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Free Market Fantasies Fuel Fox News' Gas Talk

Reported by Judy - April 29, 2006

Fox News' Neil Cavuto used his show "Cavuto on Business" Saturday (April 29, 3006) to warn against "punishing" oil companies by taxing them and then allowed his Republican guests to ridicule the idea of cutting taxes for average Americans struggling to afford to fill up their gas tanks. And in a "let them eat cake" moment, a Republican suggested that poor people who can't afford gas simply buy oil stocks.

As he often does, Cavuto based his show on a biased premise -- "If Congress punishes oil companies for making big profits, will that send gas prices even higher?"

Jack Welch, former CEO of General Electric, rejected government intervention, claiming "Whenever we have government intervention or price controls, it just doesn't work." Welch argued that oil companies should be allowed to keep their profits so they can drill for oil, apparently believing that the supply of oil is infinite and that there will always be more of it to find.

Ben Stein, big fat cat, called the idea of a windfall profits tax on oil companies an example of "pure envy" and said people who think oil companies' profits are too high should buy stock in the companies so they can share in the profits.

Gregg Hymowitz, of Entrust Capital and the show's token liberal, jumped on that. "The problem is not every person out there who buys gas can also afford to buy stocks in these oil companies. .. the low income and middle income people are really struggling here," he said. if the U.S. really is in an energy crisis, he said, a short-term suspension of the federal excise tax on gasoline might give people some relief.

Then Stein, who never met a tax cut for rich people that he didn't like, opined, "But we're already running enormous deficits" so the nation can't afford tax cuts, said the greedy, pompous jerk. "Why should we lower their taxes and not lower somebody else's?" he whined.

Hymowitz correctly countered that it was the huge tax cuts for the wealthy and the billions spent on the foolish war in Iraq that has created the huge deficits and if the nation can afford to reward rich people, it ought to be able to help out average working people.

While Hymowitz did a good job of rebutting the foolishness spewing from the mouths of his rich co-panelists, he might have used even more ammunition. Instead of letting his antagonists focus on drilling for oil as a solution for the problem, Hymowitz might have relied on some work by blogger David Sirota, in his book Hostile Takeover: How Big Money and Corruption Conquered Our Government-- and How We Take It Back (New York: Crown Publishers, 2006)

Sirota notes that higher oil prices are not simply a matter of supply and demand, but also a result of higher charges for refining crude oil into gasoline. Federal regulators, he said, "have allowed the oil industry to pursue its goal of deliberately reducing refining capacity to create artificial bottlenecks in supply. Those bottlenecks then drive up the overall price of gasoline." Sirota cted an internal Chevron memo in which company officials noted that "If the U.S. petroleum industry doesn't reduce its refining capacity, it will never see any substantial increase in refinery profits" (p. 213).

Despite the claims of Welch, Rogers, and Stein, a free market doesn't exist in the oil business because of the concentration in oil refinery capacity. As Sirota noted "five of the largest American oil companies control 48 percent of domestic oil production, 50 percent of refining, and 62 percent of the retail gasoline market." By controlling refining of oil, they can create artificial shortages. The Federal Trade Commission found in 2001 that oil firms used their monopolistic market shares "to intentionally withhold or delay oil shipments as a way to artificially limit supply and to keep prices up."

The companies did it again in 2005, before Hurricane Katrina, using their refining oligopoly to jack up the price of gas three times as much as the price of crude oil, Sirota noted.

Hymowitz would do well to bone up on some of Sirota's facts and figures before the next go-round on Fox regarding energy prices, which probably won't be too far in the future.

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