Thursday, May 25, 2006

There was price gouging because I say so - Cantwell

Our Senator Maria Cantwell has had the price of gasoline in a full-court press - trying to limit exploration, limit drilling, transportation ... everything. By the laws of economics her combination will raise the price of gasoline at the pump. But she has a plan to make that illegal. Cantwell continued her pressure on gasoline prices this week by a misleading study and misstating what it found. Cantwell released a press release May 22 saying that the Federal Trade Commission (FTC) had found price gouging. But the Seattle Times points out that the bill calling for the study defined price gouging as
"any finding that the average price of gasoline available for sale to the public in September, 2005, or thereafter in a market area located in an area designated as a State or National disaster area because of Hurricane Katrina, ... exceeded the average price of such gasoline in that area for the month of August, 2005."
That is a transparent attempt for a self-fulfilling prophecy. Many things can cause the average price to be higher. The Federal Trade Commission's report released on May 22 did not find evidence of price manipulation:
... the Commission found: No evidence to suggest that refiners manipulated prices through any means, including running their refineries below full productive capacity to restrict supply, altering their refinery output to produce less gasoline, or diverting gasoline from markets in the United States to less lucrative foreign markets. The evidence indicated that these firms produced as much gasoline as they economically could, using computer models to determine their most profitable slate of products.
The FTC did find that there are market forces that a distinguished US senator cannot change. When there is an increase in demand it causes the price to rise. When no new refineries are built for decades the supply is limited which also causes prices to rise. (Refineries have succeeded in increasing the output of the existing refineries.) What if Cantwell dictates lower prices? Look at the failed experiment in Hawaii; they tried to set maximum gas prices starting last year. The experiment didn't work. The state's Department of Business, Economic Development and Tourism reported that it cost consumers as much as $54.9 million in 5 months. So Legislature gave it up this month almost unanimously. If Senator Cantwell tries the same thing she must expect to get the same result - higher prices for the consumers. The Seattle Times says it well in its headline:
Cantwell should check her oil shtick
Cross posted at Sound Politics

No comments: