This is a partial transcript from "The Journal Editorial Report," April 29, 2006, that was edited for clarity.

PAUL GIGOT, HOST: With pump prices passing $3 a gallon in many parts of the country, President Bush vowed this week to investigate oil companies for gouging consumers, and announced some temporary measures to ease supply constraints.

How much of the president's plan is good policy and how much is pure politics?

Former house majority leader and Freedom Works chairman, Dick Armey, joins me now from Dallas.

Mr. Armey, thanks for being here.

Before you were in Congress, you were a trained economist. You still are an economist. I want to get your reaction to some of the specific ideas that the Republicans are proposing on Capitol Hill.

Start out with this idea of a $100 tax rebate per taxpayer: Is that good policy?

DICK ARMEY, CHAIRMAN, FREEDOM WORKS: Well, I don't know that it's bad policy. It is only economic policy. It certainly is not going to affect the fundamentals of supply and demand as it affects the petroleum industry.

But if the politicians in Washington want to do a tax rebate as a short-term measure for whatever their political purposes are, I don't think it'll affect much in these fundamental circumstances of what gasoline is available at the pump.

It is certainly not policy that contributes to a solution to the problem, but it does probably give them some political standing with the people.

GIGOT: What about the windfall profits tax, taxing the five big American oil companies on their recent big run-up in profits. Good idea?

ARMEY: No, it's a bad idea. It's just stupid.

When, in fact, you have a shortage, which already gets a world's increase in demand that causes profits to rise, that profit is the magnet that attracts other people to come into the industry. And you increase supply and bring the prices back down.

So if you tax away the profits, you take away the incentive.

The fact of the matter is, what the government could better do, is decrease the regulation, the red tape, the costs and improve the chances for being able to, let's say, explore and develop refineries with less litigation costs. Just get out of way. But the windfall profits tax has been a dumb idea and remains such.

GIGOT: President Bush, this week, asked the Justice Department to investigate price gouging among the big oil companies. Is this something you'd expect to hear from a free-market president?

ARMEY: No, it's not something I would expect. I was disappointed to hear that.

The fact of the matter is we all go into the marketplace, each and every one of us, whatever we sell, service or our wares, and we charge the price the market will bear.

And the fact of the matter is, today, the market will bear these prices. And you cannot call it price gouging. It's just a ridiculous concept. And such an investigation is bound to be a politically defined operation. And politics almost always get you to the wrong answer.

GIGOT: The other thing we've heard is suspending the 18.4-cent a gallon federal gasoline tax. Now, you're known as somebody who doesn't like taxes. Is this a good idea? Politically it may be good. But is it good policy? Is it going to change much in terms of developing more supply?

ARMEY: No, it will not do anything to develop supply. This is business, let's say, political policy. Again, they are at leave to do that. It won't change anything. It won't improve the situation.

But again, when I hear that, I connect it back again, is that 18-cents supposed to be dedicated to building the roads and the infrastructure of the country? In fact, are you going to starve us in an area where we've starved ourselves for too many years in terms of necessary public policy?

Again, I don't think it's a good idea, in this case, unless you demonstrated that the money wasn't used for that purpose in the first place.

GIGOT: OK, your former colleagues on Capitol Hill, Republicans, are getting smashed day after day by the Democrats on this gasoline price issue. What political advice would you give them to fight back? How should they fight back so they can get back on offense on this issue; stop playing defense?

ARMEY: Well, I think they ought to fight back by saying, all right, what we need to do is we need to open up avenues for exploration and development. We have the big controversy on offshore and ANWR.

Assert yourself on this. Talk about the real economic conditions that created it, particularly with the critical shortages we have and burdens that we have on our limited ability to refine gasoline in America today, because of environmental regulations, litigation costs.

I can tell you, Paul, right now, if I were to put together a plan to build a refinery in America, I would have more money in my plan for lawyers than I would for construction workers. And we need to relieve that.

GIGOT: So fight back against the Democrats by saying here's the restrictions you have put on our ability to drill and explore?

ARMEY: Absolutely right.

GIGOT: OK. All right, thanks, Dick Armey. Thanks for being here.

ARMEY: Thank you.

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