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If We’re at War, Let's Limit Oil Profits by Gene C. GerardPresident Bush frequently compares the war in Iraq to World War II. While giving the commencement speech at the U.S. Air Force Academy Mr. Bush noted, “Like the Second World War, our present conflict began with a ruthless surprise attack on the United States.” While speaking at a ceremony commemorating the 60th anniversary of World War II, Mr. Bush again made comparisons between the two conflicts. He said, “As we mark this anniversary, we are again a nation at war. Once again, war came to our shores with a surprise attack that killed thousands in cold blood.”
While many Americans are dubious about these comparisons, perhaps we should take the president at his word. Maybe we are engaged in a global war. If that’s the case, then there is ample precedent for Mr. Bush to limit oil profits. Americans expect the president to do something that will lower the cost of gasoline.
The average national price for a gallon of gasoline last week was $2.91. This is an increase of 60 percent compared to one year ago. And the Energy Information Administration predicts that gasoline prices will rise by another 25 cents per gallon by the end of the summer.
Oil companies are making huge profits. Exxon Mobil enjoyed the largest profit of any corporation in American history last year. Likewise, ConocoPhillips enjoyed a huge increase in profits in 2005. Much of the record profits are attributable to the fact that these companies bought oil reserves years ago when the prices were $10 to $25 per barrel. Oil prices are now going for upwards of $70 per barrel.
The price of gasoline, and many other items, also soared in World War II. Corporate profits more than doubled between 1939 and 1943. As a result, the federal government sought to lower prices and limit corporate profits during the war. According to Martin Hart-Landsberg, an economist at Lewis and Clark College, “Holding down prices was one of the U.S. government’s important economic achievements during World War II.” This was accomplished largely by the Office of Price Administration.
In 1941, President Roosevelt created the Office of Price Administration (OPA). Congress gave credence to this new governmental agency by passing the Emergency Price Control Act in 1942. The director of the OPA was given the authority to determine the price of a product that he determined to be “generally fair and equitable.” He also had the authority to sue corporations and retailers for damages if they violated the price limits. During the last year of World War II over 71,000 retailers were forced to pay $5.1 million for violating price limits.
Recent polls have shown that rising gasoline prices are one of the most pressing issues that the public wants President Bush to address. Similarly, in 1941 and 1942 polls showed that the public wanted the government to limit corporate profits and the prices of many commodities. Consequently, the OPA simply froze most prices in March 1942. When corporations and retailers attempted to skirt the OPA, President Roosevelt issued an executive order in October 1942 creating an Economic Stabilization Director for the nation.
The director was given the authority to set national prices for most items. And President Roosevelt made him responsible for preventing increases that were unnecessary and unfair. The executive order mandated that the Economic Stabilization Director’s office “…in fixing, reducing, or increasing prices, shall determine price ceilings in such a manner that profits are prevented which in his judgment are unreasonable or exorbitant.”
Today, oil companies would almost certainly complain that these governmental limitations on profits and prices violate their rights. Businessmen made the same objections in World War II. However, the Supreme Court disagreed. In the case of Yakus v. United States, the Court found in 1944 that the price limits were constitutional. The court ruled, “There is no principle of law or provision of the Constitution which precludes Congress from making criminal the violation of an administration regulation.”
When the war ended, the OPA and the Economic Stabilization Director were abolished. Not surprisingly, corporate profits soared. In the year following the end of World War II, consumer prices rose 67.4%. Clearly, one of the significant economic achievements by the Roosevelt administration in World War II was holding down prices, mainly by governmental controls.
President Bush insists that we are engaged in a global battle similar to the Second World War. If that’s the case, he should insist on limiting soaring oil prices. He has both historical and legal precedents to support this. However, it’s hard to imagine that he will. Given his close ties to the business community, and especially the oil industry, it seems likely that he won’t do much to stop rising gasoline prices.
Sound off on how the high gas prices are affecting you
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