Bush Orders Probe of Possible Gas Price Gouging

President George “LBJ” Bush may have a tiny bit of Teddy Roosevelt in him after all. TR, of course, was a trust-buster and defender of the people against corporate greed. Mr. Bush, on the other hand, has spent most of the last five years boosting corporate interests at the expense of the rest of the nation. Nonetheless, the current president has ordered a probe into gasoline prices, suggesting that price gouging could be occurring. No kidding, George.

Gasoline prices are approaching $3 a gallon nationwide, and in places like California, the $4-a-gallon mark has been breached. Meanwhile, Exxon Mobil has just given its outgoing CEO Lee Raymond a package worth a few hundred million dollars because of the record profits he’s brought in. So has gouging taken place or is this merely the effects of the free-market no matter how unwelcome (except obviously for Mr. Raymond)?

Ultra-libertarians argue that there can be no such thing as price gouging. High gas prices reflect tight supply and huge demand, and therefore, whatever the market price may be, it is just. In a free market, that would be so, but oil and its distillates don’t operate in anything that resembles a market. Markets require four conditions: homogeneous product, low entry and exit costs, perfect information among market participants, and a large number of buyers and sellers. Oil is homogeneous, but that’s the only market condition it meets.

Entry into and exit from the oil business isn’t cheap. Merely finding the oil costs a great deal, pumping it and shipping it to a refinery costs more, and the refinery itself represents an enormous amount of capital. Then, the products need to be distributed through a network of filling stations. Information about where the oil is, how much it costs to produce and what alternatives exist is far from perfect. And while there are many buyers of gas, there aren’t more than a handful of suppliers. At best, the oil market is an oligopoly.

There is a relatively easy way to determine if price gouging has occurred. One only needs to compare the price of crude to the retail price of gas. If the price of crude rises slower than the retail price, there’s a pretty good case that the oil companies are taking unfair advantage of their power. Gas has risen about 25 cents a gallon in the last two weeks, while the price of crude has reached $75 a barrel up from about $70 (and has retreated from that high). There are 42 gallons per barrel. So, the arithmetic says that oil has gone up 12 cents a gallon and gas has risen 25 cents. That smoke suggests that there is fire.

The question, though, is what will Mr. Bush do if the probe says there has, indeed, been price gouging. Then, the country will find out just how much TR there is in Mr. Bush.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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