Tuesday, June 10, 2008

Chain Saw

Yesterday, friend passed along one of those e-mail chain letters that have become the modern day equivalent of urban legends. This one related to high gas prices, and was a reprise of one that made the rounds a couple years ago, reading in part:
This was sent by a retired Coca Cola executive. It came from one of his engineer buddies who retired from Halliburton. If you are tired of the gas prices going up AND they will continue to rise this summer, take time to read this please.
I hear we are going to hit close to $ 4.00 a gallon by summer, and it might go higher!! Want gasoline prices to come down?
By now you're probably thinking gasoline priced at about $2.00 is super cheap. Me too! It is currently $3.71 for regular unleaded in my town.
How? Since we all rely on our cars, we can't just stop buying gas.

But we CAN have an impact on gas prices if we all act together to force a price war.

Here's the idea: For the rest of this year, DON'T purchase ANY gasoline from the two biggest companies (which now are one), EXXON and MOBIL.
Yadda yadda yadda. Whenever I get one of these (especially one that doesn't make a lot of sense) I immediately go to Snopes.com (the urban legends and myth debunking site) and, sure enough, found it. Their commentary, in part, reads:
Oil companies can manipulate their prices somewhat...but they can't alter the basics of supply and demand: prices go down when people buy less of a good, prices go up when people buy more of a good, and prices go way up when demand outstrips available supply. The "gas out" schemes that propose to alter the demand side of the equation by shunning one or two specific brands of gasoline for a while won't work, however, because they're based on the misconception that an oil company's only outlet for gasoline is its own branded service stations. That isn't the case: gasoline is a fungible commodity, so if one oil company's product isn't being bought up in one particular market or outlet, it will simply sell its output to (or through) other outlets.
The only person who really gets hurt in this proposed scheme is the service station operator, who has almost no control over the price of gasoline.
So, sorry guys, as with weight loss, there is no quick, easy, painless way to reduce gas prices without sacrifice or hardship:
The only practical way of reducing gasoline prices is through the straightforward means of buying less gasoline, not through a simple and painless scheme of just shifting where we buy it. The inconvenience of driving less is a hardship too many people apparently aren't willing to endure, however.
In case you're wondering, gas prices are the result of the free market working the way the free market works. C'est la vie. In case you're wondering why gas/oil prices have risen so dramatically, we should eschew conspiracy theories (as satisfying as they may be) and look to basic economic factors. Former Labor Secretary and Berkeley professor Robert Reich has a short list of reasons:
(1) growing demand from developing nations, especially China and India. This is the main reason for the price rise over the last six years.

(2) the dropping dollar. As it drops, because of our trade imbalance and overall indebtedness to the rest of the world as well as our slowing economy, everything we buy from abroad -- including much of the oil we import -- costs more; everything we sell to foreigners -- including much of the oil we produce -- costs less to them. I attribute half of oil's price rise since January to this.

(3) Global investors (including, perhaps, your own pension fund) are anxious about the American economy, and looking to hedge their bets against future declines. Oil is one of the commodities that looks like a good bet. Hence, there's speculation in oil futures. This isn't a nefarious plot. It's the way the market works. A bit of a speculative bubble is forming, so beware. I attribute a big part of oil's price rise over the last few weeks to this.

(4) Instability in the Middle East. Israel's recent bellicose statements about Iran have generated fears about the continuing capacity and willingness of Middle Eastern oil producers to generate oil (about a third of world oil production). OPEC refuses to produce more. Some of oil's price rise over the last week is attributable to this.
Yes, high gas prices are causing hardship, but there is little anyone can do directly (by the way, repealing the gas tax in whole or in part, permanently or temporarily, will not solve the problem, because it would only increase demand as gas got "cheaper" which would only drive prices up more), aside from altering behavior--that is, driving less, using public transport where possible, etc. No, not everyone can do that, and we should think about why that is. I remember having conversations with people (usually in California, big shock) about how much I hate driving and how I wished public transport--or at least sidewalks and pedestrian-friendly layouts--were more readily available, and the response was always a derisive laugh, followed by "Oh, but the car is such a symbol of freedom." Yeah, how's that working out? I just feel so free. Let's face it, we have created a car culture without thinking of the consequences--and now the consequences are here. If we want change, we should demand it--but it's not going to come easy.

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