Gas Gougers and Gas Thwarters

With prices going over $4 per gallon for the first time ever (in America), the hue and cry has become deafening. But the ignorance surrounding the economics of oil has enabled politicians to co-opt the problem as a vehicle for government expansion: the problem is at root a technical one but this commandeering has clouded the issue. With the price of oil skyrocketing, there are really only two ways to lower it (given that OPEC is effectively beyond our control, no matter how much Congress might wish differently): lower demand through conservation and technological advances or increase supply by tapping domestic resources and expanding refinery capacity.

The former method has been taking place for at least a decade or two and conservation naturally occurs as the price increases, so I’m most interested in the latter means. Increasing the supply is pretty much off the table for political reasons since Congress has prohibited exploratory drilling in the Arctic National Wildlife Refuge and in American coastal waters. There’s absolutely no technical reason why we couldn’t do both and increase our oil supply considerably; thus the technical problem of increasing our oil supply, which wouldn’t exist in a free market, is a political one, which serves to demonstrate just how unfree our market really is.

I was familiar with the ANWR and offshore drilling bans as well as the inability to site new refineries, but I was not aware that oil shale exploration and development was similarly prohibited. I am flabbergasted at, and absolutely bewildered by, these actions. Taken collectively, they serve as an impressive intrusion into the energy market by the government. Politicians in this same government simultaneously attack the oil companies for not doing more to reduce gas prices, rail at foreign nations for restricting supply, and suggest massive tax increases for oil companies to “re-capture windfall profits.” The answer is clearly to stop interfering and let the oil companies do what they need to do—and what they would be glad to do.

The oil companies aren’t the “gougers” in this scenario. Margins on oil are pretty slim and the profits come from the incredible volume. If you look at the breakdown of oil pricing, governments take the largest piece of the pie. But they always want to increase their share but even that comes with a hidden cost: they want to dictate how the pie is made in the first place.

Oil companies, like every other business in America, makes money by serving its customers. It has to carefully price its product to maximize revenue and profits, just like every other business in America. And like every other business in America, any restrictions on how it does that—beyond that of fraud and infringing on people’s rights—distort and hamper its ability to do both. It is high time that we treat oil companies like every other business in America.

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