WSJ Rips the Gas Price “Gouging” Law Passed by the House
Yesterday a subscriber-only Wall Street Journal editorial got it totally right — If you want to know why prices are high, look no further than Washington:
….. Last week the House of Representatives expressed its collective outrage over high gas prices by voting as a herd, 389-34, to make gasoline “price gouging” a federal felony.
Really. This command and control legislation reads like the kind of law passed by the old Soviet Politburo. If an oil company is found guilty of charging a “grossly excessive” price for gasoline, it could face a $250 million fine and its executives face imprisonment. Even neighborhood service station owners could be sentenced to two years in jail and a $2 million fine for the high crime of charging too much at the pump.
….. If service stations are guilty of extortion because their prices are rising more than their costs, then are we to have pricing police preventing homeowners from selling their houses for two or three times what they bought them for, or movie theaters from charging $6 for popcorn that costs 25 cents to produce, or Barbra Streisand from commanding a $1 million fee for a single performance? Now that Republicans have surrendered to the political expediency of price controls on big oil, they won’t have much standing to stop Democrats from imposing price ceilings on pharmaceutical drugs, school supplies, medical equipment, and the like.
The irony here is that if there is any extortion or swindling going on in the oil marketplace, Congress is the guilty party. It is Congress that ordered service stations across America to switch last month to ethanol additives that have both raised prices at the pump and exacerbated shortages in recent weeks. It is Congress and state governments that take 59 cents a gallon on average of fuel taxes at the pump — almost six times the average of 10 cents per gallon profit that the oil companies make.
When the House had a chance to take a positive step to increase gasoline supplies and lower prices last week by making it easier for oil companies to expand their domestic refinery capacity — Northeastern Republicans teamed with Democrats to bring the measure down. The U.S. now consumes 21 million barrels of oil a day but has a refining capacity of only 17 million. As usual, the loudest Congressional complainers about high gas prices voted as a bloc to keep supplies precariously low.
Mark this “gouging” law down as the first step back toward the oil and gas price controls of the 1970s. We know that chapter of history ended poorly for American consumers — with supply disruptions, gas lines, and increased dependence on foreign oil. Under Congress’s new brainchild, the next time there is a gasoline supply disruption, service station owners may well hold prices artificially low to avoid jail sentences. As night follows day, that will lead to shortages, lines and stranded motorists. So if Congress thinks that voters are in a foul mood now, wait until their price-control scheme offers them no gas at “non-gouging” prices.
If supplies are made artificially tight by a combination of congressional action and inaction, how is that the oil companies’ fault? I’m really not in the mood, and neither is anyone else, for the hours-long waiting lines for gas that we saw in the 1970s.
Thomas Sowell predicted as much a few weeks ago: ‘Oily politicians: Part II’:
“…If people don’t understand what is happening, politicians can tell them anything — and get their support to take actions that look good, even when the consequences will be counterproductive.
Political responses to the current high price of gasoline are a classic example. World demand for oil has risen out of all proportion to the amount of oil supplied. That is the problem and prices are a symptom of that problem.
Politicians have long been known for seizing upon immediate symptoms and ignoring underlying causes and consequences. Back in the 18th century Adam Smith wrote of “that crafty animal” the politician, who is preoccupied with “the momentary fluctuation of affairs.”
Politicians are still crafty in the 21st century and still have their eyes on fleeting opportunities to make political hay. The high price of gasoline is the opportunity du jour.
Nothing is easier than to blame high prices on whoever charges those high prices, regardless of what the underlying cause is. It doesn’t matter whether you are talking about Big Oil or little stores in poor, high-crime neighborhoods that charge higher prices growing out of the economic consequences of poverty and crime.
In these and other cases, the economics behind the high prices is of far less interest politically than denouncing the sellers for “greed,” “exploitation,” “gouging” and the whole political vocabulary of undefined rhetoric and unsubstantiated notions.
Much is made of the fact that gasoline prices go up before the higher priced oil is turned into gasoline. What something cost is history, what it is worth now is economics…”
Comment by Porkopolis — May 12, 2006 @ 3:53 pm