Huge energy price increases account for almost all of terrible new inflation numbers that came out yesterday, and federal lawmakers deserve much of the blame.
The Labor Department said wholesale prices rose 6.3 percent in 2007, the largest jump in 26 years. Core inflation — excluding food and energy — rose just 2 percent, but a whopping 18.4 percent jump in energy prices pushed the overall rate sky-high.
It is true that a large part of the problem today stems from increasing international demand combined with a weak dollar. But the big congressional energy bill of 2005 unnecessarily made the problem far worse. In April 2005, when gasoline prices were at what now seems like a bargain at the national average of $2.20 per gallon, analyst Ben Lieberman of the Heritage Foundation warned that the energy bill then moving through Congress would be a disaster. Boy, he got that right.
There were three big errors in that bill, the full consequences of which we are only now beginning to see. First and most significant was mandating a nationwide doubling of ethanol use. Subsidized by taxpayers at the rate of 51 cents per gallon, ethanol makes it more expensive to fill your vehicle’s gas tank, but it does little for the environment in return. Not only that, but ethanol produces much less net energy per gallon than does gasoline, so drivers have to use more to go the same distance. It’s a formula guaranteed to produce scarcity and higher prices. And by the way, increased ethanol demand also drives up the costs of corn on the cob and all other foods or products made with corn.
The second big mistake of the 2005 bill was to force near-immediate changes in the use of “clean-fuel” additives, especially MTBE, which pollutes ground water. Something clearly needed to be done about MTBE — in California and several other states the additive has been phased out — but the hasty directive meant refineries and supply lines where MTBE is still in use had to be quickly reworked. That caused supply disruptions that took months to overcome and that were further complicated by the havoc wreaked on the energy industry by Hurricane Katrina.
Finally, the 2005 bill did almost nothing to promote more domestic production of oil, gas and coal or to encourage the huge investments required to expand refining capacity. Price hikes and supply disruptions in the last three years often have resulted from a lack of adequate refining capacity.
So, having made our energy problems worse in 2005, what did Congress and President Bush do just last month? They approved yet another new and costly energy bill that doesn’t adequately address the nation’s need for fuel.
If you think energy is expensive now, just wait till we see the consequences of the politicians’ latest bright idea.