The High Cost of Central Planning

History is rife with the failure of central planning. Yet the political elites and the central banking elites refuse to believe that free  work better than what they can design. Central planning, by its nature, involves picking winners and losers. And, it’s no surprise to the readers of Asylum Watch that the losers are rarely if ever the rich. No, it’s the average Joe that has to pay the high cost of central  planning. There is no end to the examples we could review today; but let’s look at one area that hits the pocketbook of each and every one of us: gasoline prices. (Well, each and every one of you. Gasoline is essentially free where I live.)

In March of this year, Bloomberg Busibessweek ask the question “Why Abt Oil Hasn’t Cut Gasoline Prices.  The article points out that although oil production is the US is at record levels and demand is down, government policies and regulations are having a negative effect on normal supply and demand relationships.

Remember the Keystone Pipeline project? It still hasn’t been approved, has it? That failure is affecting the price you pay at the pump.

Most of the surge in oil production has happened in places such as North Dakota, Wyoming, Colorado, and Oklahoma, far from refining hubs and big population centers. With competition fierce for limited pipeline capacity, producers have begun moving crude on barges and trains, adding as much as $17 a barrel to the price of domestic oil. That extra cost eventually makes its way to the price at the pump.

The article makes a big deal out of the fact that US refiners export around 3 million barrels per day of gasoline. There is an impressive graph of where all that gasoline is going. The tagline to the graph says: American refiners find it more profitable to sell gasoline, diesel, and other products abroad. Unfortunately, the authors fail to note the obvious, which is that US refiners produce much more than the US market demands. They do, however, note one bit of central planning that dates back to 1920 that adds to the price you pay for gasoline.

Complicating the equation is a 1920 law called the Jones Act, which requires any cargo shipped between U.S. ports to be carried by vessels that are based in the U.S., made in the U.S., and crewed mostly by U.S. citizens. The law was intended to protect U.S. shipping interests but has made it more costly to move fuel between U.S. ports. This in particular hurts the Northeast, which is struggling to meet its fuel needs after several refineries closed in the last two years. According to Ed Morse, chief commodity analyst at Citigroup (C), those constraints add between $6 and $8 a barrel to transport costs. As a result, it’s often cheaper for a Gulf Coast refiner to send gasoline to Brazil than to New York.

Central planning has been around a long time in America, hasn’t it?

Then, of course, our central planners blessed you with ethanol. Try as they may, the central planners can not predict markets any better than monkeys.

This year, the law requires U.S. refiners to blend 13.8 billion gallons of ethanol into the fuel they sell to domestic customers. In their calculations when crafting the bill in 2007, lawmakers assumed gasoline demand would continue to rise and that refiners would need all that ethanol to make up 10 percent of the fuel sold to motorists. The problem is that U.S. drivers are consuming less, not more, gasoline because they’re driving fewer miles in increasingly fuel-efficient vehicles. As a result, refiners don’t need all the ethanol the government forces them to buy. To make up the roughly 400 million gallon difference between the ethanol the industry needs and the amount the government mandates, refiners must buy credits called Renewable Identification Numbers, or RINs. (emphasis added)

Isn’t that nice? Your paying for ethanol you don’t even use.

If you want to learn more on how your government’s ethanol mandates are hurting the economy, please read this article. And, if you’re wondering why beef prices are so high, take a gander at this article.

Yes, those central planners are so smart, they are going to plan you right into the poor house.

Well, that’s what I’m thinking. What are your thoughts?

18 thoughts on “The High Cost of Central Planning

  1. The RINS no doubt an effort to attack the refineries. Holly frontier stock took a nose dive last quarter and was mentioned as having a large financial impact.. A number of our smaller refineries are being sold to foreign countries and or closed or soon to be with all of the upgrades required by the EPA. Can’t ban guns? Go after the ammo. Same for the refineries.

    1. I managed to find this:
      HollyFrontier Corp (HFC

      ) Chief Executive Officer Michael Jennings said the refiner will spend $125 million to $150 million on buying RINs, this year after prices for the ethanol credits spiked.

      HollyFrontier (HFC

      ) needs to buy 50 percent of its total ethanol credit requirement this year on the market, he said.

      “At current prices, the cost of compliance is in the range of $125-150 million for the current year,” Jennings said. (Reporting by Sabina Zawadzki; Editing by Gerald E. McCormick)

  2. Central planning:The economic heresy that keeps on giving.

    Speaking of heresies, as long as the Green Religion is still the official religion of America gas will continue to go up so that the wind farms can be subsidized.

  3. I’ve said it before and I’ll say it again… Keystone XL will never be approved under this President.

    The President thinks he is saving the world. Saving the world is more important than the economy.

    Obama will make a speech today at a high school near where I am at right now. It will only be another photo opportunity for the President to repeat his State of the Union gibberish.

    You won’t hear a word about the “Texas Model” which is responsible for this state’s remarkable economic growth.

    1. ” Keystone XL will never be approved under this President.”

      Well, he and we better hope that the peoples of the Middle East learn to live in peace before the oil flow is interrupted..

  4. Warren Buffett, the quintessential crony capitalist, is loved by the MSM, including Bloomberg TV. He won’t want the pipeline to go through since his railroad moves the oil when the pipeline doesn’t.

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