Price Control is not the answer!
Inside Liberty Watch Today - Nov. 14, 2005
Big-five oil company management was summoned for questioning on Capital Hill last week and berated by a bi-partisan panel of pecksniffs. Senate Majority Leader Bill Frist said the executives did not ''adequately answer the question of whether the sky-high gas prices we saw earlier this fall were entirely justified, and whether their companies' profit margins are appropriate given the hardships energy consumers are facing and will continue to face this winter." According to the Boston Globe, House Speaker J. Dennis Hastert, Republican of Illinois, urged Exxon Mobil's Lee Raymond in a private meeting yesterday to invest profits in production. While supply and demand affect the cost of gas, ''we should not tolerate price-gouging," Hastert said after the meeting. "Urged on by an economically ignorant public," economist Tom DiLorenzo writes, "Congress recently held one of its periodic Grand Inquisitions of oil company executives to demand an answer to the question: "How dare you profit from the American free enterprise system?"
Thankfully oil companies have a small chance of keeping some of their money if left to congress. Because, judging by the irate mail I receive in response to my attempts to explain economics, supply and demand, and the price system, if left to a vote of the masses, oil companies would likely be nationalized and we'd all be left to schlep to work on the bus.
Conservative or liberal, it doesn't seem to matter; many people believe that there is some giant conspiracy on the part of big oil companies to rob the public. When I argue the opposite, no matter the amount of evidence I provide I'm called a moron or worse. I have no illusions that this column will be any different.
Recently, Exxon Mobil (XOM) published record quarterly profits of $9.9 billion. The company's SEC 10-Q filing reveals the following:
What one should notice is that although Exxon Mobil made a $9.9 billion profit, the company paid nearly $26 billion in taxes during the third quarter of this year and just short of $73 billion in taxes for the first nine months of 2005.
Exxon's effective tax rate is 42 percent, yet there are continual cries for windfall profits tax. It looks like the government is earning a windfall profit, not Exxon. As Jeffrey Tucker wrote on the Mises.org blog last week: "[The numbers] reinforce the research that contends that oil companies make 10 cents per gallon on gasoline while Federal, State and Local Government make a combined total of 45 cents (over 50 cents in Nevada)."
As oil has retreated to a price under $60 barrel, prices at the pump have fallen from the prices experienced during the hurricane-induced supply disruption. But, the outrage continues. Besides, if Evian were sold in barrels, it would cost $500 per. Why hasn't the Evian brass along with the other water company executives been called into the star-chamber for price gouging? What, is water less vital than oil?
Professor DiLorenzo points out that anti-price-gouging legislation and price controls are really the same thing. "The case against price controls is not merely an academic exercise, restricted to economics textbooks," DiLorenzo explains. "There is a four-thousand-year historical record of economic catastrophe after catastrophe caused by price controls."
Most recently, the 1970's energy crisis was caused by price controls, as was the California energy crisis of the 1990s (only the wholesale price of electricity was deregulated there; controls were placed on retail prices).
The men and women in Congress promise to make everything cheaper with nothing more than words on a piece of paper and the police power of the state. But, the results are, in DiLorenzo's words, always the same: "shortages, sometimes of catastrophic consequence; deterioration of product quality; the proliferation of black markets on which prices are actually higher and bribery is rampant; destruction of a nation's productive capacity in the industries where prices are controlled; gross distortions of markets; the creation of oppressive and tyrannical price control bureaucracies; and a dangerous concentration of political power in the hands of the price controllers." However, the public is armed with little economic or historical knowledge. The average Joe wants cheap gas period, and their Representatives damn well better make it so. Boobus Americanus better be careful what is wished for. It might just happen.
Doug French, Liberty Watch Columnist
