Wednesday, May 03, 2006

Who is Doing The Gouging? It is not the oil companies.

Gas prices continue to go through the roof. The national average is almost $3 a gallon with no sign of relief in the near future. Of course this has led to politicians demanding investigations of price gouging against oil companies. Why because they know the average person does not understand economics and they are playing on their ignorance to get votes.

What is the definition of price gouging? According to this online dictionary price gouging is “pricing above the market when no alternative retailer is available.” Interesting, I can think of some places where this might pertain to power or water companies but not gas companies. In every city there are alternative retailers of gasoline. Some argue will they are all in it together; they are colluding behind closed doors! Come on folks, let’s think about this for a second. Think how many gas companies would have to be colluding together to price gouge. It is not going to happen because one company would eventually drop their prices to steal business away from the other. Grocery retailers like Sam’s Club, Wal-Mart, Meijer, and others are selling gas. What interest would they have with colluding with big oil? Why if anything, these companies would try to undercut the others with lower pump prices to draw people into the retail part of their business.

Of course that is not stopping politicians from acting like they are going to save us from the big bad oil companies who are supposedly gouging us. But just who is doing the gouging? Columnist Thomas Bay points out in his latest column “Government Remains Biggest Oil Profiteer”that the average profit on a single gallon of gas is 9 cents. Any ideas what the average tax the government gets on a single gallon of gas? Try 45 cents a gallon (52 cents if you live in Michigan) or 5 times the oil company profits!

So, next time you hear a politician talk about price gouging just remember that they are collecting 5 times the oil profits in taxes and never had to pay anything for there return. Looks like DC politicians are doing the gouging not oil companies.

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