Bryan Caplan  

Senate Oil Manipulation Hearings: Placebo or Incitement?

Milton Friedman Opposed a Pare... Chess and the Flynn Effect...

It's pretty hard to find an economist who doesn't scoff at the Senate's latest hearings on oil price manipulation. But these hearings raise an awkward question for me: Since I've praised the gas tax cut (in print and on t.v.) as a placebo that helps placate the masses, I've got to wonder: Is it possible that senatorial grandstanding against "gouging" is a placebo too? Perhaps senators can placate the public's wrath by sneering at a few scapegoats.

It's possible, but I'm skeptical. The more likely result of denouncing a few scapegoats is to pave the way for harsher measures against a larger body of scapegoats. Attacking oil and hedge fund execs on t.v. might seem cathartic, but I fear that it only makes the public angrier.

I'm still keeping my fingers crossed against price controls and even stranger forms of populist folly. Oh well, I guess in the worst case scenario I can bike to work and tell my students that if they don't like how I smell, they should blame the public's economic illiteracy.

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COMMENTS (6 to date)
Michael Kolczynski writes:

I'm sure the senate hearings could possibly have that effect if the price does not continue to rise. Otherwise there would be no placebo effect because the condition would be getting "worse." People would instead realize it was a placebo when it wasn't "working."

But at least we get wonderful clips like this where someone exposes their true intentions, and maybe would alarm some casual views.

Matt writes:

There is a third possibility, that the legislature is going through a learning process late as always.

Mike Giberson writes:

I think I share Kolczynski's view. The effect of the "placebo" depends on what happens with prices.

Historically, the price path of oil has properties of a random walk -- it is about as likely to be 15 percent higher a quarter from now as it is likely to be 15 percent lower.

But the politician placebo is an attempt to rig the coin toss:

If prices go down, politicians will assert that "moral suasion" worked, and it reinforces the view that oil companies can control prices and will do so unless the government keeps a watchful eye on them. Result: need a stronger government role in oil pricing.

If prices go up, politicians will cite the allegations of their carefully selected witnesses as evidence that speculators and oil companies are continuing to profiteer even as the economy is faltering. The Maxine Waters of the world will be emboldened.

I don't see the potential upside.

The Sheep Nazi writes:

Next time leave the placating of the masses to the professionals, why dontcha. You're right to be worried, but after the gas tax stunt you haven't much right to complain.

Dr. T writes:

Michael Kolczynski and Mike Giberson misunderstood. Dr. Caplan hypothesized that a sham punishment of oil executives and speculators could reduce public anger (regardless of whether oil prices rise). I believe Dr. Caplan is correct: such actions would appease the mob mentality while having no effect on prices.

Thinking persons don't need to be appeased because they understand that rising oil prices are not due to oil executive greed. Unthinking persons want to blame and lash out at the oil executives, because the mob cannot understand market forces or inflationary forces and ascribes price increases to the greed of the wealthy.

I do agree with other commenters that sham punishments will backfire. The oil executive-hating mob may be placated temporarily, but it soon will demand greater punishment (such as confiscation of the wealth of the 'profiteers' with redistribution of the wealth to the mob). Sham punishments probably will occur regardless of their effectiveness or legality, because our legislators appear to be no more intelligent than the persons who comprise the mob.

Royce writes:

The most "interesting" quote from the CNN Money article linked to in the post:

"Soros told the committee that speculation, while not the only contributor to the recent runup in crude, "reinforces the upward pressure on prices." He said speculation is "distinctly harmful" to the economy."

uhhhhh, tell me again how George Soros made his fortune?

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