Is Price Gouging the New WMD?

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The Bush administration
appears poised to make war on free enterprise — this time the oil
industry — and the bogeyman is "price gouging." Our supposedly
conservative president, who recently complained that Americans are
"addicted to oil," is now responding to political pressure
to use the Imperial Presidency to "do something about"
gasoline prices. Much as his military adventure in Iraq was predicated
on the widely-believed but largely unproven existence of weapons
of mass destruction, the excuse for attacking the free market for
gasoline and other oil products is the similarly illusory "price
gouger" whom we are to believe is arbitrarily raising the price
of gasoline at the pump. As usual, however, the only entity arbitrarily
raising prices beyond the market-dictated (i.e., best-available)
price is the state. Unable or unwilling to acknowledge this, the
president is ready to attack free buyers and sellers for political

The president's
attitude was evident when he parroted the "addicted to oil"
line popularized by the "environmental," anti-private-property
movement. To classify Americans' desire to purchase a relatively
inexpensive, widely available fuel as a means of traveling to work,
to school, to the grocery store, etc., as an "addiction"
told us that our president had little if any understanding of economic
reality. That he was willing to attack purchasers for making free
choices to better their lives signaled that he would soon attack
the other side of the market exchange, the suppliers, and so he

The suppliers
of oil — those entities that risk their own property for a chance
to profit from delivering a needed and desired good — will be thrown
to the mob as "price gougers" and dragged through various
investigations, hearings, and other show-trial-type events so that
the Republican Party can appear to the natural constituents of the
Democratic Party to be the Robin Hood of their dreams. But as is
usual with abandonment of even a pretense of principle, this will
simply alienate conservative voters without appealing to socialist
ones. Democrats will still vote for Democrats, no matter how well
the Republicans pretend to be just as good at redistributing wealth.
No one trusts a traitor, and the something-for-nothing crowd will
remain loyal to the party that has always had that scam as its guiding

But despite
the futility, Bush and those Republicans who hope to still be in
Congress in 2007 seem ready to stubbornly stick to this plan when,
instead, they could champion the market and actually lower the price
of gasoline by simply dismantling the stumbling blocks the government
has placed in the way of suppliers' ability to meet the needs of
willing buyers.

The first
and simplest action should be to rescind the taxes on gasoline that
add (state and federal combined, but easily eliminated at the federal
level by virtue of the Commerce Clause) an average of about fifty
cents per gallon to the price of gasoline at the pump.

The second
initiative should be to remove restrictions on the building of refineries.
Refining plants are the "choke point" that is currently
driving down the supply of gasoline and thus resulting in higher
prices as the market does what it is supposed to do — allocate a
scarce resource among many willing buyers on the basis of who wants
it the most. But environmental and other regulations make it all
but impossible to build more refineries to process the oil that
remains easily available on the world market.

A third
remedy would be to eliminate the requirement that refiners produce
fifty different blends of gasoline for the fifty states. This all
but destroys the ability of gasoline producers to take advantage
of economies of scale and adds an unknowable amount to the price
of each gallon.

Each of
these things represents a hurdle that government places in the way
of suppliers. Despite these handicaps, the remaining amount of freedom
in the market ensures that gasoline is available in every corner
of the United States at prices well below those paid in jurisdictions
in which even more knee-capping of the market is practiced (a gallon
of gas in Denmark currently sells for around six dollars). The relationship
between these fetters placed on the market and higher-than-necessary
prices is well-known and cannot legitimately be disputed. Yet when
the state is pressured to use its power to lower prices, it does
not even consider remedying its own price-gouging, but instead accuses
suppliers that are trying to survive in a competitive market of
doing something they are entirely unable to do; i.e., arbitrarily
raise prices.

The "evidence"
of this gouging is record profits by oil companies. No thought is
given to the years in which oil companies suffered losses. In those
years, they took risks that are paying off today. Perhaps more importantly,
however, is that each and every one of us should be ecstatic that
the oil industry is doing well. This signals other market players
that there is money to be made, and invites them to enter the market
and to compete with the existing firms.

But here,
too, the hand of the state is held up as a stop sign. The web of
laws and regulations governing this industry constitute nearly insurmountable
barriers to entry into the oil and gasoline business, leaving us
with less competition and, again, higher gasoline prices than would
be produced by more competition.

For the
state to accuse gasoline producers of price gouging suggests that
the state believes price controls to be the proper role of government.
Is there anyone who can so much as spell the word "economics"
that does not yet understand that price controls bring shortages,
always and everywhere? If so, they are all in Congress and the White
House. The counter one hears is that the oil companies are not operating
in a free market; that they have received government protection
from competition (the afore-mentioned barriers to entry, to name
just one). This is true. But the state can cure its past mistaken
and harmful protectionism only by dismantling it, not by adding
another layer of distortion of the market.

however, the state is beginning its search for the wily Price Gouger,
the beast that, if it existed, could as soon charge us $100 for
a gallon of gas as three, but for mysterious reasons does not do
so. The existence of these price gougers seems as likely as those
WMD that failed, for the most part, to materialize in Iraq and would
not have, had they existed, provided sufficient justification for
war. If a price-gouger did exist, the market would surely punish
him better than the government ever could. Allowing the market to
police itself would not, however, distract voters in 2006 from the
monumental mistakes of the tax-and-spend Republicans, so we may
all be assured that the hunt will continue.

27, 2006

Berton Spence [send him
] is an attorney in Birmingham, Alabama.

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