Wednesday, March 21, 2012

Bill's Boogeyman Part II

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Complaining about high oil prices last week, Bill O'Reilly argued:
There is plenty of oil in the USA. Prices should not be at record levels. But they are because the oil companies are sending their products overseas to make more money...
His solution? America should tax American oil refiners when they sell overseas:
If you are going to refine in the United States, you sell to the United States. And if you don't, you pay a higher tax to export, all right?

That's intuitive: Keep gasoline in America to keep prices low.
But it's also wrong. if we implement O'Reilly's export tax - I'll call it the "Smoot-O'Reilly tariff", after the wealth-killing Smoot-Hawley Tariff which helped create the Great Depression. It would harm America in many ways: Other countries would retaliate by with their own tariffs; that would raise prices for Americans, and kill trade, which would kill opportunities, and jobs. American refineries wouldn't profit from their comparative advantage by refining extra gasoline to sell overseas. That would make us all poorer.
Also, America exports gasoline because American companies are good at refining crude oil into gasoline and other finished oil products. They're good enough that they make money by shipping crude oil from around the world to America, refining it, and then sending it back out.
They're not shafting American consumers. Based on EIA data, American refiners import a huge amount of crude oil, and from that they make enough gasoline to fully meet American demand AND also sell 600,000 barrels per day overseas. That's a good thing. The money they make trading oil allows them to expand and hire more American workers.
Bill might say: but the price of American gasoline would go down if we forced oil companies to sell those 600,000 barrels here in America. He might be right, but doing so would lower prices only for a few months. Then refineries would close down, and prices would go back up.
How do we know that will happen? Because Exxon, the world's largest refiner, makes 1/3 of a cent in profit on each gallon. If prices are forced lower by the government, they will close refineries. Then supplies will decrease, and prices will go back up

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