According to Thomas Rosch in the Wall Street Journal (“Obama’s Political Price Gouging,” Opinion Section, May 2, 2011), the President and his Attorney General are forming a new “working group” to investigate “price gouging” at the gas pump (“White House’s Task Force to Probe Oil, Gas Markets,” U.S. News, April 22). This working group will come under the Financial Fraud Enforcement Task Force, which was constituted to prevent fraud in the financial and lending markets. This group will duplicate the functions of existing agencies – the Federal Trade Commission – which is already empowered to investigate and prevent “price gouging.”
Besides spending money on two different organizations to work at cross purposes on the same “problem,” this action demonstrates just how clueless the President really is: simple math demonstrates that it is the government itself that is “price gouging” the American public.
The following is based upon a blog I wrote May 18, 2008, when the Democrat-controlled Congress saw gas prices rising and the political left attacked the oil companies. Does it sound familiar?
“Congress is holding congressional hearings this week. They are beating up the oil executives in hopes that they will reduce their salaries so that the common man can make it to work tomorrow. At $4.00 per gallon for gas, reducing gas prices through means other than the law of supply and demand has become a national pastime. What have we learned from this circus?
“Congress has learned that the cost of a barrel of crude represents about 75% of the cost of a gallon of gas. Corporate profit represents 4% of the cost of a gallon. What about the other 21%?
“Well, here are some facts from the Energy Information Administration. In 2005, when gas was $2.27 per gallon, component costs were: (1) 10% distribution and marketing; (2) 18% refining cost and profit; (3) 19% Federal and State taxes; (4) 53% crude oil price. So, subtracting out the present day cost of the oil (75%) and profit (4%) and assuming the other costs remain proportionate to those in 2005, we can reliably state the following:
1. 75.0% goes to the crude oil provider (principally OPEC, Venezuela, Canada, Mexico).
2. 9.3% goes to Federal and State government.
3. 6.8% goes to refining;
4. 4.9% goes to distribution and marketing; and
5. 4.0% of a gallon of gas goes to oil company profits.”
Miracle of miracles! The oil companies are making less than 50% of that collected by the state and federal government AND the state and federal governments take no business risk. In fact, the government’s “profit” increases directly as the price of a gallon of gas rises, with no downside risk. Maybe we should ask our representatives, who seem not to understand economics OR basic math, to take a pay cut. Then again, maybe we can harness the energy in the hot air. We know they will never vote to use clean coal, oil in Anwar, or nuclear energy, which are in abundant supply.
The point today is the same as the point made in 2008: it’s not the oil companies that are “gouging” the American public. It is our government. Our Organizer in Chief needs to be sent a message: the average American is fed up with it, understands his game, and will stand with the free market before we stand with him.
A last thought: if the Republican-controlled Congress wishes to save some money, it should defund the President’s so-called “working” group. It might be good to remind him that Congress holds power over the purse.
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