Oil Price Controls

All the discussion about a holiday from the federal tax on gasoline this summer has brought all kinds of comments out of the woodwork about how government interference in markets, and especially the 1970s oil price controls and windfall profit tax prevented private companies from investing. Such comments seem to start out with some sort of comment about how politicians are stupid and do not know what they are doing. What I find especially amusing about these comments is that they almost always seems to come from the same people who carry on about how large corporations capture the various regulatory authorities and use their influence in Congress to stifle competition. They seem to want it both ways. But in the case of oil the point that the oil companies capture the system and get Washington to further their interest appears to be more the case. For example, if you look at drilling and exploration by the oil companies it clearly seems to be largely a function of current and lagged oil prices -- see chart. This strongly implies that the oil companies and Congress acted in concert to prevent the price controls and windfall profits taxes in the 1970s from influencing oil exploration and production. Actually, the one important point this model makes is that the oil companies do not seem to be drilling as much now as the historic relationship suggest they should. Maybe the complaint that the oil companies executives have decided that there is not much future in the oil business and are returning their profits to shareholders in the form of high dividends so that the shareholders
can find more attractive investment alternatives has a certain validity.