Executives
of the big oil companies have been hauled before the U.S. Senate
recently to defend their industry's recent mergers and record profits
as American consumers face high oil and gasoline prices. I'm going to
defend the big energy companies in this case, since I think they're not
the reason for high prices.
Before you write me angry
e-mails, dear reader, let me first lay down some street credibility.
Yes, I'm a gray-haired guy now. But I've spent a lot of time in my life
as an antipoverty lawyer in New Haven, Conn., and in Washington, D.C.,
helping very poor people with their legal woes. I also spent years as a
lawyer working on prosecuting false and deceptive advertising.
Probably
the lion's share of my adult life was spent writing about financial
fraud for financial publication Barron's, and I helped put a number of
fraudulent entities out of business. I also testified against a number
of fraudulent managements in lawsuits, both state and federal, and I
still often write about injustice in the boardroom.
That
being said, I also know how a lynch mob operates. After all, if there's
a problem, some cause has to be found. And it's really lovely if the
cause can be someone rich and powerful so that we can work off our envy
and also take the intoxicating drug of anger. Anger organizes our
emotions, lines them up, removes ambiguity, and feels good.
Urge to Crack Down
So,
the mob goes after someone to lynch, even if that person is innocent.
After all, as the immortal Bob Dylan sang long ago, "A lot of people
have knives and forks, and they don't have nothing on their plates, and
they have to cut something."
This comes to mind because of
the recent actions in the U.S. Senate that attempt to "crack down" on
energy companies because the price of oil is so much higher than it
used to be and because one large oil concern, Exxon (XOM), is reporting very large profits (after many years of modest earnings).
The
crackdown takes the form of preventing oil companies from merging or at
least making it much harder for them to merge. The idea is that the
energy companies have been fixing prices at artificially high levels,
and if they merge, they'll just do it more.
This idea is
apparently backed even by someone as wise as Senator Arlen Specter
(Rep.-Pa.), Chairman of the Judiciary Committee and a fellow graduate
of Yale Law School.
No Conspiracy
The
only problem with this idea is that it's based on a totally false
premise. The energy companies don't set the price of oil or of
gasoline. The prices you pay for heating oil or gasoline aren't set in
boardrooms in Texas but in trading rooms at commodities markets all
over the world.
Gas prices aren't set in shadowy conferences
in shooting lodges, but in rooms of people shouting or punching
computer keys in London, New York, and Tokyo. Oil is a world commodity
like tin or copper or rubber or coffee. The price is set by traders
anticipating supply and demand.
Rumors of war in the Mideast, terrorism
against oil platforms in Nigeria, warmer weather in New England, bitter
cold in London -- these are what set energy prices. Even the biggest
U.S. energy companies are tiny pawns in the game compared with the
world market, flotsam and jetsam in the ocean of world oil trading.
So,
when prices go up or down, it's not a conspiracy. It's panic or
confidence in the market. It's just like what happens on the stock
markets every trading day -- greed or fear at work, not at the
companies being traded but on the exchanges. The oil companies can
either lose or gain from this trading.
Hobbling the Oil Companies
I know this is hard news to digest because who do we hate then?
Well,
some think we solve the problem by just hating and blaming the innocent
-- in this case, the oil companies, dragging them from their beds, and
lynching them. So what if they're innocent? Someone's got to pay.
The
only problem is that if we keep punishing the companies that in good
faith give us the energy we need to power our lives at market prices --
which sometimes give them a big profit and sometimes give them a small
one -- eventually, they'll go away. Or they won't have the ability to
do their jobs as well because of all the restrictions we've put on them.
Never mind, some think. A lot of people have knives and forks, and they don't have nothing on their plates, and they have to cut something.