The knee-jerk responses to demand the government to do something to force rising gas prices lower continue, but such calls are misguided. Market fluctuations in the price of gasoline, up or down, are none of the government's business. But the U.S. Senate, refusing to engage the free market forces of supply and demand soon will be looking at a bill that seeks to dampen gas prices by criminalizing price gauging. Huh! Price gauging is really in the eyes of the beholder. This is nothing more than a thinly veiled attempt at price controls. What should the government do about gasoline prices? The answer is manifest; keep its hands off
Since the Arab oil embargo of 1973, the Federal Trade Commission and the Department of Energy have investigated high gasoline prices ad nauseum and have never found a shred of evidence of collusion, manipulation or price fixing.
Alaskan Airlines
There simply is no economic justification for any politician or consumer to declare market prices too high, or to use the government to force lower prices in an artificially dangerous way. To do so violates both the rights of those who produce gasoline and their customers to reach a mutually agreeable price on a voluntary basis. In fact, if artificial meddling occurs, the cure becomes worse than the supposed illness as it can cause destructive shortages.
When the demand for gasoline increases relative to the supply, the sellers of gasoline raise their prices. That's Economics 101. As the producers and owners of gasoline, this is their free market right. This is what a free market is all about. The price increases encourage future production. And since customer demand for cheap gasoline greatly exceeds the available supply, we should be happy that prices are increased. If they did not, we would very quickly experience shortages. And when shortages exist, how much gasoline a customer is able to get may depend on whether that customer has time to wait in endless and potentially dangerous lines as in the 1970s.
In the business world, firms purchase oil or gasoline only to the extent that they can make profitable use of it at higher prices. For example, an efficient airline will still be able to offer low prices while using high-priced jet fuel; a laggard competitor may not be able to. Almost every product we use involves oil; hence, we all gain from oil being directed toward its most profitable uses.
Sooner or later, the government will realize that it's all about supply and demand which in turn may be impacted by acts of God, refinery fires, etc. But as a May 29, 2007 New Hampshire Union Leader editorial stated, "It's only human to believe that bad things happen -- high gas prices, for example -- because bad people sat down in secret and planned it that way."
Prices can be made artificially high as a result of the government's endless regulations on production. Indeed, many state governments impose the absurd mandate that companies refine nearly 60 different blends of gasoline despite the fact that cars using today's standard unleaded gasoline, even with the overall increase in driving, pollute very little by historical standards. Additionally, endless red tape and mindless environmental impact studies make new construction significantly less profitable. The costs of such regulations are huge and raise the price of gasoline. According to the American Petroleum Institute, "the refining industry has spent over billion over the last decade to comply with environmental and fuels regulations--expenditures that generally yield little or no return on investment."
Other regulations prohibit domestic drilling on plentiful sources of oil in a portion of the caribou habitat in an Alaskan wasteland. Also, the entire Outer Continental Shelf of the United States is off-limits and this represents an even larger source of untapped oil. Chevron's recent discovery of an estimated 3 to 15 billion barrel reserve in the Gulf of Mexico was remarkable, but how many other such finds are currently off-limits?
The government is right to take action if an oil company threatens or harms a private property. Yet, with respect to preserving untouched nature, efforts to impose huge costs on oil companies and their customers in a manner hostile to free enterprise are highly questionable.
As the aforementioned editorial concludes, "The price-gauging bill is a backdoor attempt at price controls, which inevitably fail and inevitably hurt consumers in the process. The public can always vote on prices with their cars."
Of course, in the end, we will need to conceptualize in an accurate fashion the consumer demands, human needs, and social relations of our societies in a manner that more adequately sustains nature's resources.
Rising Gas Prices and the Government