Blaming oil companies for the free market is silly

July 16, 2006|by GEORGE MICHAEL

With gas prices creeping back up again, we will be hearing a lot of whining about big bad oil companies and "price gouging." The term "price gouging" was in the news a lot last fall during the big spike in gas prices following Hurricanes Katrina and Rita.

In free markets, price gouging is not an issue. It is only an issue in socialist economies and in markets where no competition is allowed. For instance, a beer at Camden Yards sells for $3.50, which works out to more than $20 a gallon. It seems to me a gallon of gas is harder to produce than a gallon of beer or a gallon of soda. If you want to use the term "price gouging," concessions at sports venues seem like good candidates.

Earlier this year, the Federal Trade Commission looked into the issue of "price gouging" by oil companies, as indeed they have in the past and concluded that there was none.


In letters to the editor and in cartoons, everyone wants to blame "big oil" for the current situation. Watch out for people who like to use this term. "Big oil" is an emotional term used by folks who want to prejudice your mind. It is part of a blame game used by liberals to smear the oil companies. But it is nonsensical in terms of economics.

I have wondered what "small oil" would look like. Could mom and pop groceries start drilling and refining oil? Could a company with under $10 million in capital be able to purchase a supertanker? Of course not. It takes some big companies to do what is necessary to produce a gallon of gas.

What is most pathetic about the situation is the bombast and hypocrisy coming from liberals in Congress. Congress bears most of the blame for the current situation. For the last six years, liberals have repeatedly blocked the Bush energy plan. Even though a significant majority in the House and a majority of the Senate have voted to open up drilling for oil in ANWAR, special rules invoked by the Senate liberals have effectively blocked final passage.

We have built no new oil refineries for 30 years now. Recently, even expansion of existing refineries has been blocked. Then these hypocrites in Congress talk angrily of "price gouging" by the oil companies and demanding an investigation. How ridiculous! They do it, of course, to deflect the blame from themselves. The sad thing is, a gullible public believes them. The hypocrisy of these liberals is exceeded only by the stupidity of many Americans who do not grasp what is really going on.

Gas prices are not set by the oil companies. In a free market, prices are determined by what someone is willing to pay for a given item. In other words, gas prices are "set" by supply and demand. If gas companies are so greedy, why don't the oil companies set the price of gas at $5 or $10 a gallon?

People who want the oil companies to sell their gas or even want to demand the government to force oil companies to sell their gas at lower prices wouldn't go along with such a thing if it were something they wanted to sell. How many consumers would think it would be a good thing for the government to say to a citizen, "We see your house is on the market. There is a housing shortage. We think you are asking too much for your house. For the common good, you must sell it for 30 percent less than it is worth." Who would agree to such idiocy?

Polls show many Americans blame the president for the current situation. They have swallowed the Democratic Party line that President Bush and his "oil buddies" are behind the high prices. Or the infantile, idiotic charge that he wants Iraqi oil for himself and his cronies. Where do these folks think the president is going to put this oil - in his swimming pool? Do they think the president enjoys seeing the high prices and his slipping popularity?

President Bush is not faultless for the current situation, but not for the above reasons. These attacks apparently have caused the president misgivings about pushing for logical and economic solutions which would benefit the American public. For his timidity, he does share some of the blame. Some leadership on this issue is needed.

Americans enjoy the lowest gas prices of any nation in the world outside of OPEC nations. And in most of those OPEC nations, the majority of people don't even have cars. Their governments control their markets and the political leaders pocket the oil markups.

I would prefer gas at under $2 a gallon. But I am glad to have it. I am glad we don't have the incredible long gas lines of the 1970s when the federal government regulated the price of gas resulting in those huge shortages. I am glad there are oil companies out there willing to do all that it takes to produce something I need.

Citizens may choose not to support drilling for oil and moving towards energy independence due to environmental concerns. That is a legitimate position, I suppose. But at least they ought to have the honesty to say, "We will accept these higher prices because of our refusal to produce more oil." They should have the integrity to accept the responsibility for the high prices and not blame the "big bad oil companies."

George Michael is a Williamsport resident who writes for The Herald-Mail.

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