A Fearless Free Market Solution to Lower Gas Prices

I have often been fascinated that many of the people who complain that Wal-Mart’s prices are too low are often the same people who complain that gas prices are too high. I wonder whose side these people are on when it comes to Wal-Mart’s attempt to sell their gas at or below cost? That’s right, Wal-Mart is willing to sell gas at a loss to attract more customers to its stores. So what’s stopping them? You guessed it, the government. The next logical question: why? Because many states consider selling products such as gasoline at or below cost as ‘predatory’ to other businesses in the same market. Apparently federal and state governments can not only penalize businesses that are ‘gouging’ but also can penalize businesses that use ‘unfair’ marketing using ‘predatory’ low prices. As of the date of this article, in Minnesota officials can put a lock on gas pumps which price gasoline under the $.08 minimum markup price.

I can empathize with someone who owns a small filling station who would see Wal-Mart’s strategy as a threat to his or her business, but maybe there is a bigger picture many people are not seeing (besides the notion of a free market): a free market solution to bring the overall cost of gasoline down. What if these predatory pricing laws were repealed in every state which would allow Wal-Mart to set prices below costs? Other filling stations simply could not compete because unlike Wal-Mart, most other stations would not be willing to sell gasoline at a loss (which is understandable). If Wal-Mart’s competition refused to sell any gasoline at all, this would force the large gas and oil companies and OPEC to re-evaluate the cost of both the refined gasoline and crude oil.

As I explained in a post I wrote back in September of 2005, the supply of gasoline is limited because of government environmental regulations, a lack of refining capacity, and uncertainty in the market due to instability in the Middle East. Meanwhile, the world demand for gasoline is greater than ever. The price of any product is dependant on supply and demand (Econ 101 stuff here). While all of these factors would still be true if enough filling stations refused to sell gasoline at a loss, such a move would force the gas and oil companies to make whatever adjustments necessary to bring the cost down to a level where retailers would make a profit and Wal-Mart would no longer have a reason to sell gasoline below cost.

Unfortunately, most people would rather involve government even more to try to bring gas prices down. Even President Bush and other cowards in the Republican Party (the party of limited government and free markets right?) have caved in to the ‘price gouging’ crowd calling for an investigation. Here we have politicians telling private businesses how high and how low they can sell their products (whatever the product happens to be). What nerve! If I want to sell gasoline at $.50 a gallon, that ought to be my call. If I think I can sell gasoline at $10 a gallon and people are stupid enough to buy it, that ought to be my call.

Don’t get me wrong, there are a few things the government can and should do. First of all, since our elected officials are so concerned about how much we are paying at the pump, all federal taxes on gasoline should be cut by at least 50% or eliminated altogether. According to the most recent government report (2004 averages), federal taxes make up 23% of the cost of a gallon of gas while ‘refining costs and profits’ make up 18%. Why should the government receive a bigger cut than those who provide us the product? The obvious argument against this of course is ‘how will we pay for the interstate highways?’ Ever heard of toll roads? What about scrapping last year’s God-awful highway bill and start over without the waste? I’m sure there are many other areas of wasteful spending that could be scrapped as well. I wonder if this will be part of the probe? Don’t count on it.

Secondly, lest anyone accuse me of always sticking up for BIG OIL, when I say I support a free market, I mean I support a free market: the federal government should immediately stop subsidizing the oil industry (and every other private industry for that matter). Corporate welfare is just as bad (arguably worse) as welfare for the poor.

Last and perhaps most importantly, government needs to allow greater exploration in ANWR, of the Gulf Coast, the East Coast, the West Coast, and every other area where reserves are likely to be and lift restrictions for building new refineries.

There you have it; my fearless free-market solution to bring down gas prices: Wal-Mart, cut gas taxes, cut wasteful spending, end corporate welfare, allow more exploration, and allow the private sector to build more refineries. Is there even one brave politician or reporter out there willing to advocate this? Probably not; it’s much easier to rant and rave over the ‘windfall profits’ of the oil companies and continue to watch the price of gas rise.