Prices might be falling at the gasoline pump, but demands for investigation into oil company price gouging are still on the rise. Last week, Sen. Charles Schumer, D-N.Y., accused "big oil" of profiteering after Hurricane Katrina. Eight Democratic governors want an investigation. So do attorneys general in 45 states. For all the good these investigations will do, it would be far better to spend that money shoring up New Orleans' levees. After all, we've been down this road many, many times before.Back in 1996, for example, price spikes in California prompted the Clinton administration to order a Justice Department investigation. It concluded that an unfortunate combination of state fuel regulations and temporary supply disruptions pushed up prices in the state. Nothing nefarious there. And when prices shot up in the Midwest in the summer of 2000, lawmakers ordered more investigations, only to fail once again to find an industry plot to gouge consumers.
In 2003, Sen. Barbara Boxer, D-Calif., called for still another federal investigation when California's price spiked again. Don't bother looking for any findings of big oil conspiracy that year. Again and again, investigations into past price spikes have turned up the same finding. The oil industry is highly competitive.
And as any first-year economics student knows, competition basically makes it impossible to price gouge - for the simple reason that if one station jacks up prices artificially, others will steal business by holding prices at true market rates.
Oh, but what about collusion, eh? Secret meetings in smoke-filled rooms? Price fixing?
Yes, prices spiked across the country in the wake of Katrina. That's exactly how a free market reacts to sudden supply disruptions. Prices jump, causing people to use less and suppliers to supply more. Then prices start to fall as markets adjust. The only real crime here is that lawmakers don't seem to understand this basic economic reality.
Or don't care to.