Arnold Kling  

Bryan, Read Thyself

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I can't believe that Bryan wrote about people getting upset about high gas prices without mentioning anti-market bias. This is the perfect example of the public thinking that high prices are due to an outbreak of excess greed (profits are up! must be due to greed!).

Bryan, I've got a recommendation for you. Read this book!

UPDATE: For some chilling illustrations of anti-market bias, see this transcript from Sunday's "Meet the Press." Note the poll results on page 1, the pathetic interchange on the bottom of page 3, and Dick Durbin on page 4. Durbin says that if oil prices go up, and oil is an input to gasoline, then oil company profits have to go down. That would make sense if oil companies didn't own any, er, oil.

If I were Energy Secretary, and I were asked the question about "who is responsible" for high gasoline prices, here is how I would answer:

It's not really an issue of personal responsibility. You could try to blame the gas stations. After all, every gas station owner has the discretion to set the price at whatever level he or she wants. But suppose you owned a gas station and you decided tomorrow to cut the price by 25 cents a gallon. The first thing that would happen is that people would flock to your station, and you would sell all your gas. Then, you went out to buy gas to refill the pumps, you would find that the cost is higher than what you are selling it for. So everybody in the market, from consumers to gas station owners to oil company presidents, is subject to supply and demand.

If you're a homeowner, who do you think is responsible for the big increase that has taken place in the price of your home in the past five years? Do you think you colluded with other homeowners? Is there price-gouging going on?

The point is that supply and demand is easy to understand if you're a homeowner. But for some reason people don't get the concept when it comes to gasoline.


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The author at Foolippic in a related article titled Basic Economics writes:
    EconLog, Bryan, Read Thyself, Arnold Kling: Library of Economics and Liberty If you're a homeowner, who do you think is responsible for the big increase that has taken place in the price of your home in the past five years?... [Tracked on May 3, 2006 8:20 AM]
COMMENTS (2 to date)
Dezakin writes:

It would probably help if oil companies could operate on smaller capital. There aren't that many mom and pop oil producers for people to empathize with.

It would also probably help if oil companies weren't so tightly tied to the current administration. It might well be an exagerated perception, but an average american (or at least average Democrat) only consumes oil and sees some politician making a bunch of decisions then slapping buddies in the oil business on the back. Common sense allways takes a back seat to politics.

For instance, advocating raising gas taxes and engaging in market intervention on behalf of US companies because you don't like Iranians profiting from consumption.

JKB writes:

I believe it is more an anti-investment attitude. It seems the public in general are against someone profiting from forward thinking. Oil companies drill for oil now so they'll have a supply in the future. Drug companies research drugs now so they'll have a product to sell in the future. But when the future comes, way to many people feel that they shouldn't profit from their prior planning. Way to many feel that companies should only charge what their costs are today, to pump and refine the oil, produce the pill.

It is kind of like your relatives save nothing but have expensive cars and furs, while you save and live more frugally. Then when things turn, the relatives feel you should give them some of your savings since you have more than they do.

Let's face it no one was concerned for the oil companies when oil prices were down and they were struggling to keep up their search for new fields. No, everyone lived large but now that the parties over, how can the oil companies profit from they're misfortune.

BTW, you don't hear much about it now, but many localities have laws that will jail a station owner for selling to far below the area price. Most of this oil crisis is caused by government price fixing, boutique fuel requirements, and gas tax inequities.

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