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Prices

Posted By Don Boudreaux On August 29, 2005 @ 1:52 pm In Prices | Comments Disabled

The rising price of gasoline inevitably sparks accusations of oil-company nastiness.  Consider this quotation from an essay [1] in yesterday’s North Jersey Record:

"If I were a guy in a marginal race, I would be all over the oil companies," he said. "I’d be getting ahead of the curve right now, hauling them before my committee, holding hearings throughout my state – maybe introducing legislation to cap their CEO salaries."

The "he" quoted is one Tony Fabrizio, a GOP political strategist.

Overlook the fact that any forcible lowering of CEO salaries will have no effect on oil prices (save, perhaps, to raise them as CEO talent is driven from the oil industry).  Overlook also the likely absence of principle driving Mr. Fabrizio’s advice: he’s an expert on how politicians can increase their chances of electoral success, and that expertise apparently fuels his quotation.

Focus instead on the (sadly) widespread notion that the prices of oil and oil products, such as gasoline, are arbitrarily set by oil companies; focus on the failure to understand that these prices overwhelmingly are market phenomena.  They are the result of human action but not of human design.

To see how absurd it would be to haul oil-company executives before a political body so that politicians can publicly ask them to justify today’s gasoline prices, ask the following:

Would it make sense to haul before Congress a group of real-estate agents, or a few homeowners, or some home-builders to accuse them publicly of causing the recent surge in real-estate prices?

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