Gas Price-gouging or Business as Usual?

Gas Price-gouging or Business as Usual?

Gas Price-gouging or Business as Usual?

As the Senate opens hearings this week calling energy execs to account for their windfall profits on gasoline and natural gas, the question must be asked: Is this price-gouging or just good old-fashioned capitalism?

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The Senate is getting ready to perform one of its ancient ceremonies– the public hanging of a varlet by the ears. A Republican-controlled Senate has, surprisingly, chosen for the role of star varlet Lee Raymond, ExxonMobil’s CEO.

When committee hearings begin on Wednesday, Raymond will find himself under the thumbscrew, trying to explain why his company has been making money at the rate of $75,000 a minute, or nearly $10 billion from July through September. CEOs from the other big energy companies will get the same treatment, and not just from Democrats. This is a bipartisan necktie party.

The senators are heated up over the price of gasoline, which has gone down a little lately, and the price of natural gas, which has not. They fear the many millions of natural gas users (voters) who are about to be socked with heating bills like they’ve not seen before. New Hampshire’s Senator Judd Gregg, as solid a reactionary as they come, having apparently been briefed on what these energy costs are going to do to people’s budgets, is talking up a “windfall profit tax.” The marble halls resound with accusations of price-gouging and exploitation.

The situation is so threatening that Bill Frist, Senate majority leader and would-be presidential candidate, is uttering such un-Republican sentiments as, “If there are those who abuse the free enterprise system to advantage themselves and their businesses at the expense of all Americans, they ought to be exposed, and they ought to be ashamed.”

Where Lee Raymond comes from, there are no excess or windfall profits. There are only profits. Think of him as a big brown bear breathing heavily and grunting through the forest when he encounters a large, honey-filled beehive, which has blown down from a tree limb and landed in front of his schnuffling nose. It would never occur to him to think of other, less fortunate bears. He simply eats the honey. To Raymond, making $75,000 a minute is not an abuse of the free-market system; it is the free-market system.

The system has no built-in, moral circuit breakers. When energy is tight–whether it’s because of collusion, obstreperous Arabs, customer demand, China, hurricanes or failure to make investments in future capacity–a business person will charge and/or gouge the most he can get. Otherwise, he loses his job. The stockholders fire him.

Prices go up, prices go down. Oil and gas have been in boom-bust, drought-glut cycles since the industry began in Pennsylvania 150 years ago.

If business is unable to restrain itself, Gregg says, slap on an excess profits tax. But how much is too much? How is excess to be defined? Also, profit taxed away is money that cannot be used to invest in future capacity, not that there is any certainty that it will be re-invested.

Another idea being kicked around is a governmental oil-and-gas stockpile to be dumped on the market to drive down prices when they spike. Of course, assembling the stockpile will drive up prices first; storage costs will make budgeteers blanch–and what do you do when the stockpile is exhausted? Though the stockpile may cut many people’s energy bills a few dollars, it will not make enough of a difference for poor people or those who live on fixed incomes.

Rationing gas and oil can tamp down overall demand and keep prices from going up. But when the Carter Administration tried a form of rationing thirty years ago, cheating, bad management and oil industry sabotage caused the program to crash and burn as the voters looked for politicians to roast in the flames of the wreckage.

The one sure way of helping those in need is giving them enough money to pay their fuel bills. That will cost everyone else money in taxes and more expensive energy. The federal Low-Income Home Energy Assistance Program could do that–if there were enough money in the program, which there is not.

Or we can debate. How big a price jump makes for a gouge? Is a smaller price rise merely a chisel? Would a gigantic upward leap be price-sharking? But that sounds like loan-sharking or charging 30 percent interest, which is OK if credit card companies do it but bad if gangsters do. Go figure.

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