Communism vs. Competitive Markets

If gasoline was controlled by a monopoly, how high would that monopoly set gasoline prices?

No doubt, the price would be as high as possible. And as high as possible would mean until it hurt the consumers so much that they couldn’t pay anymore. But when would the consumer be hurt? In the age of unending debt, the consumer might take a very large hit in their expenses, without crying “Uncle”.

In addition to the ability to pay higher prices, another key factor would be the consumer’s perception of when the price was too high. So the best action for an Oil Trust would be to set the consumer’s expectations as high as possible.

And how would one set the consumer’s expectations higher? Well, that would take a propaganda campaign. Let’s outline some good propaganda points an Oil Monopoly might try to push on the consumers, and then the appropriate media outlets could repeat it until it becomes the defacto fact. It will be so good that most Americans will repeat the mantra as if they had thought of it themselves:

- “Adjusted for inflation, gasoline and crude oil prices have been higher in the past”. Simple, easy, even a child can remember and repeat. Who told me that again? I forgot. Never mind, it’s a great excuse to raise prices.

- “Prices are so much higher in Europe than in America, American gasoline is cheap”. Another good one, and let’s remember that dumbfounded Americans will never take into account that the tax alone in Britain is over $3.35 per gallon.

- “Refineries are down for repair, so gasoline and oil prices must go up”. Let’s hear it for supply and demand! Or the lack of understanding of supply and demand. We can understand that gasoline will go up as capacity is restricted, but what about oil? How are oil prices and refineries connected again? If refineries are down, that means crude oil must be going unused. How does the price of crude oil and gasoline both go up at the same time when refineries can’t take anymore crude oil? Wouldn’t the price of crude go down, as there would be less demand for crude? We certainly know that automobile traffic backs up when it can’t get through. Oh well, let’s not question the oracles of gas and oil propaganda, or the fact that Oil companies have been shutting down and restricting gasoline refinery capacity for decades.

- "There's a storm in the Caribbean, and gasoline prices must go up because of that". Ok, if you say so. Standard propaganda from the Pirates of the Caribbean.

- "War, explosions, Saddam Hussein, Hugo Chavez, mix and match, they cause the price of gasoline to go up". While these can cause crude oil supply problems in time, any excuse is good to get some more profit the very same day at a gas station near you.

And if it were a fact that Oil Companies and Gasoline refiners had become monopolies in the United States, what would be the reaction, and what would be the cure?

If we were Communists, the solution would be for the State to take over pricing and production.

If we were believers in Competitive Markets, we would break up the monopolies, as was done with the Standard Oil monopoly in the past. We would foster competitive markets.

The first action to take place in this dilemma has recently occurred in the State of Hawaii. Price controls have been put in place on the wholesale price of gasoline. This is the first step in the State taking over the industry. While this is anti-market in nature, it is also an admission that, “yes, the gasoline industry is a monopoly, and our cure is full government control”. Ironically, this communist-style solution is probably the first solution that comes to the mind of most politicians and concerned citizens in the home-land of capitalism. How ironic!

Of course as is the nature of powerful monopolies, Hawaii has been subtly threatened with an interruption of gasoline supply.

The true capitalist solution would be to break up the monopolies and trusts; to create as many real competitors as possible, and to drive the prices down to the true market value. Of course caution is always in order, as these efforts can be highjacked by special interests, and a new and even worse trust could be formed, ala Enron's manipulation of energy prices.

The real question will remain: is America truly the home of Competitive Capitalism, or a Pseudo-Communist System of State Controlled Monopolies? The answer may be too disturbing for many Americans to accept…only the future will reveal which path we are on.