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.
It's your point you are trying to make, so the burden of proof is upon you. You want a chart, you go make one. Meanwhile, I will stand in support of big business over governmental control, as I am a conservative capitalist. They make money, that's what they are supposed to do, and as an investor, i'm damn glad they do.
See #21.
I’m not trying to make a point. I have done that, and it clearly shows that it takes longer for prices to drop than to rise. I am also in favor of free enterprise over government, but that doesn’t make it right.
Most refineries are huge Brobdignagian complexes that incorporate machinery that spans up to 100+ years. It’s a wonder they aren’t all off line at once a dozen times a year. The one that a former coworker of mine is at now still has areas with valves embossed with swastikas on them, they were sold by the Germans to the plant before WWII...
Making a far less than average profit margin is obscene? Besides Walmart, can you name any other businessthat runs on such miniscule margins? So, because they are big (and HAVE to be by nature) they should be penalized?
I don’t get your point. Anti-capitalism is good? Nah. Hundreds of independant businesses are in collusion (and have never been caught)? Nah. I don’t know what that point is you are trying to make. I dout it really matteres anyway, because it has to be anti-capitalist, or showing a profound lack of understanding in market economies.
My dad is a Vice President and Chief Economist for Tesoro, a refining company based in San Antonio. He’s been doing a lot of PR stuff lately trying to explain to everyone why prices are so high. Here is a link to an interview he did for E&E Daily. I think it will answer some of your questions. I just wish more people would realize what he’s saying.
http://www.eenews.net/tv/video_guide/643
You are so right but Congress has the ability and bully pulpit to make it look as though they are looking out for us when in effect they are robbing us blind with taxes. Their insatiable appetite to tax is only exceeded by American ignorance.
They don't just rob us and that's the end of it.. They use that money to further abuse us. It's like they have a key to your house. Once they've scoped out your lifestyle they make duplicate keys and pass them out to several alphabet agencies headed by their fraudster cronies.
The slave master takes citizens money so he can flog them evermore. Those tax dollars are used for things like passing environmental laws that limit or prohibit full use of private property. The government doesn't compensate the property owner by paying fair market value for their loss.
The FDA uses tax dollars to run miles of red tape so that a drug that has for years been successfully used in Europe is stalled for several years in the FDA's approval process. When approval is finally announced at a press conference the FDA proudly states that the "new" drug will save fourteen thousand American lives a year. Doesn't that mean that the FDA killed fourteen thousand people a year?
And on and on it goes...
Corporate conglomerates and Monopolies don't answer to the people, without government regulation corruption would be just as common here as it is in 3rd world countries.
The FDA APPROVES these drugs, but when the drug is found to be unsafe they blame it on the drug companies.
Typical government, never accepting responsibility for the damage it does.
I can list a dozen oil companies that compete against each other for your gas dollar. How does that meet your description of “Corporate conglomerates and Monopolies don’t answer to the people”?
I guess regulation is working, but the list continues to get smaller over time.
I wasn’t aware that it was a requirement to understand all the economics of an industry to hold an opinion. The general public doesn’t know and doesn’t care about the details. They want the prices lower.
Which invites opportunity for a new small independant!
Yeah, without knowledge, you can have an uninformed opinion, but to discuss a subject intelligently, you should be able to back it up with knowledge and facts.
When you can compare rising profits, to rising consumer cost, what more do you need to know?
The fact is that it takes longer for prices to drop than to rise. That is what people see. That is where the perceived unfairness is to the consumer. As long as the consumer sees his gas prices rising, and the oil companies profits rising, he is not happy. Have a nice day.
Yep, it happens. Do you know why? I didn't think so. Does it happen in any other indstry. Yeah, I thought so.
If the government used Adam Smith's laissez-faire philosophy, we wouldn't be in this petroleum industry cluster-fcuk.
It is the government and the envir-whackos causing these problems. Not the "big evil oil companies."
IMOHO of course.
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