Posted: Mon Nov 21, 2005 5:03 pm Post subject: Good Read - Don't Beat Up Big Oil. It's Just Doing Its Job
I just read this and thought that it was worthy to be put online, the original can be found on the New York Times website, but the fact that you have to lg in really pisses me off, so I decided to post it here
By BEN STEIN 1,127 words 20 November 2005 The New York Times Late Edition - Final 3 ServiceLine Copyright 2005 The New York Times Co.
''INSANITY,'' the old saying goes, ''is doing the same thing and expecting different results.''
That adage came to mind as I watched the Congressional hearings into accusations of gasoline price gouging and windfall profits for the oil companies. Real ''men in white coats with straitjackets'' insanity came to mind as I read about Republicans in committee voting a few days ago to tax the stockholders of oil companies with what amounts to a windfall profits tax.
The back story, as everyone knows by now, is that energy prices shot up like mad after the disastrous results of Hurricane Katrina became known. In sequence, gasoline prices rose, heating oil rose and natural gas, which is priced somewhat differently from oil, also rose significantly.
The wise men on Capitol Hill apparently have so little education in economics that they believed that the rise in oil prices was a conspiracy fixed by the large oil companies. Not only that, but the oil companies reported large profits for the most recent quarter, and this also supposedly showed something nefarious at work that needed Congressional tampering to be set right.
Herewith, a few respectful thoughts in reply:
First, the price of oil is a worldwide commodity price. (Natural gas is set on a national or North American basis.) It is set on commodities markets all over the world, but largely in the United States and Britain. This was not always the case. Once, oil prices were set by a cartel, the Organization of the Petroleum Exporting Countries, or OPEC. But now, with the advent of free markets in oil futures, oil prices are set on a market.
This means that the price of oil cannot be set by any one person, like Hugo Chavez, or by any one country, like Saudi Arabia or Kuwait. Many entities, people and events can affect the price of oil, but it is ultimately set on a world market. This is an incredible advance over the old system in many ways. The main one is that, barring a major war, there cannot now be times when oil is simply unavailable. The price will allocate the output so that there will always be gasoline and heating oil available, at some price.
For those of us who lived and suffered through the oil shocks and closed gas stations in the early and late 1970's before there was a free market in oil futures, this is a blow for freedom. I cannot imagine that any sane person would rather have no gasoline available at the pump, but at an
(imaginary) low price, than have gasoline available at a high price. The free market in oil involves greedy speculators and maniac traders, but they make sure that gasoline is available -- and that is no small thing.
Next, ''profit'' is not a bad word. When profit is earned by oil companies, it does not go to King John or to the Sheriff of Nottingham. It goes mostly to widows and orphans and pension funds who are owners of the big oil companies. They risked their savings for years when oil prices were low and profits were modest. Now, when they have a good quarter, the Bill O'Reillys want to take it away from them. Why? If, instead of saying ''stockholders of oil companies,'' you say widows and orphans and pensioners, do you, Senator Barbara Boxer, really think that allowing them to have a good profit is an awful idea? If oil company profits are bad, why are profits at hedge funds sacrosanct?
I am always amazed that no one in Congress raises a finger when entities that perform the valuable function of trading derivatives based on arcane debt instruments make staggering profits that go into making their traders multimillionaires at 30 -- and good luck to them, I say. But when a company that allows us all to heat our houses and drive our children to school makes money, somehow that is a sin. Why?
Do we really want to punish the people who risk billions to bring us oil from deep under the ocean, then pump it out, refine it, add chemicals to it to make it less polluting, then have it on the corner for us to put into our cars -- and still sell it at a price less than that of a bottle of water from a tap that's been barely filtered? Why do we hate the oil companies that basically make our lives possible and turn a blind eye to the people making millions basically by playing poker against one another?
Next, what possible evidence is there of any price collusion by oil companies? If there were such price fixing, it would be illegal already under existing antitrust laws. For decades, in investigation after investigation, no collusion has been found. If it exists now, the Justice Department can find it. But why just suppose it's there because a huge storm in the prime energy-producing region of our nation knocked out refineries and caused gas prices to rise? Occam's razor: Do not multiply entities. If it seems that a simple explanation is the explanation, go for it unless there is proof to the contrary.
AND what historical evidence do we have that government meddling in the oil and gas patch improves the situation? Under my old boss, President Richard M. Nixon, we tried an amazingly complex system of regulating the price of already found, or ''old,'' oil while allowing a free market in ''new'' oil.
The results were a disaster. Under President Jimmy Carter, we had Congressional movement toward actual gasoline rationing. Did any of it do a bit of good? No, but since we have had the free market in oil, we have had peaks and valleys in price, but no real cutoffs -- and this is a blessing indeed.
By the way, if the oil companies could fix prices at artificially high levels, why have they allowed them to collapse in the last few weeks? Why not keep them high indefinitely? Or did Bill O'Reilly scare off Big Oil?
Yes, I loathe the speculative premium in energy prices. Yes, I wish that I did not have to pay as much when I fill up my car. But the idea that there is a conspiracy at work, the idea that Congress can make it better by regulation -- that's insanity. To let the free market, the best economic idea of all history, work its magic -- that's good sense.
Drawing (Drawing by Philip Anderson)
Ben Stein is a lawyer, writer, actor and economist. E-mail:
ebiz@nytimes.com.
Joined: Feb 17, 2005 Posts: 290 Location: drunk in a ditch
Status: Offline
Posted: Tue Nov 22, 2005 3:13 pm Post subject:
Finally someone to breath some intelligence into the whole subject. You can bitch about oil prices all you want but at the end of the day you are still going to have to pay and prices will keep going up into the next quarter century.
The thing with gasoline and tax, is that they're raking that money in immediately - so they'll find whatever excuses they can to tax the shit out of it!
After last week's big showdown, Lee Raymond raised an interesting point: "Welcome to the world". For years oil has been available via cheap prices to North Americans. The economy here is nothing to sneeze at compared with quite a few other places. Does anyone want to think about this one? For fun, let's assume the most transparent scenario, that there is no conspiracy to speak of, that the "market is working" and that it's all just a matter of the bucks at the consumer level. Say the supply-and-demand thing suddenly became crystal clear. Say we suddenly realize that the world energy demand is indeed increasing (back in the real world, any way you cook it, it's definitely not decreasing)
Let's talk about intentions. Who do you want to be in this story, and as that person, what would you do besides complain because the immediate effects are keeping you from driving that SUV you thought was so cool?
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