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Pittsburgh Tribune-Review: “Why gasoline prices are falling”

In my column of October 17th, 2006, for the Pittsburgh Tribune-Review, I wrote again about gasoline prices – this time to refute the then-popular (in some circles) idiotic notion that the falling gasoline prices in the Fall of 2006 were the result of a G.O.P.-engineered conspiracy to improve that party’s prospects in the upcoming mid-term elections.

You can read the column beneath the fold.

Why gasoline prices are falling

A sure sign of intellectual error is resort to conspiracy theories. Such “theories” rest on the fanciful if frightening notion that world events are controlled by a secret cabal of evil geniuses.

How exciting it is to believe that the CIA, the Mafia, Fidel Castro and perhaps a few jilted lovers met clandestinely not only to plan JFK’s assassination but to have escaped exposure for nearly half a century. At least, such a belief wins hands down on the intrigue front when pitted against the rather dull finding that a lone sharp-shooting sicko took Kennedy’s life.

How exciting it is to imagine that global trade and finance are manipulated secretly by cold-blooded bankers, greedy corporations and contemptible politicians. And what convenient excuses such an imagined scenario offers. All would be well were it not for the high, mighty and cagey tycoons plotting to line their own already-bulging pockets with money snatched from the pockets of the decent, yet duped, innocent masses.

Making the rounds now is a variation on this latter conspiracy theory. It says the recent fall in gasoline prices is conspiratorially caused by President Bush and his plutocratic pals seeking to improve Republicans’ chances of keeping control of Congress on Nov. 7. Consumers get the skimpy advantage of cheaper gasoline today and, in exchange, give up the glorious opportunity of being represented tomorrow by politicians committed to serving ordinary men and women.

I’m no fan of the president. I believe that his foreign policy is a calamity borne of arrogance and his domestic policy a calamity borne of a lack of principles. But the idea that he is spearheading a conspiracy to keep gasoline prices low during this election season is the intellectual equivalent of a belief in ghosts.

First, note how this belief counters the opinion that most of his detractors hold of the president: that he’s stupid. Planning, coordinating and carrying out a conspiracy that lasts for months and whose effects are spread over the entire country is no job for an imbecile. How does the president prevent news leaks of this conspiracy, especially given that even a single insider who reveals evidence of White House manipulation of gasoline prices would become a hero of the president’s many political opponents?

And what does the president offer to oil refiners in return for their efforts to keep prices – and profits – artificially low? More military interventions in the Middle East? Fewer regulations? Lower taxes? Each of these things might be attractive to refiners but surely these refiners would not cut prices if they thought that Mr. Bush is dumb. A dumb president is unlikely to deliver on his promises.

Second and more significantly, if prices were pushed down to artificially low levels, we’d witness either long lines at gasoline stations or significant increases in the world price of oil. But we witness neither.

Suppose refiners secretly promise for political reasons to reduce prices at the pump. If they simply lower prices, without increasing their production of gasoline, then these lower prices will cause the quantities of gasoline demanded by motorists to rise. But with no increase in the quantities of gasoline available, the result will be a gasoline shortage — followed inevitably by queues and other forms of rationing.

The only way to avoid such a replay at service stations of the sorry 1970s would be for refiners also to increase their output of gasoline. Any such increase, though, would require refiners to buy more crude oil. Higher crude-oil purchases would, in turn, raise the world price of crude.

We see today neither of these scenarios. No shortages exist at gasoline stations. And the world price of crude oil has fallen steadily now for several weeks. These facts together provide nearly irrefutable evidence against the silly proposition that President Bush and the oil companies are conspiring during this election season to keep prices at the pump artificially low.

If even more reason is wanted to reject this crazy conspiracy allegation, all we need do is look to well-known facts of reality — facts providing a far more credible explanation of the recent fall in gasoline prices.

Importantly, there were no major hurricanes this year in the Gulf of Mexico — contrary to predictions. As risks of disruptions to drilling and refining fell, the price of crude oil naturally declined. Relatedly, a whole year after hurricanes Katrina and Rita mean that energy producers had ample time to repair supply capacities disrupted in the summer of 2005.

And just a few weeks ago a major new deposit of oil was discovered in the Gulf of Mexico. These facts, combined with the (admittedly tenuous) end of the Israeli-Lebanese war means that oil’s supply has increased relative to its demand. The happy result: naturally lower prices at the pump.

It’s no conspiracy. It’s supply and demand.