by Barry A. Liebling
When the price of gasoline rose dramatically in April 2006 there was no shortage of rabble rousers determined to do mischief – and to reveal their flawed thinking. A popular television commentator remarked that the oil companies are led by malicious, unpatriotic executives since prices are “higher than they have to be.” Members of Congress, both Republican and Democratic, recommended a petroleum windfall profits tax. The President of the United States called for an investigation of the oil industry to determine if there is any evidence of “price gouging” or “unfair trade practices.”
The response of a number of free-market defenders was that the attacks can be dismissed as the work of demagogues. It is worthwhile to consider what a demagogue is and how the label fits. A demagogue is a person who attempts to grab political power by appealing to popular fallacies and false claims. Significantly, the demagogue is insincere because he knows – or should know – that his arguments are not true. But respect for reality is displaced by his desire to play to the crowd.
The main fallacious theme that oil company adversaries are touting is that the economic principles of supply and demand do not apply to gasoline. The demagogue asserts that the price of gasoline is arbitrary – depending only on the benevolent or spiteful wishes of gasoline producers. By this view high-priced gasoline is due to malicious executives who pretend that market forces influence price. According to the demagogue, producers should simply lower the price because consumers would rather pay less.
Of course, the demagogue is wrong. The price of gasoline – as well as other commodities – is a natural consequence of supply and demand. The demand for petroleum has been growing prodigiously both in the United States and worldwide. At the same time, growth in supply has been diminished by a host of government actions – including the prevention of refinery construction and the prohibition of drilling in Alaska and in offshore locations. To make matters worse, a number of oil exporting nations have governments that can pinch the flow of petroleum at will.
How does the demagogue perpetrate his game? Why do some people accept fallacies that are easy to expose? Part of the reason is that false views of how the oil industry – and business in general – works are grounded in corrupt premises which are widely accepted.
Consider three popular fallacies – each of which “fuels” attacks against petroleum companies. First, the government should run the economy. If people want gasoline it is the government’s job to see that they get it. This is derived from the mistaken notion that it is the government’s proper role to assure that everyone is healthy, prosperous, and happy – a stealthy way of granting the government unlimited powers.
The correct view is that each individual should be responsible for planning and managing his or her own life. Government’s proper role is limited to assuring that each person’s individual rights are respected. In the arena of gasoline, the government should assure that buying and selling is done by mutual consent and that coercive force and fraud are prohibited.
A second common error is that the price of gasoline should be determined by fiat. Many people erroneously feel that there is an absolute, context-free, correct price for gasoline. Market forces and decisions made by human beings cause gasoline to be priced “incorrectly too high.” Government needs to step in and fix the price of gasoline at the right level.
The proper price of gasoline – and all goods and services – is precisely what the buyer and seller agree to by mutual consent. This guarantees that both sides get an acceptable deal. All gasoline pricing should be determined privately. Aside from the fact that mandating the price of a commodity to be low will lead to shortages, any government-forced price is incompatible with individual freedom – living your life your own way.
A third flawed premise is the notion that making a profit is a sure sign of moral depravity. Demagogues justify their hostility by pointing out that oil companies and executives have made a huge amount of money. Financial success, according to this view, is a sufficient reason to condemn the industry.
In answer to the demagogue – success in business is a positive outcome. If you come by your wealth honestly you are entitled to keep it, and you merit admiration. By contrast, someone who is dishonest and uses coercive force deserves nothing – whether he amasses a large or only a modest amount of money.
When the price of gasoline goes up, pay attention to the demagogues. Identifying their mistakes exposes them for what they are.
*** See other entries at AlertMindPublishing.com in “Monthly Columns.” ***