Got gas?
Katrina lays bare our nation's need for a new energy policy
September 9, 2005
Are gas stations taking advantage of the post-Katrina price increases? The economic answer is no. The real problem is W and the US Congress, who make every effort possible to see that America keeps increasing it's oil use, ExxonMobile and Chevron maximize their profits, while the American people suffer as their real incomes drop under the weight of rising gas prices.
MYTH: Gas stations and oil companies are engaging in the practice of price-gouging after Hurricane Katrina swept through last week
When the product becomes scarce, however, additional information is added in the form of increased price that represents notice from the producer to the consumer that he may not be able to supply every customer with the full amount of the product desired. The customer is then more able to balance his wants with his needs and, again taken in aggregate, the market will respond to the scarcity by reducing its demand to meet the expected supply.
Rather than "gouging" members of the public, gas station owners are actually helping them by raising prices. This may seem counter-intuitive, but we have to consider how supply, demand and price interact. Normally, supply and demand dictate price, as is the case when gas prices spike. When price, however, is fixed, as would be the case if an "anti-gouging" law was in effect, then demand will outstrip the supply available. Shortage is the inevitable result. Gas would be rationed in some way, whether it is by some arbitrary legal fiat or by long lines at the pump. A black market is also more likely.
-- Iain Murray, “Gouging? No Such Thing,” TechCentralStation, 9/7/05
I write this little essay sadly, knowing that it's been written many times before, and that it will have to be written many times again, if history is any judge. It's hard enough to watch all of the suffering of these apocalyptic events on the Gulf Coast without having to contemplate as well the compounding of the problems that will be achieved in future days by editorial writers and public officials with their calls for defiance of economic reality. I grind my teeth in frustration at all of the economic damage that will continue to be wrought by well-meaning but economically ignorant people as they attempt to circumvent the most efficient means of delivering products and services to those areas in which they are needed most -- the market, with its pricing mechanisms.
-- Rand Simberg, “Three Cheers for Price Gougers,” TechCentralStation, 9/2/05
REALITY
There is a theory running through the United States that gas stations and oil companies are actively gouging their customers after Hurricane Katrina disrupted petroleum operations in the Gulf of Mexico last week. This supposition that price gouging is occurring is baseless and misleading. As the articles cited above make clear, the economics behind last week’s events and the subsequent price increases just do not support the price gouging theory.
As the Short-Term Energy Outlook, put out by the Energy Information Administration, indicates that petroleum from the Gulf of Mexico region accounts for almost 30% of the US’ crude oil supply and 47% of our crude oil refining operations. The oil business in the Gulf took a significant hit from Hurricane Katrina last week. A basic economics class would teach you that when supply drops, the price of the good will increase. Take into account the increased demand for gas, due to consumers’ fear of a shortage, and you can see why the price of gas could skyrocket. And skyrocket it did. However, even if the oil companies will make record profits this year, this increase does not mean that gas station owners are taking advantage of the disaster.
Regardless of the culpability of gas station owners, Katrina did expose the glaring problems in the America’s current energy structure and core modus operandi. This republican government’s ineptitude and wrongheaded approach to energy came to life in the energy bill that passed earlier this year. Some of the highlights of this piece of legislation are: tax breaks for oil companies, such as ExxonMobil (a company that is reported to have made $25 billion in profits in 2004 and will receive another $3.2 billion in tax breaks from this energy legislation), who are already experiencing increased profits from the recent jump in oil prices; drilling in the Arctic National Wildlife Refuge, the sins of which were covered in a previous Polianna debunker; and tax breaks for renewable energy and increased energy efficiency of homes. Even the President does not agree with the House’s energy bill, with The Washington Post reporting that W said that "…with $55 oil we don't need incentives to oil and gas companies to explore….There are plenty of incentives. What we need is to put a strategy in place that will help this country over time become less dependent." The Washington Post further points out that “The president's proposed budget calls for $6.7 billion in tax breaks for energy, with 72 percent going toward renewable sources of energy and energy efficiency, compared with about 6 percent in the House plan.” Is the energy bill really that bad that we are going to have to be forced to side with W?
The great misconception when people think of an energy bill is that the energy bill will fix the out-of-control oil prices. This is not the case. Even W admitted the energy bill will do nothing to change or alter our dependence on foreign oil, saying that "I wish I could simply wave a magic wand and lower gas prices tomorrow; I'd do that. Unfortunately, higher gas prices are a problem that has been years in the making….An energy bill wouldn't change the price at the pump today. I know that and you know that. It will help us make better use of the energy supplies we have. It will make our supply of energy more affordable and more secure for the future." How bad is a piece of Republican legislation when even W questions its value?
From a corporate viewpoint, perhaps the oil companies could have made a greater effort to give back to the consumers who have supplied them with their abundance of profits. Especially those who live in the Gulf region. Many companies and organizations are making great efforts to contribute to the relief effort, why not the oil companies that profit and pollute the area? Why not subsidize the gas prices in the region for a short period of time? At the very least it would show the American people that oil companies and their government care about more than their bottom lines and maintaining relationships with the House of Saud.
