Why Is Profit a Dirty Word?

By John Stossel
Wednesday, June 6, 2007

At a recent press conference Sen. John Kerry was upset as he snarled, "Oil companies in America are reporting record profits. Record profits."

When did profit become a dirty word?"

I wish the oil executives would face the media. They could say something like:

"What are you complaining about? What do you think we do with our profits? Buy fancy cars and homes? Well, we do, actually, but nearly all the money goes to looking for more oil and following environmental rules that you want us to follow. You should want us to make more profit. Anyway, we make less profit per gallon than your beloved government takes in taxes."

But Big Oil never shouts back at the reporters. I guess I can't blame them, given the hostility of the economically ignorant media.

This month the media claimed that gasoline prices had reached a "new record."

"Filling up is more expensive now than it's ever been." That's Julie Chen of CBS.

"A record high." -- Brian Williams, NBC

"Another record high." -- Charlie Gibson, ABC

" ... [R]ecord high of, get this: [ka-ching] $3.18 a gallon." -- Jon Scott, Fox

No, Jon, get this: It's not a record high. It only looks that way if you don't adjust for inflation. And that's just silly. It's like saying the movie "Rush Hour II" out-earned "Gone with the Wind." The media should quote prices in real dollars, but when they get excited, they don't. As the U.S. Energy Information Agency (EIA) acknowledges, once you adjust for inflation, it turns out that gasoline cost more 25 years ago, in 1981. When the 1981 price is converted to 2007 prices (not 2006 prices, as originally used at the EIA website), last week's average price of $3.22 was seven cents below the record, $3.29, which, by the way, was a monthly average.

Even if gasoline prices set no record, Congress surely set a record for inanity. What else are we to say about an anti-"gouging" bill passed last month by the House that would make it a crime to charge "unconscionably excessive" prices, "tak[e] unfair advantage of unusual market conditions," and "increase prices unreasonably" during an emergency?

Please. Lawyers will get rich debating vague words like those. Laws are supposed to be clear so we'll know in advance what's legal and what's not. But there's nothing clear about those "crimes."

That's not legislation. It's legislative posturing. Considering the perverse incentives of electoral politics, I'm amazed this bill got only 284 votes.

And Congress should know better. After Hurricane Katrina, Congress had the Federal Trade Commission investigate price gouging, and so the FTC studied price spikes going back years. But it found "no instances of illegal manipulation."

If the politicians do enforce anti-"gouging" rules, it will be akin to capping prices, and we tried that before. It was a disaster. Drivers had to wait in long lines, and some couldn't get any gasoline. Only when price controls were lifted did supplies rush in, and only then did prices go back down.

Markets don't work? That's a myth.

Why did prices spike in recent weeks? It's just supply and demand. Demand is up 3 percent, while supply is up just 1 percent.

And gasoline is still a bargain. Think about what it takes to bring it to us: Drills must bend and dig sideways through as many as seven miles of earth. What they find has to be delivered through long pipelines or transported in monstrously expensive ships, then converted into three different formulas of gasoline, moved in trucks that cost more than $100,000 each, and shipped to gas stations that have to have lots of expensive equipment to make sure we don't blow ourselves up filling the tank. Even after all that, gasoline is still cheaper per ounce than the bottled water gas stations sell.

There's no dirtier word in English than "gouging." But we've had enough unpleasant experience with price controls to know that all they do is create shortages.

Who, but the politician, benefits from that?