Bryan Caplan  

A Creative Conspiracy Theory

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Daily Kos Falls Into My Trap... Armstrong Answers...

If gas prices go up because of business conspiracies, why do they ever come down? In his Daily Kos review of my book, Dean Nut proposes a staggeringly original explanation - and as far as I can tell, he's serious:

If the oil companies kept their prices at a consistently high level, consumers would lose hope of them ever descending and making their gas-guzzler SUVs affordable again. Then the consumers would go out and buy Hondas and Priuses, thereby reducing the demand and thus the profits of the oil companies. So instead, the price of gas jumps around, and consumers are thereby given incentive to hope that "it will come down again soon".
This brings to mind the theory that the apparent collapse of Communism was a plot to lull the West into a false sense of security.


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TRACKBACKS (6 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/733
The author at amcgltd in a related article titled Foil Hats at the Gas Pump writes:
    We don't hold prices high and keep them there because that's just what they'd be expecting us to do! I guess if you think all businesses are run by gangsters, you'd expect this sort of thing. Unfortunately people in... [Tracked on July 11, 2007 2:04 PM]
The author at ishkabible in a related article titled Humor - Oh, he was serious! writes:
    This brings to mind the theory that the apparent collapse of Communism was a plot to lull the West into a false sense of security. "A Creative Conspiracy Theory," by Bryan Caplan, July 10, 2007... [Tracked on July 13, 2007 9:44 PM]
COMMENTS (10 to date)
Buzzcut writes:

Brilliant! Give that man a Guiness.

ryan writes:

I've heard this idea before, and from an economics professor at a pretty well-ranked university, though his idea (he was careful to note he hadn't written the model down) was that it's oil-producing countries and not gas companies who purposefully introduce randomness to gas prices.

mgroves writes:

Two blogs now in response to Kos...why give them the satisfaction?

Matt writes:

If I were an oil monopoly I would fool the public the same way the Fed fools the public.

Keep prices high until you are sure the public is convinced they will remain high, then lower them. The Fed does this with inflation expectations, inflate until Joe Public figures out the game, then cut back. Alwasy keep a phase shift.

The idea is to create cycles, which are inherently inefficient, bubble like. Extra gas get burned (or bankers get inflation cash). It is like a power factor problem in electricity, one burns more energy for less output.

Only monopolies can do this for competition always removes the phase shift.

Ramon writes:

The Soviet Union was a creation of the capitalist bourgeoisie in order to fool true communists into believing that communism was not possible.

The inefficiency, lack of civil liberties, low standards of living and even the collapse was a montage aimed at vaccinating capitalism against the imminent rise of communism.

Brad Hutchings writes:

I promise you will never catch me in a Prius nor a Honda. Well, unless Jenna and Mary Kate Bush get caught doing 120mph in a Honda, topless. The Honda that is... you know, a convertible.

Troy Camplin writes:

Kos needs to take an economics class. Everyone learned in Econ 100 that prices are driven as low as possible because of competition among companies, while prices are driven up because of competition among consumers. Companies want lower prices to undercut their competition, while consumers want higher prices to undercut consumer competition. "Oh, he wants it for a dollar? I'll pay two!" This is an example of where economics appears to defy common sense, though it makes sense when you understand what is actually going on. I only wish someone would say these things over and over and over whenever someone complains about high prices. And when someone inevitably complains that "you are blaming the consumer," yo¨should just say, "Yes, I am. Because it happens to be true that it is his fault that prices are high. When consumers want lower prices, they'll stop buying things at that price."

Mike writes:

I hope this fellow was not a credentialed economist! Even if everyone went out and bought Priuses and Hondas, that is no guarantee that total gasoline consumption would fall. The marginal cost of driving would be lower, and thus car owners might actually consume more gas, especially if lower mileage costs encourage more consumers to purchase and use cars instead of alternative means of transport. Just think of this example, “well, rather than take the bus, I can take a fuel efficient hybrid to work since that is better for the environment than a Ford Explorer.”

Mark yet another one for the annals of economic ignorance in the name of dogmatic aversion to markets.

Dezakin writes:

He was right in the past; Saudi Arabia did just that in 1986, pumping as much as they could. It really was partly to discipline other OPEC members for cheating on quotas, but also to destroy some of the conservation measures that were enacted that were slowing demand growth for oil.

But now the cartel is coming apart with OPEC running up against real production capacity problems. A cartel only works when they can arbitrarily turn the pumps on or off, and now they cant control the oil. And it still isnt great for consumers because its simply resource exhaustion with the best substitutes costing several times as much.

OPEC walks a fine line now; They cant reduce production too much or it will make coal liquefaction, shale oil, and tar sands much more economically competitive and companies will invest hundreds of billions in infrastructure that guarantees production levels that eat into opecs market share.

Caliban Darklock writes:

A major contributor to the theory that communism "died" to lull the West into false security is a paper Gorbachev wrote in school which suggested exactly that as the best strategy to defeat capitalism.

So if a paper ever surfaced which seriously proposed that gas prices should be lowered at random times to make people believe it's not controlled by a conspiracy, perhaps this theory might hold water. But it hasn't, so it doesn't.

But back to the conspiracy theory that I effectively branded plausible... it doesn't matter. It involves an isolated group of people cut off from modern technology, and that group rapidly becomes completely outclassed by modern developments. Not to mention, if there was such an isolated group, we'd probably find them before they expected. There are fatal flaws in the plan that mean it won't work, ever, so it simply doesn't matter whether the conspiracy is real. It's like having a conspiracy to control the price of chitlins.

So even if it is real, fuhgeddaboudit.

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