Oil prices: supply,demand and price gouging

For those new to this space, I'm a capitalist. I run a small consultancy / boutique software shop that caters to retailers. This is what I essentially do: I buy and sell money.

That's it. Nothing fancy. Arcane, perhaps. But not complicated.

Merchants want instant payment for what they sell. Instead of having a credit plan that they would have to administer, they hire me. I buy their accounts receivable at a discount. I then sell it to VISA or Mastercard. I keep what's left over. If my rates are too high, the merchant goes bye-bye.

And somebody else does the same, only for less money.

And that's the way supply and demand works.

Which brings me to the recent spate of "pricing gouging" by the big oil companies. Sure they posted record profits, but that is to be expected given abnomral circumstances. For my money, the most eloquent bard of supply and demand is Dr. Thomas Sowell. Dig this beautifully concise riff on socialist Sen. Barbara Boxer (D-CA) and her ilk:

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

What do higher prices do? Force people to restrain their own purchases more so than usual. What do higher profits do? Cause more money to be invested in producing whatever is earning higher profits, and this in turn expands output. Isn't a larger supply of oil and a reduced consumption of it what we want?

Whenever there have been sharp rises in gasoline prices, whether nationwide or locally in California, Senator Barbara Boxer has loudly demanded an investigation of the oil companies. These repeated investigations over the years have repeatedly failed to turn up anything other than supply and demand.

The real irony is that it has been precisely liberals like Barbara Boxer who have been the chief obstacles to increasing the supply of oil because they are dead set against drilling for oil in more places and against 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 Senator 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 are what drive up gasoline prices. But there were no hard facts to back up either insinuation.

Given the enormous sums of money involved in the production of oil, even if all the oil company CEOs worked for nothing, there is no hard evidence that this would be enough to reduce the price of gasoline by even one cent per gallon. As for oil company profits -- representing "greed," as the Barbara Boxers call it -- these profits per gallon of gas are much less than federal taxes per gallon of gas. But the government is never called "greedy" by liberals.

Dig that last line: but the government is never called "greedy" by liberals. Classic.