A fascinating line of markets and competition that I've only learned of relatively recently, and is of interest in light of YC's first category in its request for startups,[1] is the role of the Texas Railroad Commission in US oil markets.
I first ran across a reference to this in a paper from the Federal Reserve Bank of Philadelphia, written by Keith Sill, chief economist, "Macroeconomics of Oil Shocks":
"From 1948 to 1972, the price of oil produced [that is: extracted] in the U.S. was influenced by the production quotas set by the Texas Railroad Commission (TRC). Each month, the TRC (and other state regulatory agencies like it) made forecasts of petroleum demand for the upcoming month and set production quotas to meet the forecasted demand."[2]
A more complete history occupies most of Chapter 13, "The Flood", of Daniel Yergin's The Prize: The epic quest for oil, money, and power.[3]
The short version: in the 1920s, an early abundance of oil which was proving hugely useful for automobiles and machinery looked to be iffy, until vast deposits were found in Texas and Oaklahoma in 1930. But that created a new problem: with no restrictions on drilling, oil prices collapsed to as little as $0.13/bbl. Government production controls were prohibited by Texas state law (lobbied for by independent oil producers), though they were permitted in Oklahoma. A target of $1/bbl. was set but there was no way to enforce it. Before this was resolved, Oklahoma's governor had mobilized the militia to take control of its oil fields in August, 1931, Texas mobilized the National Guard and Texas Rangers shortly after, an oil shutdown was enforced stabilizing prices. With the Depression settling in across the U.S. (and in the wake of the Teapot Dome scandal, itself over oil), Franklin Roosevelt appointed Harold Ickes as Secretary of the Interior, and established a number of measures including "certificates of clearance" for all oil shipments within the US -- oil without certificates wasn't salable.
That regime remained in place until March of 1972, when peak oil extraction in the US meant that limits were no longer necessary -- slack demand was now being met through imports, not domestic production. Which left the U.S. vulnerable to a foreign oil embargo, experienced in October of 1973.
There's a pretty strong argument to be made that stable oil prices, as the base of the U.S. economy, had a great deal to do with uniform economic growth in the post-WWII period, from 1945-1972. It's after that date that many of the "modern" crises of economics have been felt: stagflation, offshoring, wage stagnation, etc.
There have been better and worse times, but those have tended to be driven by total global oil abundance (or shortages), with cheap oil beginning in the mid-1980s through the late 1990s, with few exceptions (1990 and the first Gulf War War notably).
But yes, a noncompetitive controlled market can be a good thing.
Nixon imposed price controls on oil in Aug 1971, which enabled the oil embargo, gas crises, etc. This all stopped when Reagan, as his first Executive Order, repealed the price controls. We haven't had a gas crisis since.
> Nixon imposed price controls on oil in Aug 1971, which enabled the oil embargo
The Arab Oil embargo wasn't "enabled" by US price controls, it was enabled by the fact that the Arabs states involved supplied a substantial fraction of the world's oil supply.
And, while it was certainly a response to action by the US government, it wasn't to US oil price controls, it was to US support for Israel.
> This all stopped when Reagan, as his first Executive Order, repealed the price controls.
No, its stopped because by the time Reagan became President, Arab state priorities had shifted (with many favoring increased deliveries for domestic economic reasons), overall production distribution had shifted greatly increasing the share of non-OPEC production, and US consumption had dropped, which led Jimmy Carter to issue an executive order ending price controls (which Reagan accelerated.)
I lived through that time. There was a pretty sharp line before and after that EO - I never was in a gas line again, and was in the months leading up to it.
Carter had 4 years to eliminate the price and allocation controls, and left it to Reagan to repeal the price and allocation controls 8 days after being inaugurated.
As to it enabling it, the price controls prevented domestic prices from being bid up so that domestic supply could be increased to blunt the embargo. Non-Arab oil imports could raise their prices, but because of the price controlled cheap domestic oil, which they'd be competing with, they sold instead to Europe, etc., from where they'd get higher prices. In essence, price controls enabled the embargo because it prevented the market from responding to and circumventing it.
Reisman goes into some detail on this in the reference I cited.
The Arabs had been providing a substantial fraction of global oil since at least 1950, when the US began imports. However it wasn't until 1972 that the the US had no slack supply capability.
There had been previous attempts at oil embargoes, particularly in 1967[1] and 1956[2] during the Six Day War and Suez Crisis, respectively. Neither was effective. At both times, loss of supply could be made up for elsewhere. Peak oil in the U.S. lead to vulnerability.
It's interesting that wage controls, price controls, using martial law to seize assets, and paying large handouts to oil-owning capitalists can be spun as a "good thing" if you can produce a handwavey, mostly unsupported association between these policies and the good ol' days of America.
Waves of economic thinking tend to coincide with one crisis and go out of fashion with the next crisis. Most economic policies that were once popular can thusly be blamed for "uniform economic growth" in a chosen period.
The point in question for oil is the one control you haven't mentioned: supply control.
That was the whole point of the TRC quotas: to match wellhead output to demand. If you'll follow my reddit link above I show the growth trend in GDP and oil prices -- what was achieved was a very high level of price stability. Not through direct price controls, but by matching levels.
Post-1973, prices wander all over the map, see BP's Annual Statistical Review:
What truly amazes me is that the US actually stopped doing it.
> That regime remained in place until March of 1972, when peak oil extraction in the US meant that limits were no longer necessary --
I come from Europe, where tons and tons of regulation is no longer necessary, but has somehow transformed into yet another tax. Oil price controls were introduced in Europe as well, but they somehow transformed from a bottom under prices, into a 40%+ tax on gasoline.
It's diverted monies which would have gone to oil companies (and states), allowed for infrastructure investments, and hugely increased energy efficiency, particularly in transportation.
I first ran across a reference to this in a paper from the Federal Reserve Bank of Philadelphia, written by Keith Sill, chief economist, "Macroeconomics of Oil Shocks":
"From 1948 to 1972, the price of oil produced [that is: extracted] in the U.S. was influenced by the production quotas set by the Texas Railroad Commission (TRC). Each month, the TRC (and other state regulatory agencies like it) made forecasts of petroleum demand for the upcoming month and set production quotas to meet the forecasted demand."[2]
A more complete history occupies most of Chapter 13, "The Flood", of Daniel Yergin's The Prize: The epic quest for oil, money, and power.[3]
The short version: in the 1920s, an early abundance of oil which was proving hugely useful for automobiles and machinery looked to be iffy, until vast deposits were found in Texas and Oaklahoma in 1930. But that created a new problem: with no restrictions on drilling, oil prices collapsed to as little as $0.13/bbl. Government production controls were prohibited by Texas state law (lobbied for by independent oil producers), though they were permitted in Oklahoma. A target of $1/bbl. was set but there was no way to enforce it. Before this was resolved, Oklahoma's governor had mobilized the militia to take control of its oil fields in August, 1931, Texas mobilized the National Guard and Texas Rangers shortly after, an oil shutdown was enforced stabilizing prices. With the Depression settling in across the U.S. (and in the wake of the Teapot Dome scandal, itself over oil), Franklin Roosevelt appointed Harold Ickes as Secretary of the Interior, and established a number of measures including "certificates of clearance" for all oil shipments within the US -- oil without certificates wasn't salable.
That regime remained in place until March of 1972, when peak oil extraction in the US meant that limits were no longer necessary -- slack demand was now being met through imports, not domestic production. Which left the U.S. vulnerable to a foreign oil embargo, experienced in October of 1973.
There's a pretty strong argument to be made that stable oil prices, as the base of the U.S. economy, had a great deal to do with uniform economic growth in the post-WWII period, from 1945-1972. It's after that date that many of the "modern" crises of economics have been felt: stagflation, offshoring, wage stagnation, etc.
There have been better and worse times, but those have tended to be driven by total global oil abundance (or shortages), with cheap oil beginning in the mid-1980s through the late 1990s, with few exceptions (1990 and the first Gulf War War notably).
But yes, a noncompetitive controlled market can be a good thing.
More: http://www.reddit.com/r/dredmorbius/comments/2akwjj/oil_and_...
________________________________
Notes:
1. http://www.ycombinator.com/rfs/
2. http://www.phil.frb.org/research-and-data/publications/busin...
3. http://www.powells.com/biblio/7-9781439110126-9