Monday, March 15, 2010

An Unusual Defense

Generally, when grocery stores have a glut of a particular foodstuff, say asparagus, they lower the price to move the product out the door. Department stores do the same thing. When a particular line of clothing just isn't selling, the store holds a sale. When oil companies find a drop in sales at the pump, however, they close refineries and push the price per gallon upward, which is what they are doing right now. The "center-left" editorial board of the Los Angeles Times thinks that's just dandy, as they made clear in this editorial.

High gas prices spark more public outrage than price hikes in any other commodity, even food. Although electric car technology is improving, consumers have few transportation alternatives, so it's tough to respond quickly to higher prices by changing behavior. Expensive gas hits low-income people particularly hard and is a key driver of inflation, which hurts everybody. So the anger directed at oil companies is understandable. It's just that the political responses are usually wrongheaded.

Today's problem isn't so much high prices, which have fallen since 2008. It's that actions by oil companies may be preventing them from dropping as much as they should. The combination of the recession and improved fuel efficiency has greatly reduced demand, and major refiners are considering cutbacks, according to a report by Times staff writer Ronald D. White. Some refineries already have been closed, such as a Delaware facility owned by Valero Energy and a New Jersey plant owned by Sunoco. Industry analysts say there is little choice because of excess capacity, but consumer advocates such as Public Citizen and Santa Monica-based Consumer Watchdog think refiners are just trying to keep the price of gas artificially high by constraining supplies. Some advocates are calling on regulators to probe whether the companies are violating antitrust laws. ...

Every business makes cutbacks when demand for its products or services falls. We could avoid such market responses from oil companies by nationalizing them or subsidizing gasoline, but that hasn't worked well in the countries that have tried it. Rather than getting mad at the oil giants for exhibiting rational behavior, we should focus on being less reliant on them.

Oh, please.

Of course the oil companies are being "rational." They need to keep the quarterly profit high, preferably setting new records each time they file their reports. The only way they can do that is punish the public which is buying less of the product because of improved gas mileage in the smaller cars which they are buying, rather than the gas-guzzling behemoths that once were so popular, by raising the price of gas. The fact that they do so by manipulating the market is still outrageous.

As outrageous as the Times defense of the practice.

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