IT'S MORE THAN

a little bewildering to me that so many of our elected officials are downright clueless as to the basic economic principles most of us learned in Econ 101.

The price for anything, be it a share of stock, a gallon of gas or a Hannah Montana concert ticket, isn't arbitrary but governed by supply and demand. Oil companies can't unsustainably manipulate the price of gas any more than McDonald's can unrealistically jack up the price of a hamburger. Rightly so, both companies charge what the market will bear.

As oil executives pointed out numerous times during Wednesday's Congressional hearings, the vast majority of the cost of gasoline stems from the price of crude oil, which has been hitting record highs for weeks. And yes, record prices for crude have led to record profits for oil companies.

But while profits are big, so is the scope of accomplishing what oil companies do every day. Unleaded doesn't magically appear at the service station. It takes massive investment to keep the nation stocked with safe, reliable sources of energy. The profit margin enjoyed by big oil companies is around 8.3%, less than earned by the average computer company, bank, electrical equipment manufacturer or restaurant. Yet Congress isn't ready to accuse IHOP of gouging you on your Rooty Tooty Fresh 'N Fruity breakfast, is it?

Gas Guzzlers

Energy ETFs YTD: USO (crude oil), UNG (natural gas), UHN (heating oil), UGA (gasoline).

Like Wal-Mart or any other successful large enterprise, it's we who make Big Oil big. Profits come as a result of providing a service most Americans are happy and willing to pay for. Indeed, even gas at current prices hasn't markedly affected domestic consumption. Indeed, many of those who complain about $4 gasoline from Exxon Mobil don't hesitate to buy a $4 latte at Starbucks.

Beyond the oil companies, much of the blame and scorn is aimed at speculators, who are accused of pushing up the price of energy to an unreasonable level.

Forget for a moment that speculators are also citizens who have just as much of a right to purchase a commodity as drivers, nursing-home operators or anybody else. The fact of the matter is that speculators, through higher prices, provide a valuable service by accurately reflecting the necessity of increased supply. In a socialized economy, central planners make arbitrary decisions totally divorced from underlying market realities. (Witness the subsidy-fueled run-up in corn prices.) In a free market, it's the profit motive of capitalizing on higher prices that motivates new innovation and supply.

Unfortunately, as Congress is chastising the oil industry, they are increasingly embracing the environmentalist movement, whose efforts have placed tens of billions of barrels of domestic oil and cubic feet of natural gas off limits for exploration and development. You'll note that Greens generally don't advocate against carbon energy, but any energy. Their efforts have curtailed coal, nuclear, wind any technology that's actually effective in helping to power the modern industrialized economy.

So what are our elected officials doing beyond making indignant speeches on C-SPAN? Shortly put, absolutely nothing. They have ceased filling the Strategic Petroleum Reserve, or SPR, a minuscule amount of demand that has no meaningful impact on world markets. They are pouring billions of dollars of taxpayer money into "alternatives" that show little promise beyond appeasing constituents in the farm belt. They are debating windfall profit taxes on companies whose capital investment provides the very fuels that are in short supply. And they're planning to sue OPEC for price gouging and collusive behavior, an embarrassment that further confirms our nation's abandonment of free-market principles.

Honestly, does Sen. Patrick Leahy (D., Vt.) believe the price Americans are paying for gas would be any different if BP Chairman Robert A. Malone forfeited his multimillion-dollar salary? Why any law-abiding citizen's paycheck should be subject to such public ridicule by an elected official is a mystery to me.

In the final analysis, it's not the oil company execs we should be worried about, but the Greens, who value every element of the natural world save one: humanity itself.

Also See:

• Market Action Confirms Mexican Peso Trade

• Exchange Seats Hint at Direction of Commodities

• When You Make a Bad Trade, Own It

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.