WHO'S GOUGING US ON GAS? GOVERNMENT.

Byline: TAD CRONN Local View

LIKE me, you may have been pleasantly surprised during recent trips that gasoline now only costs an arm instead of an arm and a leg.

Following long months of pickpocket pricing, the $3-plus gallon was beginning to seem like a permanent state of affairs, an impression furthered by politicians' and news media's complaints about ``price gouging'' and high oil company profits.

After all, common sense says, how could pump prices change by sometimes 10 or 20 cents overnight if oil companies weren't arbitrarily gouging the consumer?

Unfortunately, common sense has little to do with the oil industry.

Even with prices around $3 per gallon, gas companies' ``gouging'' added up to only about 10 cents per gallon. As tempting as it is to jump on the anti-big-business wagon, I have a hard time seeing 10 cents a gallon as unfair for an industry that keeps our entire country running.

If you want to find the real profiteers behind high oil prices, you have to look at the commodities market and at government.

In our modern global economy, oil is traded 24 hours a day. And it's traded by people who, obviously, are solely out to make a profit without worrying about the costs of running a business or maintaining the oil industry in any way.

Consequently, the typical trader is prone to overreact to any news that may have the remotest chance of cutting into his profits. In particular, any adverse events in the Middle East often have exaggerated effects: Hezbollah picks a fight, prices on the commodities market go up. The Iranian president threatens to nuke everybody in sight, prices soar.

With prices so dependent on the antics of some of the volatile personalities in the Mideast, it should be no wonder pump signs change so quickly. Add to that the inevitable refinery shutdowns and temporary supply problems, and gas prices can be wildly unpredictable.

After a bout of such high prices, it usually takes a period of relative calm during which traders can see that the world really isn't ending before prices stabilize and lower. That's the period we're entering now.

The other big price inflator is government, which charges taxes averaging 20 percent on a gallon of gas, far exceeding oil company profits.

Some people might think this is a good thing, providing public funding for highways and other programs whenever prices rise. However, taxes and government intervention increase the cost of getting gasoline to your local station. They also decrease the amount of money available for -- and even legally restrict -- new development that might result in lower prices.

Thus, government props up and encourages high gasoline prices -- a fact which I promise is well-known to every politician who has ever called for investigations of ``price gouging.''

In the current political season, Democrats have pinned their election hopes at least partly on continued high gas prices, believing they can blame the Republicans. At least here in California, though, anyone thinking logically about it would realize that high gas taxes are the fault mostly of the Legislature, which is majority Democrat.

But logic and gas prices don't seem to go together. Among the dumbest ideas being floated this year is to raise gasoline taxes and then ``forbid'' oil companies from passing on the cost at the pump, using the funds to create a new alternative-energy bureaucracy.

Oil companies already invest billions of dollars in alternative energy sources. It's only smart business to be producers of new technology -- unless you maintain some naive faith that government can do it better.

I would have thought the '70s would have taught us the inevitable outcome of raising taxes and controlling prices: shortages, rationing and -- ta da! -- higher prices.

For gasoline prices to fall and new energy technologies to emerge, what really needs to happen is for government to back off and let the free market work.