Is Price Gouging the New WMD?

Submitted by Bill St. Clair on Thu, 27 Apr 2006 10:18:18 GMT  <== Politics ==> 

E. Berton Spence at LewRockwell.com - why accusing the oil companies of "price gouging" has as much validity as accusing Iraq of having weapons of mass destruction. The proper way to fix the gas price problem is for government to take away its price-raising hurdles. [lew]

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.

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