22 May 2006

Yay for price gouging!

Today the Federal Trade Commission published a 200-plus-page (!) report that confirms some "price gouging" after Hurricane Katrina.  Just more of our tax dollars wasted providing economically illiterate nuts cushy jobs writing reams of garbage no one really reads.

Many Americans are yelling for price controls on gasoline and investigations into oil companies' huge profits, or at least many Congressmen think they are.  Have we already forgotten the lessons we learned in the 1970s, when price controls created an "energy crisis", which quickly disappeared when the price controls were repealed?  Besides, the oil companies don't set gas prices—the supply and demand of the market do.  If a company tried to charge more than the market price, they wouldn't make money.  Also, if they aren't allowed to keep their profits when gas prices go up, surely they shouldn't be allowed to suffer when gas prices fall!  Following such logic leads to central control of markets and, at best, economic stagnation.

Ron Paul is a Republican Congressman from Texas who strongly opposes the war in Iraq.  He writes:

"Most people understand that federal restrictions on exploring, drilling, and refining domestic oil have made us dependent on various questionable Middle East governments.  We should expand this into a greater understanding of how American foreign policy increases gas prices here at home.  Before the war in Iraq, oil was about $28 per barrel.  Today it is over $70.  Iraq was a significant source of worldwide oil, but its production has dropped 50% since 2002.  Pipeline sabotage and fires are routine; we have been unable to prevent them.  Furthermore, the general instability in the Middle East created by the war causes oil prices to rise everywhere.

"The sooner we get out of Iraq and allow the Iraqis to solve their own problems the better.  Soaring gasoline prices are one giant unintended consequence of the war, pure and simple.

"Even so, many war hawks are seriously agitating for an attack on Iran—another major supplier of worldwide oil.  They are not concerned one bit about the impact such an attack would have on the wallets of average Americans; their obsession with regime change in Iran trumps all common sense.  But let me be clear:  An attack on Iran, coupled with our continued presence in Iraq, could hike gas prices to $5 or $6 per gallon.

"We also must understand the effect monetary policy has on gas prices.  The price of gas, like the price of all things, goes up because of inflation.  And inflation by definition is an increase in the money supply.  The money supply is controlled by the Federal Reserve Bank, and responds to the deficits Congress creates.  When deficits are excessive, as they are today, the Fed creates new dollars out of thin air to buy Treasury bills and keep interest rates artificially low.  But when new money is created out of nothing, the money already in circulation loses value.  Once this is recognized, prices rise—some more rapidly than others.  That’s what we see today with the cost of energy.

"If we want to do something about gas prices, we should demand greatly reduced welfare and military spending, a balanced budget, and fewer regulations that interfere with the market development of alternative fuels.  All subsidies and special benefits to energy companies should be ended.  We also should demand a return to a sound commodity monetary system."

Read the whole article at Dr. Paul's website.  Also check out the following enlightening articles: Let ’Em Gouge: A Defense of Price Gouging by Peter Van Doren and Jerry Taylor and Price Gouging in the Public Interest by Doug Bandow.


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