our topmost priority, of course, must be to provide immediate aid directly to the victims of this immense tragedy. Hundreds of thousands of people have been driven from their homes. Thousands may have died. The destruction along the Gulf Coast is extensive, and much of New Orleans is still submerged. We must continue to place the highest priority on providing food, clothing, and shelter for the people displaced by the hurricane.
At the same time, we must start to take measures to address other consequences of the damage caused by Katrina. Katrina has damaged a number of oil refineries along the Gulf Coast, knocking out about ten percent of our daily gasoline production. Current estimates are that it will take several months before production is restored to pre-hurricane levels.
Gasoline prices have skyrocketed in the wake of Katrina. Last Friday, the average price for a gallon of regular gasoline in Michigan reached $3.13. Today the national average is about $3.05 per gallon. These prices are record highs in the United States. Even adjusted for inflation, these prices are higher than they were during the energy crises of the 1970s, when high energy prices helped push the economy into a recession.
For most people, driving the car each day is not a luxury but a necessity. Millions of Americans depend upon affordable gasoline and other petroleum products for essential goods and services, including transportation to and from work, schools, grocery stores, and medical care; home heating oil; jet fuel for the other airlines; and a host of other daily needs.
Most people cannot drive less to get to work, school, or to buy groceries, so they are forced to pay whatever the oil companies charge for gasoline. In the language of economics, demand for gasoline is largely inelastic. Higher prices will not lead to a reduction in demand, or an increase in speed of repairs, since pre-Katrina production and profits were already at record levels and were more than sufficient to provide a major incentive to speed up repairs.
Moreover, the massive and unjustified gasoline price increases of the last week will not bring on more supply--only more profits for oil companies, as well as severe hardships for millions of Americans. Higher prices will not bring on additional supply, in the short term, only more profits for the oil companies and more pain for consumers.
I do not favor price controls when the market is working properly. In a properly functioning market, prices are set by the law of supply and demand.
However, in the current situation, we do not have a properly functioning market. Part of the market infrastructure has been physically destroyed by Hurricane Katrina. Price cannot play its normal role under the laws of supply and demand because increasing prices cannot produce either an increase in supply short-term or a significant reduction in demand. In a largely inelastic market, like our gasoline markets, where people depend upon gasoline for life's necessities, and cannot significantly reduce their consumption, increasing prices in the aftermath of a disaster serve no function other than to enrich the sellers at the expense of the buyers.
At a time of national crisis and tragedy, it is unseemly for a few to gain huge profits at the expense of everyone else. In the wake of the hurricane, millions of Americans are opening their hearts and homes to aid to the victims of the hurricane. It is unfair for a few to gain huge profits while many others are sacrificing.
A frequent comment in recent discussions about the effectiveness of price controls is ``Price controls didn't work in the 1970s.'' However, price controls in the 1970s were imposed for long periods of time, several years in fact. In the current situation, we are talking about a much shorter period of freeze--indeed I am urging a temporary freeze until supplies are restored to pre-hurricane levels. Until then, the market cannot function properly: supply cannot be increased no matter how high the price. Hence, the experience of the 1970s is not relevant to the current situation.
Under the bill I am introducing, once the market is restored to its pre-hurricane condition, the authority in this bill to freeze prices would expire.
There is a recent precedent for this action. In 2001, the Federal Energy Regulatory Commission imposed price caps on the wholesale price of electricity in California and other western markets in times when demand outstripped supply. FERC found the market was ``dysfunctional'' under these circumstances and price controls were necessary to provide ``just and reasonable'' rates for consumers.
President Bush supported FERC's price controls in the California electricity market. In so doing, the President referred to FERC's action as a ``market-based mitigation plan'' rather than price controls. Whatever the name, however, the effect was the same: when supply was inadequate to meet demand, the FERC stepped in to cap prices to keep rates just and reasonable.
The legislation I am introducing would provide the President with the authority to temporarily freeze the price of gasoline and other refined products at or below the levels that prevailed before Hurricane Katrina hit the Gulf Coast of the United States. This authority would terminate when the President determines that the domestic supply of refined petroleum products meets or exceeds the level of domestic supply before Hurricane Katrina.
I ask unanimous consent that the text of this bill be printed in the Record. I urge my colleagues to support this legislation.