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.
And again, the question you keep avoiding to answer,
Is keeping 10¢ on the dollar out of line?
That line is completely FALSE. Yes, oil companies have to sell stock off when times are bad and buy stock back when times are good. They do it over and over in the boom and bust cycles to stay alive. When you look at the average over a long period of time, their profit margin remains around 8~10%.
They can keep whatever they want to keep. I just resent paying higher and higher prices at the pump, and all we hear is that some refinery in Podunk, Kansas is offline and causing oil to rise over $95 per barrel. We get hit with a 10 or 15 cent per gallon increase, but when the refinery in Podunk goes back to normal in a few days, the price doesn’t drop back down until a month later. That leaves about 3 weeks of inflated prices for the consumer to pay. That three weeks of added profits are what I resent.
You know its like the people paying $750,000.00 for a house that cost $50,000.00 40 years ago.
Excellent article.
By the way, it’s not the oil companies who raise prices and gouge the consumer. It’s the schools who do that. But the politicians and press choose not to notice.
It's certainly what the Democrats want.
Good point. Actually, though, I think I might well increase my “eating area” - just not in this country.
Thank you fr displaying your fross ignorance of market economies, your anti-capitalist (COMMIE) ways, pure idiocy and liberals views.
WTF are you doing on FR? You are a liberal.
review
Thank a democrat, don't blame the oil companies.
For the Liberals to hate private enterprise so much I just do not understand it. The government makes more off our labors than those who provide them. Maybe the Unions need to look into it.
Which has absolutely nothing to do with the miniscule margin oil companies make. By knocking a 100% legitimate business, with tons of competition, and who em-ploy tens of thousands of people around the world in high-paying careers, all while providing a much needed product, for making a profit, you sound far more radical-left wing than Hillary Clinton. Go get some fact, and not just bleeding heart liberal anticapitalist talking points, and we can have an intelligent discussion. For now, you certainly are lacking the intelligent part.
Interesting turn of phrase, considering Exxon Mobil is an international company and spends money on projects worldwide. Much of the onshore drilling in the US is done by smaller companies.
Exxon Mobil and other 'majors' are the ones with the capital to invest in major offshore drilling projects--high dollar, high risk, high payout ventures--which just might not be here in the US, especially since government (Federal and state) has made most of the continental shelf of the US off limits.
As for investing in capital here, no one has been able to get a refinery built in 30 years, so where are they supposed to put the money?
And you're as dumb as a bag of rocks if you want to contend that Oil is part of a FRee Market Economy. You're full of it. Blackbird.
You’re daunted website is full of crap! I live here fool. I guess I’m not supposed to believe my lying eyes? Blackbird.
That's a hell of a sample size to base a baseless conclusion that every oil company in the world is in collusion with each other and there is no free-maket economy in the oil industry! ROFLMAO! You are a joke! You sound just like my ultra-liberal former sister in law.
Yep, only liberals have a problem paying $3 a gallon for gas. Are you really that stupid? No need to answer noob. Don't you have some dividends to suck? Blackbird.
Maybe you should get out more or drive on more than a couple streets. gasbuddy.com has the station names and adresses, which ones do you claim are false?
Billings MT ain't that big son. I get around it quite well thank you very much. Now, I was willing to drop it but since you seem to be a gluten for punishment. The link you provide tells my tale just the way I described it. The $2.95 (low end of your touted gasbuddy site) is Members Only (COSTCO), give that a minute to settle in. Yes, it's $2.95 a gallon, but subsidized with the Membership fee to Costco? ALL of the rest as far as I cared to look, parroted perbatum, exactly what I said. There is a one penny difference between ALL of them, $2.99 - $2.98 per gallon, see? one penny, just exactly as I stated. Connoco-Phillips, Exxon-Mobile, Sinclair, Holiday and Cenex, all of them. Do you want to keep playing this or do I need to give you digital pictures? If any one of these stations drop or raise their price on any given day, the rest bar none are out there on their ladders within minutes reflecting the same. I watch this often with great amusement as I think about the next FR thread exposing the Greedy amongst US. I can set my watch by it! I pinged the harping moonbat chowder mouth just for grins and giggles. Blackbird.
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