The oil and gas companies are getting taken to the woodshed again. Fox News superstar Bill O'Reilly has whipped his viewers into a frenzy by saying that energy companies are "gouging" the public. He is calling for Americans to stop buying gasoline on Sundays to protest high energy prices. My response? Let the companies gouge.
Gouging has a very negative connotation, but what does it really mean? To me, a gouger is one who makes a bad situation worse by raising the price of a scarce commodity. But maybe the gouger is actually making the situation better. Imagine there's a gasoline station in the path of a future hurricane. The station has a healthy supply of fuel, but it's the only station in the vicinity that has any supply at all. I can make a very strong case that everyone's interests are best served if the owner prices his gasoline at the highest price possible that will still allow him to sell all of his supply -- in other words, the price where supply equals demand, just the way I learned it in Econ 101. That price allocates the resource more efficiently than any other price, but I'll bet O'Reilly would not be happy about it.
Speaking of allocating resources, if the free market doesn't do it, who will? Does the government have a good track record at this sort of thing? I also happen to believe in personal responsibility for oneself and for one's actions, as opposed to a government nanny state. I realize I'm describing a world that won't ever exist in my lifetime, but a move in the direction of a more libertarian society would be nice -- or at least a halt in the move toward the other direction.
Even on a longer-term basis, the interests of society are best served by letting the market allocate resources. If, for example, the price of oil or natural gas remains high, other alternative-energy sources could potentially be exploited that might ultimately replace fossil fuels as an energy source.
And how much money are these gougers really making? The past 12 months have been good for the major integrated oil companies. ExxonMobil
In the movie Wall Street, Gordon Gekko makes an inspiring speech with a great line: "Greed is good." Similarly, I believe that gouging is good. Charging what the market will bear is what individuals and companies do in a capitalistic society. It is the most efficient way to allocate scarce resources. Fortunately for investors in the energy industry, profits should benefit them for the next few years because products will remain in short supply. But ultimately, all of society will benefit as new and better energy sources and technologies are developed.
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Fool contributor Richard Moore, a longtime libertarian from Angel Fire, N.M., owns shares in Conoco, Tesoro, and Valero. He welcomes your feedback at email@example.com.