Should Have Hedged

Published October 1, 2005

Dear Editor:

High oil and gas prices have created a great opportunity for a lot of politicians. A windfall profits tax on U.S. integrated oil companies has been proposed with the proceeds going to favored political constituencies.

But where was the outrage in 1998 when oil prices corrected for inflation were at historic lows? Energy consumers must have been price gouging the oil companies and enjoying obscene profits.

The reality is that oil prices are very volatile. That is the bad news. The good news is that price insurance is available in the form of futures and options contracts. These are liquid markets and are very inexpensive to use.

Do we bail out motorists who have accidents when they drive without insurance? Of course not. Why should we treat farmers, airlines and other energy consumers any differently?

Jim Johnston ([email protected]) is a Senior Fellow at the Heartland Institute.