Democrats in Congress engaged in an unwitting April Fools prank this April 1st. Some members of Congress summoned the leaders of the five largest oil companies in the U.S. for a nice modern-day inquisition:

Top executives of the five biggest U.S. oil companies were pressed Tuesday to explain the soaring fuel prices amid huge industry profits and why they weren’t investing more to develop renewable energy source such as wind and solar.

The executives, peppered with questions from skeptical lawmakers, said they understood that high energy costs are hurting consumers, but deflected blame, arguing that their profits – $123 billion last year – were in line with other industries.

“On April Fool’s Day, the biggest joke of all is being played on American families by Big Oil,” Rep. Edward Markey, D-Mass., said as his committee began hearing from the oil company executives.

With motorists paying a national average of $3.29 a gallon at the pump and global oil prices remaining above $100 a barrel, the executives were hard pressed by lawmakers to defend their profits.

The first thing I noticed in the article was that every Representative quoted in the article was a Democrat. But that’s not all that surprising, since Democrats in Congress have little to no clue about how the economy works. Let’s tackle the ideas in this article one by one:

“[O]il companies were pressed Tuesday to explain the soaring fuel prices amid huge industry profits”–And why should the oil companies have to explain fuel prices and their industry’s profits to Congress? Oh, right. Members of Congress are being meddlesome busybodies for a grandstanding photo op. “Americans can tell we care about them because we were so mean to the oil businesses” may be applauded by liberals, who believe it is the government’s job to manage a company’s prices and profits. But government control of business is the definition of statism, as illustrated by the statist philosophies of fascism and communism.

“[W]hy they weren’t investing more to develop renewable energy source such as wind and solar”–It is the responsibility of the business itself to determine how it will best invest for its future. Unless you are a fan of big government or a liberal (but I repeat myself) who believes that government should dictate how a business spends its own money, you already understand that. I would have loved to see one of the oil executives ask the Congressmen about why they weren’t spending more of their own salaries on charities and other projects, but that would be just as wrong. After all, your money, whether you are a sanctimonious Democrat or a Big Oil chief, is your money. I have no moral justification allowing me to tell you how to spend your money, and you have no moral justification to tell me how to spend mine.

“[T]heir profits – $123 billion last year – were in line with other industries.”–Oil companies make about 5% profit in bad years, and about 10% profit in the good ones. This puts them in the middle of business profits. Just to compare, the defense industry earned a 6.8% profit in 2007, the oil industry earned 8.4%, and the pharmaceutical industry earned 20.9% profit.

But this talk of rising gas prices and oil company profits ignores the fact that the oil companies don’t set the price of gas. They don’t even set the price of oil. Even OPEC cannot set the price of oil, although they do their best to affect the price. The price of oil is set by the commodities market, but not even arrogant Democrat Congressmen are dumb enough to try to call commodities traders on the carpet.

Here’s the kicker: if the oil companies need to be called on the carpet for their huge profits, then what does about government’s obscene profits from gas taxes? Red Planet has a great cartoon showing the comparison between Exxon’s profit per gallon and the government’s tax on that same gallon. Who is making obscene profits now?

Obscene profits?

If Exxon and the other oil companies are making obscene profits at 10 cents on the gallon, doesn’t that make the government’s profit from that same gallon of gas four times as obscene? Not if you are a liberal Democrat who doesn’t comprehend the free market. To badly paraphrase Benjamin Franklin from 1776, a liberal Democrat has no problem with profit in the first person, such as “my profit.” It’s only in the third person — “their profit” — that they object.

Reread the article, and you will see this attitude evident in the attitudes of Democrat Representatives as they grill the oil executives. Heaven save us from these clueless, grandstanding liberals!

So Congressman Peter DeFazio wrote to me, but it’s not really that big of a deal. He didn’t write to me as much as he just took advantage of his free franking privileges to blast info out to the residents of his congressional district. And since he’s a freakin’ liberal, I wasn’t all that surprised to read some of the things he stands for. I’m going to focus on the first part of his short treatise on gas prices. The bolded text is his.

Out of Control Gas Prices Require Immediate Action

Gas prices are headed over $3 a gallon, and the administration has failed to offer an effective solution. Last year, Exxon Mobil reported the highest corporate profits in history–over $36 billion. That’s nearly $100 million a day. The company paid its CEO a $400 million retirement benefit. Fifty refineries have been closed in the past 15 years due to oil company mergers. And now the companies use refinery capacity as an excuse to drive up prices. OPEC continues to violate international trade agreements by colluding to restrict supply and drive up prices.

In response, I support legislation to impose a windfall profit tax on oil companies, take legal action against OPEC and other market manipulators, increase fuel efficiency standards, put a moratorium on oil industry mergers, and make gouging consumers a federal crime. I also support bipartisan legislation, H.R. 4409, to require a reduction of 2.5 million barrels a day in U.S. oil consumption within ten years. To reach this goal, the bill expands federal research into alternative fuels, provides incentives for American automakers to speed commercialization of more efficient and alternative fuel vehicles, provides farmers with support to grow crops for use as fuel, and increases tax incentives for consumers who purchase fuel-efficient vehicles.

Oh, where to start? I think the actual title is worth commenting on. It is obvious Rep. DeFazio thinks that prices should be controlled. But understanding the nature of the market means recognizing that prices are a function of supply and demand. Inasmuch as there are price controls, they come at the hands of a meddling government. So, are gas prices out of control? No, the current price of gas is a natural reaction to elevated oil costs, increased demands for gas as the summer vacation time arrives, and artificial limitations on supply thanks to government meddling.

“[T]he administration has failed to offer an effective solution.” But it’s not the administration’s responsibility to jump into the market. An effective reaction to the rise in oil prices is to increase the oil supply, and Congress could do this by allowing drilling in ANWR and off-shore. But Democrats in Congress, including Rep. DeFazio, have chosen to block that effective solution.

“Last year, Exxon Mobil reported the highest corporate profits in history–over $36 billion. That’s nearly $100 million a day. The company paid its CEO a $400 million retirement benefit.” This is just a blatant attempt to capitalize on people’s natural jealousy of others’ wealth. Is Exxon Mobil stealing people’s money? Not at all. Is there something wrong with how much money the company earned? Well, it’s obviously wrong in the eyes of Rep. DeFazio. But Warren Meyer of Coyote Blog does a good job of debunking this meme. I’ve posted below a great image from Meyer’s website that shows the comparison of profit margins for oil companies with other industries.

profit margins

You can see from the graphic that oil companies have a smaller overall profit margin than many other companies. Banks are making almost 20 cents from every dollar they process. Since they make almost 2.5 times the profit of oil companies, why are we not hearing people bemoaning Big Banks rather than whining about Big Oil? I believe the answer is that Big Oil makes a great scapegoat, and liberals and the media (but I repeat myself) enjoy beating up on Big Oil.

In the second paragraph, Rep. DeFazio puts forward his plans to destroy continue meddling with the oil industry. “I support legislation to impose a windfall profit tax on oil companies, take legal action against OPEC and other market manipulators, increase fuel efficiency standards, put a moratorium on oil industry mergers, and make gouging consumers a federal crime.” This is a regular smorgasbord of liberal ideas. I am glad the oil industry has made lots of money recently. This means they have money to search for and develop more sources of oil, eventually driving the price down. If the government steps in and takes away their profits, they are taking away the incentive for the oil companies to compete in the market. If the government took away any income you made above $50,000, how hard would you work once you had earned that much money? Human nature is such that people stop working when there is no reward, and taxing away windfall profits is the government’s way of taking the reward from a company that was in the right place at the right time.

But it’s the idea of the government making “price gouging” a felony that really bites me. My last article discussed price gouging. As long as no one is holding a gun to my head, then I am entering into a voluntary transaction with the store owner. How can there be gouging? “But people are taking advantage of a situation to make money!” Well, duh! The story of John Shepperson is a perfect example of the clash between free markets and government:

Shepperson and his family live in Kentucky. They watched news reports about Katrina and learned that people desperately needed things.

Shepperson thought he could help and make some money, too, so he bought 19 generators. He and his family then rented a U-Haul and drove 600 miles to an area of Mississippi that was left without power in the wake of the hurricane.

He offered to sell his generators for twice what he had paid for them, and people were eager to buy. Police confiscated his generators, though, and Shepperson was jailed for four days for price-gouging. His generators are still in police custody.

Who was forcing the people to buy the generators? If you said “nobody,” then march to the head of the class. Shepperson saw a need, a chance for profit, and he rushed to fill that need. That is the beauty of the free market — there are no board meetings or government bureaucrats sitting around deciding how materials and services will be allocated that day. Instead, the invisible hand of the free market inspired Shepperson to rush needed items to the area. But did you notice how the anti-gouging laws “helped” the people? The law was written with the well-intentioned goal of protecting the people, but the result was that the government deprived the people of the very goods that they were ready and willing to buy. Consequently, nobody benefitted from the generators that now sit unused in police custody in Mississippi. Quinn’s First Law in action again: “Liberalism always generates the exact opposite of its stated intent.”

And who exactly will define what gouging is? Why, the very same government that takes away generators from the people in the name of protecting them will be the entity that defines price gouging nationwide.

There is no way I could ever vote for Rep. Peter DeFazio. It’s clear from his mail that he just doesn’t grasp the nature of the free market, and that’s the wrong person to have in Washington D.C., messing with our economy.