Oil Companies and Price Gouging
This is a point where I part with many of my conservative brethren. The point being the price gouging by the petroleum companies taking advantage of us over Middle Eastern tensions. Many prominent conservatives such as Sean Hannity, Mark Levin, Neil Cavuto, and Liberal-tarian Neal Boortz do not want to admit to the price gouging. Their argument is that gas prices are set by the market price of oil. They also state that gas costs what the public is willing to pay for it. I agree with them that there should not be a windfall profits tax, however I do think that there should be investigations and criminal charges for anti trust violations. These conservatives also state that the reason we are in this mess to begin with is because of liberal heel dragging on energy policy. Also, they point out that liberals for the most part are responsible for the government making more money on petroleum than the companies that sell it. In this, they are absolutely correct.
What they don't get, or don't want to get, is the economics of the issue. They repeatedly state that people such as Bill O'Reilly don't understand economics and are not looking at the issue correctly. That is where they are mistaken. Bill O'Reilly doesn't have the most astute observation of this issue, but he is closer to the facts than the four mentioned above.
Businesses operate on two basic types of cost margins: fixed costs and variable costs. Fixed costs include things such as payroll, cost of land, etc. Variable costs include things such as raw materials, crude oil for example. Much of the cost of operating the business is in fixed cost. This means that there will not be a one to one variation in price based on the variable costs. This means that if the price of crude goes up 1%, the price of refined fuel based on this increase should be much less than 1%. I have observed the price of crude oil trading and the subsequent increase in gas prices. Usually the price of gas goes up by a larger percentage than the price of oil. When the price of crude comes down, the drop in the price of gas (if it happens) is very small. A couple of weeks ago, the price of crude dropped by more than 12% in a couple of days. The following drop in the price of gas was about a third of a percent! Now, this would be appropriate if not for the double standard of how much the price increases when oil trades higher. The facts don't bear out with the syndicated conservative talk show host opinions on this. Understanding basic economic law makes it quite clear that we are indeed being gouged in a big way.
What's more, the market cannot correct this because of excessive government intervention. The way the market corrects things through competition is by offering a better product or a better price. Remember the heel dragging liberals? Because the government imposes specific environmental requirements on petroleum fuel products, a better product cannot be offered. The gas stations are all forced to offer the exact same product. Even worse, the government sanctioned virtual monopoly and simultaneous government indifference to petroleum company behavior have set up a climate of legalized price fixing. In every other industry, price fixing is illegal. Not so in petroleum.
Finally, Neal Boortz constantly drives a message about the difference between profit and profit margin. He is absolutely correct on this small part. What he is missing, though, is the fact that the petroleum companies tell it like they are not making a profit at all. That alone is more than enough to conclude that they are lying to us.
What they don't get, or don't want to get, is the economics of the issue. They repeatedly state that people such as Bill O'Reilly don't understand economics and are not looking at the issue correctly. That is where they are mistaken. Bill O'Reilly doesn't have the most astute observation of this issue, but he is closer to the facts than the four mentioned above.
Businesses operate on two basic types of cost margins: fixed costs and variable costs. Fixed costs include things such as payroll, cost of land, etc. Variable costs include things such as raw materials, crude oil for example. Much of the cost of operating the business is in fixed cost. This means that there will not be a one to one variation in price based on the variable costs. This means that if the price of crude goes up 1%, the price of refined fuel based on this increase should be much less than 1%. I have observed the price of crude oil trading and the subsequent increase in gas prices. Usually the price of gas goes up by a larger percentage than the price of oil. When the price of crude comes down, the drop in the price of gas (if it happens) is very small. A couple of weeks ago, the price of crude dropped by more than 12% in a couple of days. The following drop in the price of gas was about a third of a percent! Now, this would be appropriate if not for the double standard of how much the price increases when oil trades higher. The facts don't bear out with the syndicated conservative talk show host opinions on this. Understanding basic economic law makes it quite clear that we are indeed being gouged in a big way.
What's more, the market cannot correct this because of excessive government intervention. The way the market corrects things through competition is by offering a better product or a better price. Remember the heel dragging liberals? Because the government imposes specific environmental requirements on petroleum fuel products, a better product cannot be offered. The gas stations are all forced to offer the exact same product. Even worse, the government sanctioned virtual monopoly and simultaneous government indifference to petroleum company behavior have set up a climate of legalized price fixing. In every other industry, price fixing is illegal. Not so in petroleum.
Finally, Neal Boortz constantly drives a message about the difference between profit and profit margin. He is absolutely correct on this small part. What he is missing, though, is the fact that the petroleum companies tell it like they are not making a profit at all. That alone is more than enough to conclude that they are lying to us.
posted by Justin at 10:31 PM
1 Comments:
Liberals are so full of factoids. Hey shak el, do you just make them up as you go, or do you have some liberal algorithm that you follow to concoct the things you come up with? Maybe it is sort of like the Democratic Party One Minute Speech Maker.
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