Tuesday, November 8, 2005

Oil Executives ordered to appear before congress

I could only hope for one of these executives to give these politicians an economics lesson:

Top executives of three major oil companies will be asked by senators next week why some of their industry's estimated $96 billion in record profits this year shouldn't be used to help people having trouble paying their energy bills.


One wonders if these politicians know the damage that they do for future disasters because the very threat of these regulations and interventions reduce the expected profit companies will earn from fixing problems as they arise. The possibility of higher prices when disasters strike also gives oil companies an incentive to put aside more gas to cover those emergencies. Storing gas is costly, and if you want them to bear those costs, you had better compensate them. The irony is that letting the companies charge higher prices actually reduces customers total costs when you include such things as having to wait in long lines because there will be more gas available when the disaster strikes. The mere threat of price controls eliminates the possible profits oil companies can make in solving this problem and thus eliminates their incentive to store gasoline.

If you are interested, see this discussion.

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