Skip to comments.We are gouging oil companies – and ourselves
Posted on 07/23/2007 6:17:52 AM PDT by Daffynition
The U.S. House of Representatives recently passed legislation instituting penalties of up to $150 million for companies and up to $2 million and 10 years' imprisonment for individuals found guilty of gasoline "price gouging."
But the real gouger driving up gasoline prices is not the private sector it is our government.
To "gouge" means to extort, to take by force something that oil companies and gas stations have no power to do. Unlike a government, which can forcibly take away its citizens' money and dictate their behavior, an oil company can only make us an offer to buy its products, which we are free to reject.
Because sellers must gain the voluntary consent of buyers, and because the market allows freedom of competition, oil and gasoline prices are set, not by the whim of companies, but by economic factors such as supply and demand.
If oil companies could set prices at will, surely they would have charged higher prices in the 1990s, when gasoline was under one dollar a gallon.
Because oil companies and gas stations cannot set their prices arbitrarily, they must make their profits by earning them by efficiently producing something that we value and are eager to buy. In so doing, they assume great risks and expend enormous effort.
Over the decades, oil companies have created a huge infrastructure to produce and distribute gasoline by investing hundreds of billions of dollars in prospecting, drilling, transporting, stocking and refining oil.
In the absence of political factors like the 1973 OPEC oil embargo or the Gulf wars, the net effect of oil companies' pursuit of profit has been to drive the price of oil and gasoline, not up, but down.
The price of a gallon of gasoline (in 2006 dollars) fell from $3 in the early 1920s to $2.50 in the 1940s to $2 in the 1960s to under $1.50 in the 1990s.
This downward trend is all the more impressive because it required the discovery and exploration of previously inaccessible sources of oil and because it persisted despite massive taxation and increased government regulation of the oil industry.
When we see the price of gasoline today, we should not accuse oil companies of gouging but rather thank them that prices are not much higher.
The true culprit that we should condemn for driving up prices is the government, which has engaged with popular support in the gouging of both the producers and consumers of gasoline.
Federal and state governments have long viewed gasoline taxes as a cash cow. In 2003, for instance, when the average retail price for a gallon of gasoline was $1.56, federal and state taxes averaged about 40 cents a gallon which amounts to a far higher tax rate, 34 percent, than we pay for almost any other product.
(Contrary to popular belief, gasoline taxes do not just pay for the roads we drive on; less than 60 percent of the gas tax-funded "Highway Trust Fund" goes toward highways.)
Along with high taxes, environmental regulations justified in the name of protecting nature from human activity have dramatically increased the production costs, and thus the price, of oil and gasoline.
The government, for example, has closed huge areas to oil drilling, including the uninhabited wilderness of ANWR and the out-of-sight waters over the Atlantic and Pacific continental shelves. This, of, course significantly reduces the domestic supply of oil.
The government also has passed onerous environmental regulations that make it uneconomical for many old refineries to keep producing (50 out of 194 refineries were shut down from 1990 to 2004) and discourage new refineries from being built (no major refinery has been built in the last 30 years).
Regulations such as these push the surviving refineries to operate at almost full capacity, creating a situation where any significant reduction in the production of some refineries (e.g., from a hurricane) cannot be compensated by increased production in others.
Exorbitant spikes in prices, which many attribute to oil companies' "gouging," are actually caused by government constraints.
If we want to stop the irrational forces that have been driving up the price of gasoline and our cost of living, we must demand that our elected officials eliminate the regulations and excessive taxes that restrict the producers of oil and gas.
It's past time to stop gouging oil companies and ourselves.
For those idiots (liberals) who think that taking from private companies doesn’t effect consumers.
I am totally in favor of the free enterprise system, without government interference. However, this week we are once again being told that “down time” at several refineries are resulting in a shortage of supply, and our prices are jumping up again. When will this finally stop? Why can’t the oil companies schedule regular maintenance and build additional or even backup facilities to prevent this from happening on a weekly basis? The Alaska oil pipeline was shut down for a leak, then after the public outcry, they suddenly fixed it quickly. Do the oil companies think everyone else is as stupid as the politicians?
They do schedule regular maintenance, but the infrastructure is huge and you can’t predict everything.
Do you think that the oil companies can just build new facilities whenever they want to? They have to jump through all kinds of legal hoops and fight the environmental watchdogs.
And what about all the fuel the government is using to fight the war? And all the fuel these early-bird politiciams are wasting flitting around the country campaigning a year early! I won’t listen to any of them, I’m so disgusted!
Why the hell should they build more capacity, if they read in the papers that Congress is going to mandate x billion barrels of corn-based ethanol fuel, with the intention of replacing petroleum-based gasoline? If you were operated an Italian restaurant, and Congress was talking about mandated Mexican restaurant expansions and additions, would YOU increase your main eating area, at great expense to you?
The NIMBY environmentalist whackos won't let them.
I realize that they do regular maintenance, I just wish they would stop blaming all of the high prices on the refinery issue, when the politicians won’t drill in Alaska and won’t approve new refineries. I am sick and tired of the oil companies making obscene profits at the expense of working people. Enough is enough. If they continue their current pattern, the next administration could very well step back in and start regulating again. Is that what anyone wants?
Incidentally, Congress should decide whether it’s good to consume lots of oil, or to conserve. If consumption is good, then “gouging” should be punished - but if conservation is good, then companies right down to mom-and-pop gas stations that charge excessive prices should be rewarded with Medals of Honor for discouraging consumption, through high prices. Congress is schizophrenic, just like with tobacco - subsidize, and tax.
If oil companies are gouging by making an 8 to 10% margin, then jewelry retailers should drawn and quartered over their 2000 to 5000% markups.
You think they planned on having that leak?
Another reason they don’t build additional capacity is they are banking on the notion that when public outcry gets loud enough, the government will pay for the exansion, rather than the oil companies paying for it themselves.
Making an 8% margin is not obscene. You are only parroting the ignorant MSM and liberal whinings. That's crazy talk.
No, but they wasted no time in jacking up prices across the board. Funny how prices jump up instantly, but it takes weeks to come back down.
Yeah, a grand conspiracy! /s
In dollar amounts, they are huge. Record profits posted across the board by all the major companies. You are only parroting the oil company talking points.
Make up a graph or chart, making note of when a “crisis” occurs that causes a spike in oil prices. Then graph/chart the decrease later. The delta of the price decrease delays are pure profits.
Now you are being stupid, and talking just my lib/com sister. So, because they are huge companies (and have to be to survive) they should be punished? If they were smaller, their margins would HAVE to be higher, and that would mean higher prices for all of us. Would you prefer they pull a 10% margin or a 40% margin?