Politics » Politics Feature

GADFLY: Shocked (or Suckered) Again



Guess what? The FTC has given the oil companies a clean bill of health, insofar as price gouging. To quote Claude Rains' character (Captain Renault's) famous remark in the film "Casablanca," I was shocked, shocked that George Bush's FTC would give the oil industry a pass on the way it's been screwing the American public. The FTC has succeeded in telling the American public that, when it comes to gasoline pricing, if something looks like gouging, feels like gouging, and acts like gouging, it isn't gouging.

The FTC, in its report issued on May 22nd, found no anti-competitive, collusive or manipulative activity by the oil companies in the runup of gasoline prices following Hurricanes Katrina and Rita. (The 222 page report is here:; a summary is here: Of course, this comes from the same agency that allowed the mega mergers in the oil industry which have, themselves, destroyed competition in that industry.

The furor the report caused in the halls of Congress was almost immediate. At a hearing before the Senate Commerce Committee on May 23rd, (Senate Hearing on Price Gouging), the incredulity of the Senators, from both parties, was palpable. Trent Lott, who is nothing if not a supply-sider, used words like "baloney" to describe the way oil company representatives were dancing around the issue of refining capacity, and described the oil industry's actions as "outrageous," "fishy" and "indefensible." He suggested that the industry is using the excuse of normal supply-and-demand economic theory "as a cover to defend bad conduct." Arkansas Senator Pryor pointed to the fact that the oil industry is the only one he could ever recall that had successfully turned the normal economic model (i.e., the higher the cost of raw materials, the lower the profit) on its ear (a point I made in my "Gasonomics 101" article:, a phenomenon Pryor said could only be explained by "profiteering." Senator Boxer, in a confrontation with the FTC's chairman, Deborah Majoras, that was worth the price of admission to the hearing by itself, called the report as good a whitewash as if the oil companies had paid for it, and suggested it was the FTC itself that should be investigated.

A little historical context is appropriate here. In September, 2005, when prices started  started their precipitous rise following the hurricanes, Congress summoned representatives of the FTC, including its chair, Ms. Majoras, and insisted that the Commission investigate the oil companies for possible price gouging. At the time, Majoras was quite vocal in her opposition to any sort of regulation of gouging in the oil industry, and was resistant to the mandated investigation. Ms. Majoras, in fact, testified that increasing oil prices were good for the market, because they resulted in increased supply., a statement which has proven to be demonstrably false, given the facts which were announced at the recent hearing.  And she opposed any attempt to federalize existing laws against gouging, claiming that would be counter-productive, insisting that Congress should allow the "free market" to continue to dictate prices in the gasoline markets.

Here's what she said:

Price gouging laws that have the effect of controlling prices likely will do consumers more harm than good.  While no consumer likes price increases, in fact, price increases lower demand and help make the shortage shorter-lived than it otherwise would have been. In a period of shortage - particularly with a product, like gasoline, that can be sold in many markets around the world - higher prices create incentives for suppliers to send more product into the market, while also creating incentives for consumers to use less of the product.  Thus, under these circumstances, sound economic principles and jurisprudence suggest a seller's independent decision to increase price is - and should be - outside the purview of the law. (Emphasis supplied).

So Congress entrusted the task of investigating the oil companies' pricing practices to the one person who trumpeted her belief, in advance, that she was an oil company acolyte when it came to price spikes. Talk about putting the fox in charge of the hen house! But none of that was a surprising position for her to take, given the fact that she represented Chevron Texaco as a partner in a major Washington, D.C. law firm (which, presumably, still represents Chevron, and where her husband is still a partner), and given that she may well like to return to that job (and that client) when her tenure at the FTC is up.

The hearing on May 23rd was nothing if not a dramatic demonstration of how ineffectual the "free market" is in the oil business, and how even more unwilling the Bush administration is to do anything about that. Among the more interesting revelations during the Senate hearing were the following:

            1. The FTC restricted its investigation to the downstream flow of the gasoline market (i.e., from the refinery level down to the retail level), and did not look at the upstream impact of oil pricing, even though Majoras acknowledged that most of the oil company's profits come at the extraction end of the process;

            2. Crude oil stocks (i.e., inventory) have increased substantially (10 million barrels) just in the last year, to their highest level ever, which, in a normal (i.e., "free") market situation, would dictate a decline in price, just the opposite of what has occurred;

            3. Majoras, in addition to opposing a federal anti-gouging statute, also opposes making OPEC (which she acknowledged violates anti-trust laws with impunity) subject to the U.S's anti-trust laws. Why? Because, according to her (and even though they stash billions of dollars in this country which could be subject to seizure in the event of an anti-trust judgment, they would "laugh" at any lawsuit;

But perhaps the most interesting exchange was when Majoras told Boxer that in talking to "working people" about the price of gasoline, they told her that, although they were troubled by increasing gasoline prices and increasing oil company profits, they also recognized that if they sold their homes for a profit, they would never relinquish any part of their profits. So said the Marie Antoinette of federal consumer protection.

Congress is under extreme pressure from its constituents to do something about the oil companies' business practices. The public record is replete with studies that show the oil industry is raping the American public. Here are just a few examples:

http://www.lafollette.wisc.edu/calendar-news/2005/outlooksep05.pdf           http://www.consumerwatchdog.org/energy/pr/?postId=5084 http://www.citizen.org/documents/oilmergers.pdf  http://zmagsite.zmag.org/JulAug2004/gupta0804.html http://www.consumerwatchdog.org/energy/rp/6132.pdf  http://www.consumerwatchdog.org/energy/pr/?postId=6400

            Our elected officials in Washington thought (stupidly) they could soothe the savage electorate beast by appearing to aggressively investigate the oil companies' practices. Unfortunately, they chose the wrong vehicle. They should have known that the FTC would never get to the bottom of the problem, since it never has, especially given the loyalties of its top cop. As a result, the FTC's "whitewash" (Sen. Boxer's term) is only going to increase the pressure on Congress to do something about the oil companies.

If gasoline prices continue to stay high (or go up even further), our elected representatives are going to have a hard time not enacting corrective measures on the oil companies. There are already bills pending in Congress to impose an excess profits tax, http://thomas.loc.gov/cgi-bin/query/D?c109:1:./temp/~c109SpwUYg:: and http://thomas.loc.gov/cgi-bin/query/D?c109:1:./temp/~c1097jb3ze:: and there are also bills pending which would federalize the prohibition against price gouging. http://thomas.loc.gov/cgi-bin/query/D?c109:2:./temp/~c1090zmRR5:: With the mid-term elections coming up, it seems likely that even (but especially) Republican legislators will want to convince voters they've actually done something about gas prices, and the practices which have caused them.

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