November 18,2005

Since when has it been a crime in America to make money? It may be a little stretch, but that’s what I’m getting from the Senate hearings into whether oil companies have been gouging their customers. It appears that for certain companies in certain industries, it isn’t legal to make a large profit. The reaction to the price at the pump is irrational, un-American, and even dangerous and we must reassess some people’s suggested solution to our energy woes.

For the last three or four months, oil companies such as ExxonMobil, ConocoPhillips, BP, and Shell have been making a lot of money. More money than they have in a long time and more money than most publicly traded companies.

Since hurricanes damaged much of the Eastern American oil infrastructure, and with continued uncertainty in the OPEC nations oil prices have shot up to record highs. Evidently, however, the price for producing that oil has not gone up and that has created massive windfalls for the oil companies.

For some reason, the American public has decided that oil companies shouldn’t be making that much money. Many see the price of filling up their car and get angry; and that anger translates into legislators pandering to the masses with irrational attacks on the legitimacy of the oil companies’ business. There have been calls for a windfall tax, in which oil companies would pay a higher tax rate on profits exceeding their previous level plus an average rate of growth. This would place limits the industry and in turn artificially restrict investment in that sector. It would artificially further a technique that the oil companies have been using to get us in this position of dependence on them in the first place.

For many decades, oil companies have been limiting their prices and profits (intentionally or otherwise) and creating a situation that makes the users of their product dependent on it. For most of the Twentieth Century, it has been much more cost-effective to buy gas and put it in our antiquated gas-guzzlers than to buy a form of transportation that doesn’t require gasoline. Compared with inflation, gas prices have gone down for the most part since the 1920s.

We’ve been spoiled with low energy costs (especially in the US) to a point that we can’t even fathom a different way to travel. Most people today can’t imagine that in the dawn of the automobile, steam and electricity-powered autos were just as popular as the gas-powered cars, but it’s true. One of the first internal combustion engines ran on hydrogen and oxygen (however, not quite the hydrogen fuel cell car of today). The way gas-powered cars won out was by making it convenient for the consumers to buy it- putting a station on every street corner. By the Twentieth century, gas-powered cars were just about the only type made.

Oil companies have kept us happy by pricing their product lower than inflation would dictate. Though we’ve urged the car and oil companies to make their product cleaner, we haven’t done anything to rely less on it. The result is that almost every industry in the world is dependent on oil, cheap oil.

When people realize this and see that oil companies have us at their will, a socialist-inspired windfall tax stirs interest and talk of price gouging radiates. If the oil companies are gouging the consumer at $3.00 per gallon, why isn’t Nike seen as gouging its customers at $140 a pair of shoes? It costs roughly $5.50 to produce a pair of tennis shoes for Nike and they sell them for 2500% of that.

Since we need oil as opposed to tennis shoes, some see it as unethical for oil companies to charge such high prices as are seen on the commodities market or at the gas station. We need gas to get to work, so it’s unethical for oil companies to make those types of profits the complaint would be. But we need water to live; yet beverage companies have been selling water for $2.00 a pint for years. I’m no expert in these matters, but it seems that gasoline would be a great deal more difficult to produce than water, yet water is more expensive and there’s no talk of price gouging or Senate hearings with water bottling companies.

Another thing people seem to have missed in this whole mess is that oil companies aren’t the only ones profiting from high gas prices. Automakers who have invested in higher-efficiency cars (e.g. Toyota and Honda) are doing well as a result of people choosing to find alternatives to the pricy gas-guzzlers.

This is a glimpse of how the market economy really works wonders. Consumers who are tired of paying high prices for their gas will turn to other options and potentially sparking investment in newer, cleaner energy alternatives.

With government subsidies for oil, which are tragically already in place, and government-enforced low gas prices, thankfully not in place yet, we are putting together a recipe for disaster. If the windfall tax for oil companies takes effect and artificial price limits result, this country will be continuing its dependence on an outdated form of energy which will run out eventually anyway. We will have to deal with the lack of oil at some point and if we are still dependent on it then, we will seriously face a crisis.

The government solutions to this situation are counter-productive and dangerous. That being said, I would actually like to see the price of gas continue to go up. That’s right. I wish gas prices would skyrocket. In addition, I wish that people would continue to get mad about higher gas prices. But I don’t like seeing that anger turn into socialism. That passion should be converted, instead, into viable long-term solutions- solutions like less waste and more reasonably-priced renewable energy cars.