Friday, October 28, 2005

Cheap Oil

Oil companies reported high third quarter profits, coinciding with the quarter in which powerful hurricanes caused damage in the southeastern region of the U.S. Now a panel is investigating whether their recent profits were due to “gouging.”

In a fairy tale world, we’d love to blame increases in price on some evil person. We’d love to be able to make a law that allows us to purchase exactly what we want at exactly what we want to pay. But what do we want to pay? The price that I would always like to pay is zero. I would like to get what I want without having to give up anything.

The world simply doesn’t work that way. Prices are merely a reflection of the fact that there are not infinite resources and infinite simultaneous opportunities. When I choose to go sailing, I am choosing not to go biking. When I chose my profession, I gave up the opportunity to go into other professions at the same time. Regardless of the monetary cost, every decision we make has a cost.

Therefore, we make decisions as to what will serve our goals best. We choose what brings us the highest value at the least cost.

Politicians want to blame the stockholder-owned oil companies for charging too much. Call it greed, but oil companies exist to make money. This is truly a wonderful phenomenon. I personally would not enjoy walking to work in the rain. It would be quite inconvenient for me to have to discover, refine and store my own oil. Luckily, millions of people have worked out a great deal with oil companies – we pay them, and they supply oil and gasoline for us! I, for one, am quite happy with this arrangement. Judging from the profits that oil companies make, I’d say there are quite a few others who are too. What a good deal!

In the aftermath of recent hurricanes, the oil companies simply did what they set out to do from the start: provide oil and earn profits. We demanded oil, and they supplied it. It was not out of their generosity, but out of their desire for profit, that we benefited from having oil when we needed it most. Yet politicians threaten our mutually beneficial deal with the oil companies and would rather we place our faith in the generosity of oil companies instead of their desire for profit. It is much more reliable to place our faith in profit-seeking than in generosity.

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