Sun, 30 Apr 2006

Pain at the Pumps

It appears that Chucky Schumer has noticed something amazing about the oil business:

Schumer called the Organization of the Petroleum Exporting Countries (OPEC), which controls a significant portion of the world's oil supply, a "cartel," and charged that mergers between multi-billion dollar oil companies such as Exxon and Mobil have eliminated competition.

"We have five vertically integrated companies," Schumer said. "They don't compete."

Well, duh! The fabled "Seven Sisters of Oil" are now Five Fat Ladies, and, unless current trends suddenly reverse themselves, there'll soon be Three Big Women. Does this impact the marketplace for oil? You betcha! So does OPEC, of course.

In fact, this situation has been brought about by government policies, tax and otherwise, encouraging concentration and propping up false economies of scale. Schumer himself was the co-author of much of the legislation that led to this situation. Government tells them where they can drill, and for how long and how deep. Government varies their tax rates - sometimes subsidizing, sometimes punishing. Government regulates the wages and benefits they pay their workers. Government regulates the size of their buildings and sets the grades for their gasoline products. Government severely limits the entry of new players into the market, by setting the size of oil and gas leases and writing the law on mineral rights. The limited number players in the oil market is nothing new - why is Schumer just noticing? Two words: high prices.

Apparently , industry concentration and control by cartels was no big deal when gas was less than $2/gallon here. Let the price go beyond a certain level, however, and suddenly the oil companies are "gouging" - despite the fact that their margins have remained the same.

This is demonstrable by looking at agribusiness - while there are five "Big Oil" companies, there are only four meat packers in the US. Why is Schumer not calling for a little "trust busting" in this arena?

It must be price - as long as industry concentration keeps prices low (even if artificially low), it's "good for the country". If prices rise beyond a certain level, even if due to nothing done by the concentrated companies involved, they're suddenly the "bad guys" who are "gouging" the public.

What's important to recognize here is that there is no free market in either oil or beef. We have a established system of state sponsored behemoths to deal with the basic necessities of our lives (energy and food). Today we call this system "capitalism". In earlier days it would've been called out for what it really is: fascism, also known as national socialism.

How important is a name? Think about it: if we called this system "socialism", and asserted public ownership, government would not have to debate about "trust-busting", they'd just go in and set the price at the level they see fit. Which would be a disaster - witness the massive failure of every centrally planned economy ever attempted.

But since we call it "capitalism", government can exert a much finer degree of control through political pressure (threats), while maintaining the fiction of private ownership. Government, after all, made these companies, and they know that. He who pays the piper calls the tune...

The emperor has no clothes. There is no free market in either oil or beef. In fact, there is precious little free market left anywhere. And until and unless we finally establish one, we'll continue to see wild swings in the business cycle, dependence on non-renewable energy sources, and hormone enhanced beef dominating the market.

Would you like some crude oil on your beefsteak, Senator Schumer?

In an exclusive debate on "This Week with George Stephanopoulos," Sen. Chuck Schumer, D-N.Y., faced off with former Senator J. Bennett Johnston, D-La., now a spokesperson for the oil industry, on the issue burning a hole in American pocketbooks — rising gas prices.

(link) [ABC News]

via Thoughts from the Middle of Nowhere

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