It is getting to the point where I can no longer wach Fox News, because it distorts factual reality as much as any other "news" outlet out there. A case in point was O'Reilly's rant last night about the "evil" oil companies "gouging" the "folks" by charging an "unfair" price for gasoline. Now I don't belive that executives of big oil companies believe in a free market anyh more than O'Reilly, or leftists, do, but instead believe in big corporate EMPIRES. That is the true place that oil companty executives are vulnerable to criticism--that, and the truly cringe worthy falsehoods and distortions of fact the oil companies tend to put out when they are challenged. However, to concentrate on "unafir" "profits" is the WRONG criticism--the very point of my recent series of entries on the free market, gasoline, and oil. In a free market, there is NO SUCH THING as a "fair" price. The "fair" price is, BY DEFINITION, the price at which supply and demand are in balance. If you IMPOSE a different price, by central planning, you merely make a bad situation much worse by distorting the proper allocation of resources.
Assume that the price of gasoline at which supply and demand are in balance is the destructive (to the economy) price of $10.00 per gallon. Is there a way for prices to go that high? Sure there is, IF we try the O'Reilly approach of demanding that a "fair" price be charged for gasoline--less than the price at which supply and demand are in balance. Assume that we FORCE Big Oil to charge $5.00 a gallon for gasoline, when supply is not sufficient to meet demand until the price reaches $10.00 per gallon. What happens?
BAD things happen. REALLY BAD THINGS. You are SUBSIDIZING the use of OIL as a fuel at a low price ("low" in terms of supply and demand). That means that people will use TOO MUCH oil (too much gasoline), or try to. This will result in a SHORTAGE in the supply of oil (a shortage automatically occurs when demand exceeds supply for an extended period of time). That shortage will increase the more supply and demand are out of balance, such that when you finaly are forced to let the price go to the free market price (or RATION in a complete government takeover of industry operations), you are in deep, dark trouble. The price then may be $15.00 a gallon.
Worse, if you have kept fuel prices artificially low, you are DISTORTING the proper allocation of resources by incuding people to continue to rely on oil at a SUBSIDIZED price. Alternative energy may now be the MOST ECONOMIC way to go. But people don't realize that because you are imposing an ARTIFICIAL price for oil. Further, you are discouraging the search for more SUPPLY by limiting the profit to be made by procucing oil at expensive prices. For example, the lake of "shallow oil" that lies under some western states can oly be tapped with expensive "horizontal drilling" at a cost of about $50.00 per barrel of oil. IF we keep the price of oil artificially low, such sources of supply may not be tapped. This vicious circle then exacerbates the shortage, and makes eventual still higher prices inevitable.
There are ONLY two free market ways of reducing the price of gasoline. One is to increase supply. That way is UNDERMINED by restrictions ofn drilling imposed by Congress, states, and leftist environmentalishts (by lawsuits). It is further UNDERMINED by artificial restrictions on profits or prices, which reduce the incentive to produce more oil resources (or more gasoline).
I have said that the "free market" in oil and gasoline is not working well (partly because of big energy company mergers creating Big Oil, partly because of OPEC and the many "central planning", authoritarian countries which are major oil producers, and partly because of the U.S. Congress and leftist environmentalists restricting supply). Does that not indicate that O'Relly is right: that we need to establish a "fair" price for gasoline, since there is no such thing as a true "market" pirce?
Nope. That is the illusion here, and the delustion. If you arbitrarily set a price, it will be the WRONG price. There is no way to know what price to "set". If you believe that a "fair" price can be set, you are simply sying that you believe in MARXISM (or at least a form of socialism). This has been proven the wrong way to go by history, and there is not even a theoretical reason for believing that it would work. The amount of "profit" has absolutely NOTHING to do with the "right" price for gasoline. The "right" price is the price at which supply and demand are in balance, in a competitive market. A non-competitive market may produce a distorted price, but it will still be LESS distorted than an arbitrary, government (or O'Relly) set price.
See the previous entry, and entries before that, as to the CORRECT appraoch. The correct approach is to try to IMPROVE the operation of the free market in oil and gasoline. You cand do that by relaxing unreasonable government restrictions on drilling. You can hlep do that by STOPPIN G further mergers of oil producers and refiners (and even rolling back some of the mergers that have already occurred). Since the Federal Government is such a big part of the economy (unfortunately) the Federal Government can DIRCTLY affect demand, and put pressure on for the free market to start to operate (as even the present large players begin to panic a little about needing to sell their product before prices fall).
You may not like some, or even most, of the individual suggestions in my previous entry. However, the approach is the ONLY correct approach. The "solution" to an imperfectly working oil market is to apply pressure to try to make it work better--NOT to impose "fair" prices or other government MANDATES.
The "solution" is definitely NOT the "O'Reilly solution" (which also happens to be the leftist Democrat "solution" in Congress) of bashing the profits of Big Oil. Tat does NO good, and may do a great deal of harm.
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