Have you noticed that gas prices are soaring again? The media and the left will follow their usual formula of blaming greedy big oil or their other typical talking points, but David Lutz, head of ETF trading at Stifel, Nicolaus says it’s yet another case of a government mandate resulting in unanticipated consequences.
"As a result of the 2005 Clean Air Act, refiners need to blend a certain amount of ethanol into gasoline every year, and every year the amount they blend in goes higher and higher," Lutz told the investment reporting firm Breakout. It’s not that expensive to comply with the mandate when consumption of gas is high, but when it goes down, the cost of compliance soars. Lutz estimates that half the current price spike can be attributed directly to compliance with the ethanol mandate.
What’s this? It’s another example of a government mandate presenting unintended consequences. When Obama took office, the average price of gas was $1.85 per gallon. It is now double that. We’ve talked before about the Obama Administration’s reluctance to approve drilling on federally owned lands, which would add to the supply in the market and drive down prices. Now it’s clear that it’s not only what we’re not doing – drilling everywhere we can – it’s also what the government is doing, mandating the ethanol content and adding costs to the production of fuel.
It’s yet another case of a government mandate coming with unintended consequences, which should sound familiar to anyone who’s following the unfolding of ObamaCare. We’re already seeing higher insurance premiums, job losses and impacts on the availability of care, not to mention much higher implementation costs than we were told to expect.
Why? Because markets react to government mandates, and players in the market make adjustments to mitigate harm to them. Every time the government imposes a mandate, it acts as though none of this will happen, then acts shocked when it does.
It’s hard to get rid of ethanol mandates because Iowa benefits from them, and no presidential candidate wants to upset people in Iowa. But every time you purchase a tank of gas, you’re paying for them.
