First, E85 is tax-subsidized, so it doesn't reflect the true market price of the fuel. Second, you've neglected the portion of the price of gasoline that is federal, state, and local taxes. When you take those out, you'll see that the actual price of a pre-tax gallon of gas is a good bit lower than you might expect. (I went through this analysis about a year ago in someone else's LJ, but I forget whose.)
The spot market price of ethanol per gallon has
been over $3 a gallon. In fact, this Reuters story
indicates that ethanol peaked around $5.75 per gallon
back in June when gas prices were much higher. Now it's down to $2.15 per gallon, because more supplies are available.
As far as pump prices tracking the current
price for gasoline as opposed to the price when they bought it, that's a well-known phenomenon and I could go into an explanation of why it works that way, but it's not really surprising. I agree that prices are stickier coming down than they are going up, but that's a decision made by the individual gasoline station operators, many of whom are independents.
Congressional hearings have
been held on the subject of whether or not gasoline prices have been manipulated. Not surprisingly, the answer is that they haven't been. Now, you may say that's because Congress is controlled by the evil Republicans, but have you seen any minority reports by the Democrats in Congress with evidence that contradicts the official report? I haven't, because there just isn't any such evidence.
I understand that it makes you feel more comfortable to believe that the gas prices are inflated only because of the evil Bush Administration and the evil Republican in Congress, because that would mean that if you can just manage to vote those evil people out, then you'll have cheap gasoline and the birds will happily sing.
But that's not the way that the market works. And if the Democrats decide to mess with the market, I have every faith that they'll find a way to make it worse. (But I suspect that they'll decide not to mess with the market. Much.)