Gov. Newsom’s Orwellian plan to penalize the oil companies

The 1970s were a long time ago. It might be hard to imagine, or remember, what it was like back then. So, I’ll paint you a picture: Inflation was skyrocketing, costs were soaring, Iran was in turmoil and the United States was in proxy war with Russia over the latter’s invasion of a neighboring nation.

Now that I think about it, I guess it isn’t so hard to imagine. The 2020s have a lot in common with the 1970s. So, here’s another blast from the Disco-laden past that’s apparently making a comeback: Price controls.

The state Legislature reconvened last week for the 2023-2024 session. It also convened a special session to go after oil and gas companies for what the governor calls “price gouging.” The special session only lasted about three minutes, the members voted to reconvene it in January where it will apparently run “concurrently” with the regular session (proving it to be the election stunt we knew it was), but it did give Gov. Gavin Newsom the cover to introduce his proposal to the Legislature.

The governor’s proposal would impose a “maximum gross gasoline refining margin” of a yet-to-be-determined number of cents per gallon. If a refiner exceeds the margin, the California Energy Commission can impose a civil penalty that will be deposited into the “Price Gouging Penalty Fund” that will supposedly refund the money back to consumers.

There are a lot of issues with this proposal, the first of which is that price controls simply don’t work. It’s basic economics. As David R. Henderson, a research fellow with the Hoover Institution, wrote just this year, “prices are an indicator of underlying economic phenomena, namely supply and demand.”

Without price balancing supply and demand, buyers will demand more than they did at the free-market price and sellers will supply less. But we don’t need an economist to tell us that, the 1970s proved it. Price controls led to shortages and rationing, a greater dependence on foreign oil and, ironically, higher prices.

There is also a question of whether this “civil penalty” is, in fact, a tax. When Newsom first introduced the idea in October, he referred to his proposal several times as a “windfall tax.” But somewhere between then and when he unveiled his proposal last week, his tax had become a “penalty.” The reason for this is clear: thanks to Proposition 13, any tax increase must be approved by two-thirds of the Legislature.

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