09 May 2005

Committee action, May 9, 2005: HB 673

I think I’ve hit upon the reason why Louisiana is in so much trouble in terms of state finances and economic development – we have a bunch of economic illiterates in our state Legislature.

Debate over HB 763, and by extension HB 183, demonstrated exactly this problem. These bills try to create a category of “unfair sales” of gasoline which is an absolute oxymoron. In a free market, there is no “unfairness” in sales because competition allows for voluntary, uncoerced transactions.

But several kinds of confusion seem to exist. HB 763’s author Rep. Taylor Townsend in his bill seems to believe that some huge cartel of oil companies is extracting excess wealth from gas buyers, creating complicated regulations and definitions that assuredly would tack even more costs onto gasoline.

The real target, it was revealed through the hearings, was Murphy Oil stations because they control all the channels of distribution (refining to sales). Of course, they only have 39 of 3200 stations in Louisiana, but from the rhetoric of some you would have thought they were ripping off the entire state.

Such seemed to be the view of Rep. Derrick Shepherd. He kept harping upon high prices and the amount of money the industry made last quarter. He seemed clueless to the fact that returns on investment vary over time and that it was the margins that were important to understanding the whole picture. The fact is, margins continue to be very squeezed in the industry. And he seemed to be advancing the strange notion that by not allowing the industry to lower prices to whatever level, their “obscene” profits would be curtailed!

Also a model of confusion was Rep. Mickey Frith. He couldn’t grasp then concept that different retailers located near each other could have very different prices depending upon a host of factors.

Rival author of HB 183 Rep. (and petroleum engineer) William Daniel had more sense, pointing out that his bill which would not set floor prices but would prohibit selling below “cost.” Despite his protestations otherwise, where he said he favored lower gas prices for consumers, Daniel does not seem to believe that the free market would not prevent this from occurring over the long run in any event. Simply, exit and entry into this vastly competitive field will prevent that. In fact, Daniel himself admitted there seemed to be no monopoly and none looming, so what was the point of his bill?

Committee member Rep. Mike Walsworth showed at least some members of the Legislature get it. He pointed out to Daniel that there was no way Daniel’s bill could guarantee lower gas prices in any time frame, pointing out the inherent contradiction in Daniel’s bill: it may not set a fixed floor and it may not impose much of a regulatory burden, but the fact is it does impose a floor and some regulatory burden.

In a confusing end to a three-hour discussion on these bills, the committee deadlocked on HB 183 and HB 673 but loaded with amendments got through. But the whole debate was instructive, painfully so, about why this state has such trouble moving forward.

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