Ignoring economics: Part II

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A newspaper headline -- "Lawmakers struggle to define gasoline price 'gouging' " -- shows the phoniness of the current congressional jihad against oil companies. "Price gouging" evokes strong emotions but lacks definition.

Where particular states have passed laws against "price gouging," their different definitions reveal how slippery and arbitrary the concept is. Kansas attempts to define price gouging as selling at prices more than 25 percent higher than they were before some disaster. Georgia makes it illegal for prices to rise after the state government declares a state of emergency, unless the seller can prove his costs have risen.

This all just means "gouging" is a price higher than what observers are accustomed to. In other words, prices under normal conditions are supposed to prevail under abnormal conditions. This completely misunderstands the role of prices.

Why have prices at all? They cause things to be produced and made available to the public -- and cause consumers to limit their consumption. Why then do prices suddenly shoot up? Because either there is less available or more demand, or both.

When hurricanes knocked out both oil drilling sites and refineries around the Gulf of Mexico, there was suddenly less oil. That meant higher prices and higher profits.

What do higher prices do? People are forced to restrain their purchases more than usual. Higher profits cause more investment in producing whatever earned higher profits, and this expands output. Isn't a larger supply of oil and reduced consumption what we want?

When there have been sharp gasoline price rises, nationally or locally in California, Sen. Barbara Boxer has loudly demanded an investigation of the oil companies. These repeated investigations over the years have failed to turn up anything but supply and demand.

Ironically, liberals like Barbara Boxer have been the chief obstacles to increasing oil supplies because they are dead-set against drilling for oil in more places and building more refineries.

When you refuse to let supply rise to meet rising demand, why should you be surprised, much less outraged, when prices rise?

Yet there was Mrs. Boxer on nationwide TV, decrying the high salaries of oil company executives, who are making perhaps half of what a number of baseball players make or a tenth of what movie stars make. The insinuation is that their salaries and oil company profits drive up gasoline prices. But there were no hard facts offered to back up either insinuation.

Given the enormous sums of money involved in producing oil, even if all oil company chief executive officers worked for free, there is no hard evidence this would be enough to reduce the price of gasoline by even 1 cent per gallon. As for oil company profits, representing "greed," as the Barbara Boxers call it, these profits per gallon are much less than federal taxes. But liberals never call the government "greedy." The cost of these political circuses can be even greater than that of gasoline.

We went through all this before, in the 1970s, when oil company executives were hauled before Congress and denounced on TV by politicians. Inflammatory but vague and unsubstantiated charges flew hither and yon in the media.

Demonization of the oil companies made it politically inconvenient to remove price controls when other price controls from the Nixon administration years were repealed.

So, the shortages produced by price controls disappeared for other things but stayed for gasoline. Motorists had trouble finding gasoline and sometimes spent hours in long lines at filling stations. This was the hidden cost of demagoguery.

Anyone nostalgic for those days of gasoline lines, which sometimes reached around the block, can jump on the bandwagon for gasoline price controls or other laws to crack down on "Big Oil." Just be aware there is a cost.

There is no free lunch, and no free demagoguery.

Thomas Sowell is a nationally syndicated columnist.