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November 10, 2005
Newsflash: Gas costs money!
Yesterday's Senate hearing, with oil company executives on the hot seat because of their companies' recent record profits, is a good illustration of the fact that Congress and most members of the general public need to take an economics course or two. The hearing featured Senators and state attorneys general suggesting that Federal "price-gouging" legislation is necessary, in order to keep the price of gas artificially low in times of short supply.
These people have a remarkable ignorance of history. Anyone old enough to remember the '70s undoubtedly has less-than-fond memories of waiting in long lines to get a tank of gas, being unable to get gas at all on weekends, and the idiotic "Oregon Plan," under which cars with odd-numbered license plates got gas on odd-numbered days and even-numbered cars got gas on even-numbered days. These were symptoms not of any inherent lack of oil, but rather they were illustrations of the effects of government price controls. Any economics major can tell you that price controls always create shortages -- and this is exactly what happened in the '70s.
These days, with no Federal gas price controls in place, we've had some pretty serious gas price hikes lately -- two years ago, you could get unleaded regular for about $1.50/gallon here in Flagstaff, where recently it has sold for more than twice that. But there have been no shortages -- have you ever had to wait in line to buy gas?
And I ask you: which would you prefer -- paying three bucks a gallon for gas, or not being able to get it at all? All this talk about "price-gouging" is nonsense. People need to understand that gasoline is a commodity, like coffee, oats, and pork bellies; and a basic fact of life is that commodity prices fluctuate. It is not "price-gouging" when you voluntarily pull up to a gas pump and pay the market price. Price-gouging would involve someone pointing a gun at your head and demanding money -- I don't see that happening. American consumers who are having a hissy fit about the price of gas want it both ways; they don't accept the fact that the way to avoid paying too much for gas would be to drive smaller cars.
Incidentally, I find it a source of some amusement that it's mostly the same politicians who are arguing, on the one hand, for government measures to keep the price of gas artificially low, and on the other hand, for environmental measures (e.g., a ban on drilling in Alaska) that prevent anything that would increase the supply of oil and reduce the price! They're also the same people who have prevented the industry from building new refineries or otherwise taking steps to increase supply.
This is why, although I'm not of a particularly libertarian bent in terms of political philosophy, I tend to vote that way. Congress needs to understand that the market does a much better job of allocating resources than they do.
Posted by Urbie at November 10, 2005 07:06 AM