Tuesday, April 25, 2006

More On Gas Prices

The insanity over gas prices has reached a fever pitch. I heard Connecticut's own Joe Liberman on the radio yesterday demanding that oil companies return some of their wrongfully acquired profits to the American people. Both Democrats and Republicans have called for investigations and special taxes on the "windfall profits" of Exxon-Mobil and their ilk.

And all the while, everyone forgets the role that prices play in helping to balance supply and demand. Sure, there are illegitimate reasons why prices might be high- collusion, price fixing, ect. But not one politician or pundit has come forth with any substantive evidence of such activity.

For those concerned with "windfall" or "obscene" profits, prices are not directly connected to profits. If there is no anti-competitive activity going on, and the market is determining prices, then it seems ridiculous to say that any profit is "too much." The problem with these tax proposals are numerous. What is a "windfall profit" and how would such a figure even be set? For example, if the figure was set at 10 billion dollars, why would 10 billion dollars be considered to be "obscene" and subject to special taxes, but 9.9 billion dollars be perfectly acceptable? And would such a tax apply to all businesses, or just to the oil industry? Applying such a tax just to the oil industry seems patently unfair.

People are mad because an essential good is expensive, and politicians are desperate to do something about it. If gas prices are high for market reasons, yeah, that sucks, but the last thing we want is to make the government more involved. After all, when has government involvement (or even better, special taxes) actually resulted in a lower costing product?

I didn't think so.


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