Let the market do its job

Posted: Sep 28, 2005 12:00 AM

"It's going to be a catastrophe!"

 So I keep hearing.

 The damage from hurricanes Rita and Katrina will send gas prices through the roof and destroy the economy!

 "It's inevitable that this is just the beginning, it's not the end, of this gasoline crisis!" Sen. Charles Schumer told me, as Rita approached last Friday. The New York Democrat went on to say that we're "twiddling our thumbs while Rome burns ... we are weakened in every way!"

 He is eager to spend your money to cure his panic. Schumer wants a new "Manhattan Project" that would use huge amounts of your money to fund "independent energy sources." I reminded him that the last time government tried that, it wasted billions on the totally failed synfuels project. Schumer said that was a failure because "political leaders" chose synfuels, but this time Congress would have "non-politicians" decide what projects to fund.

 Sure they would.

 If non-politicians are going to decide what projects to fund, why do we need Chuck Schumer? We already have a system in which non-politicians decide what projects to fund. It's called "the market."

 If the price of a barrel of oil stays above $50, lots of entrepreneurs will scramble for ways to supply cheaper energy. They'll come up with alternative energy sources or better ways to get oil out of the ground. At $50 a barrel, it's even profitable to recover oil that's stuck in the tar sands in Alberta, Canada. As Peter Huber points out in his book, "The Bottomless Well," the Athabasca tar sands alone contain enough oil to meet our needs for 100 years.

 But Schumer and other politicians don't trust the market.

 After Hurricane Katrina, he and Sen. John Corzine, Democrat of New Jersey, invited reporters to a gas station where they said gas prices were rising not because demand exceeded supply, but because oil sellers are doing something fishy.

 "Up 50 cents one day, down 25 cents the next, then up another 30!" Schumer told the cameras. "Something's wrong with the market!"

 Something's wrong with the market? I'd think "up 50 cents one day and down 25 the next" shows the market working very efficiently. The oil business is hugely competitive. Gas station profit margins are paper-thin. Station managers have to adjust prices constantly to keep from losing business to a station down the block. Any of us can see the posted prices without even having to leave our cars, and people often drive blocks just to save a penny.

 Despite Schumer's complaints about "catastrophe," today's gas prices aren't especially high. Even after the price increases of recent years, and after the high gas taxes imposed by our bloated government, today's price ($2.75, for regular, according to the AAA) is still lower than it was in 1981 ($2.86, adjusted for inflation). The politicians won't tell you that, and neither will most of the media. When they rant about "record" gas prices, they usually forget to adjust for inflation.

 Fox News' Bill O'Reilly last week also ridiculed the idea that competition sets gas prices. On his popular TV show, he said, "Somebody tells your local gas station owner exactly what to charge! Somebody does that!"

 Really? There's a secret price dictator?

 Why don't people trust the market? Schumer thinks congressionally appointed "experts" are the answer, but imagine how much gas would cost if the government produced it! At least $20 a gallon. Gasoline isn't easy to make.

 First, the oil has to be found, then sucked out of the ground ... sometimes from deep beneath an ocean. The drill may have to bend 90 degrees, dig sideways and bend down again, sometimes drilling through 5 miles of earth. What they finally pull out of the ground has to be delivered through unbelievably long pipelines or shipped in monstrously expensive ships, converted into three different formulas of gasoline, and then pumped into trucks that cost more than $100,000 each. Then your local gas station has to spend a fortune on safety devices to make sure you don't blow yourself up.

 Even after all that, a gallon of gasoline still sells for less than the equivalent amount of Evian.

 The price will go up and down, and we can count on the market to protect us better than politicians ever could.