Annals of Demagoguery

MoveOn has overwhelmingly been a force for good in America, so it's disappointing to see them getting involved in this kind of hack antics:

Gasoline prices are predicted to be even higher than last summer, even though Big Oil just announced record profits.

Enough is enough! A bill in the House would make gasoline price gouging a federal crime, and it could pass this week! Can you help be sure it does?

Uh huh. I like the idea that it's weird that prices are high "even though" profits are also high and that this is the evidence of "gouging." Oil companies are a kind of a blight the planet, soaking up subsidies they don't deserve and lobbying against emissions regulations we need, so one hesitates to come to their defense. Nevertheless, what makes the oil companies bad is their opposition to much-needed policy changes. The solution is to adopt the policy changes we need -- higher CAFE standards, higher gasoline taxes, a carbon tax, a well-designed cap and trade regime, whatever -- piling this farce on top of the status quo doesn't solve anything.

Comments

This, folks, is why they named the award after him.

Posted by Neil the Ethical Werewolf | May 22, 2007 12:48 PM

I'm a really, really, unlikely defender of capital at all much less the oil companies and I've got exactly zero traction pointing things like out to people who almost certainly vote Republican.

Posted by Ed Marshall | May 22, 2007 12:49 PM

"The solution is to adopt the policy changes we need -- higher CAFE standards, higher gasoline taxes..."

A pox on both your houses! How will higher gasoline taxes lower gasoline prices? Liberals need to decide whether their goal is to reduce gas consumption or have lower gas prices; if their goal is to reduce consumption, they should be happy that gas prices are high. If their goal is lower gas prices, they shouldn't be proposing higher gas taxes.

Regarding those record profits of oil companies: among diversified oil companies, a big chunk of their profits these days are coming from their refining operations. Thanks to lefty NIMBY rules, construction of new refineries in the U.S. has been pretty much frozen, so existing refiners have little worry of competition. With this in mind, I bought a few hundred shares of a pure-play refiner a few months ago: FTO. It's a lot more fun to profit from companies like this than to complain about them.

Posted by Fred | May 22, 2007 12:50 PM

While I don’t like demagoguery either, I think a good case can be made that the current price inflation in gasoline is the result of deliberate price manipulation. Oil has not gone up lately (it has fluctuated up and down in the same range it has been at since last year). Econometric models continually price predict stabilization which never materializes. And the most telling of all, gas future are stable or even falling. Something is wrong here, and while I’m usually the first to pooh-pooh conspiracy theories I think the data points to something shady going on. It’s not as if energy companies are above the sort of thing (see: California electricity crisis of a few years back).

Posted by JonF | May 22, 2007 12:50 PM

MoveOn has overwhelmingly been a force for good in America
In what way? I'm not disputing it but I am curious what the evidence for it is.

Posted by Jason | May 22, 2007 12:58 PM

Thanks to lefty NIMBY rules, construction of new refineries in the U.S. has been pretty much frozen, so existing refiners have little worry of competition.

That's simply not true, lower refining capacity is a feature not a bug. Overcapacity was a market problem addressed in the late 1990's by shutting down refineries. If you don't like the market solution then say so.

Posted by Ed Marshall | May 22, 2007 1:02 PM

"If you don't like the market solution then say so."

Ed, the construction of new refineries isn't entirely determined by the market -- regulatory restraints are big. In any case, I'm up 10 points because of the lower refining capacity (and higher profit margins), and I'm not driving a lot of miles now, so no complaints.

BTW, I predict gas prices will be a dollar lower per gallon by September. Same pattern as last year.

Posted by Fred | May 22, 2007 1:10 PM

How dare you criticize MoveOn! You're no better than Jon Chait!

Ok, not really.

Posted by chris | May 22, 2007 1:14 PM

Ed, the construction of new refineries isn't entirely determined by the market -- regulatory restraints are big.

I think this is completely tangental to the question but in your economic circles do they even have a marginal societal cost to work with or is it just let the negative externalities get paid for by who they land on?

Posted by Ed Marshall | May 22, 2007 1:31 PM

Summer gas is more expensive to produce than winter gas. That's one factor to remember, though certainly the price of crude has gone up.

Posted by Jackmormon | May 22, 2007 1:36 PM

If bad policies are the cause of oil company profits, then those profits will be used to lobby against changing the policy. It's a feedback loop. So taxing all the profits, even if it doesn't make immediate economic or ecological sense in the short term, would allow us to have more rational policies in the future.

if their goal is to reduce consumption, they should be happy that gas prices are high.

If prices are high because of refinery shortage, that just means more refineries will be built. Long-run supply will rise to meet demand. If prices are high because of taxes, demand will fall accordingly. Meanwhile, the revenue of the tax could be used on clean energy research instead of building refineries.

These short-term price spikes can't really decrease demand, because short-run demand for gasoline is inelastic. We need a tax that people can predict years in advance and rearrange their transportation usage accordingly.

Posted by Consumatopia | May 22, 2007 1:40 PM

Michael Kinsley estimated that American oil companies have made at least $45 billion per year in windfall profits due to the Iraq War. I agree with him that these profits should be taxed away.

"Because of the war, the government is adding hundreds of billions to the burden of debt that all taxpayers, including other businesses, will have to pay off. Because of the war, American soldiers by the hundreds, and Iraqis by the thousands, are paying the ultimate tax of death by government policy. And because of the war, American oil companies are raking in extra billions in profits."

http://www.washingtonpost.com/wp-dyn/content/article/2006/04/27/AR2006042702122.html

Posted by Gary Sugar | May 22, 2007 1:41 PM

You say 'I like the idea that it's weird that prices are high "even though" profits are also high and that this is the evidence of "gouging."'

but a correct reading of the moveon sentence you quote would be

I like the idea that it's weird that prices are GOING TO BE EVEN MORE high "even though" profits are also ALREADY high and that this is the evidence of "gouging."

Posted by John DE | May 22, 2007 1:56 PM

What's wrong with Demagoguery?

There are maybe 30 people who give a hairy rat's posterior about a carbon tax -- and 20 of them are in Washington DC.

On the other hand, my conservative brother --who lives in a Red State and owns a Ford F150 pickup -- only started agreeing with me that George Bush is a worthless cock$#@ker when gas hit $3 a gallon. And he's getting more pissed off by the minute.

That's the problem with the liberal intelligensia -- to many Americans , they seem to be speaking in Aramaic.

Posted by Don Williams | May 22, 2007 1:56 PM

Just as you said Neil.

Although I would note: whenever Yglesias defends right-wingers, he makes sure to have a sentence unequivicolly bashing them, going so far as to be ironic even. Other pseudo-contratians (Kaus, Sullivan) don't bother to do this, and I think it makes all the difference.

Posted by Tony V | May 22, 2007 2:00 PM

Just as you said Neil.

Although I would note: whenever Yglesias defends right-wingers, he makes sure to have a sentence unequivicolly bashing them, going so far as to be ironic even. Other pseudo-contratians (Kaus, Sullivan) don't bother to do this, and I think it makes all the difference.

There's a big difference between "unions are wrong on this issue!" and "unions preserve everything that is good and true in this world, but I disagree with them on this point".

Posted by Tony V | May 22, 2007 2:00 PM

For the last couple of years running, as soon as demand starts falling, refineries get shut down for maintenance... this looks an awful lot like Enron-style price manipulation to me.

It seems like something worth at least looking into...

Posted by DukeJ | May 22, 2007 2:17 PM

Echoing the Werewolf. I hate seeing otherwise effective leftie organizations waste energy (pun intended) on this kind of wrongheadedness. Let's hope MY's influence can steer MoveOn back on a sensible path. Maybe then he can reach SubCommandante rank, like Kos. (Get Obama or Edwards nominated, and you get full Commandante, I believe.)

Posted by sglover | May 22, 2007 2:20 PM

Echoing the Werewolf. I hate seeing otherwise effective leftie organizations waste energy (pun intended) on this kind of wrongheadedness. Let's hope MY's influence can steer MoveOn back on a sensible path. Maybe then he can reach SubCommandante rank, like Kos. (Get Obama or Edwards nominated, and you get full Commandante, I believe.)

Posted by sglover | May 22, 2007 2:21 PM

The most interesting thing about oil is how it got commoditized, how CNBC now waits with baited breathe to tell us of the inventory levels, the possibility that refineries will be off-line due to weather, the much needed "maintenance" that just has to be started at peak periods (Halliburton was and probably still is the primary refinery maintenance contractor).

It used to just be the Lundsford Report (read ree-pour) now authored by Trilby, the daughter, of the great Lundsford research family of oil that has given us the shilled justification for unreasonable increases for almost two decades.

Think of it--oil that has been in the ground just waiting to be pumped for eons doubles, triples in price due to "world conditions." I bet there are some domestic wells that once pumped $20 a barrel oil until they were capped because the price was too low that are now pumping up $65 a barrel oil. Face it, Exxon has it all over Enron. The commoditization of oil--and all energy--is pretty much a shell game, and I do mean Royal Dutch. The Iraq War has been berry, berry goud to Big Oil.

Posted by Ernie F | May 22, 2007 2:28 PM

The reason people think there is gouging is that the spread between crude oil prices and gasoline prices is greater than ever before. Market power in the refinery sector could be one reason.

Posted by mq | May 22, 2007 2:34 PM

I agree with MY...this MoveOn solicitation is pure hackery. And the "price-gouging" bill that it's hyping too.

You know, gasoline is traded on a spot market, just like crude oil. There are lots of players on that market, not just the big oil companies. The possibility that this market could be seriously manipulated by Exxon et al through some sinister conspiracy is pretty close to zero.

Posted by Glenn | May 22, 2007 2:35 PM

Really Matt pay attention. Its because gasoline prices are very high while oil prices while not lower have been falling for a while. And to say its impossible for companies to be doing anything like this means you missed out on the lesson of the California energy "crisis".

Posted by Rob | May 22, 2007 2:40 PM

Fred is partially right and partially wrong on this one. It's true that the major oil companies have been shutting down refineries for a while now, thus creating a bottleneck that makes refining especially profitable nowadays; however, it's also true that it's very hard to start up an independent refinery at this time.

The real culprit is vertical integration in the oil industry, as a consequence of lax FTC scrutiny of the issue over the last decade. You've seen decisions made that never would have occurred if these now-closed refineries had remained independent, or in the hands of smaller producers, in the first place.

As with media consolidation, it's awfully hard to unring the bell once you've gone down this route.

Posted by Steve | May 22, 2007 3:08 PM

Why yglesias should be applauded because every now and then he concedes the obvious is baffling. The boy is a hack and these self conscious token gestures to cover the fact are painfully transparent.

Posted by pimp hand strikes! | May 22, 2007 3:10 PM

"The real culprit is vertical integration in the oil industry"

I think there's been more of an emphasis on vertical integration, and refining, since many petro states are demanding a bigger cut. Wouldn't hurt to license a few more refineries here though. At least enough so we wouldn't have to import any refined fuels.

Dropping the 54 cent per gallon tariff on Brazilian ethanol would take pressure off of gas prices too, since they can produce it for about half the cost of our corn-based ethanol.

Posted by Fred | May 22, 2007 3:24 PM

1. What is ultimately driving the price of Gasoline is rising demand in China and India.

2. Nevertheless, the refinery consolidation that occurred during the oil slump of the 1990s (amazing how no one said conspiracy when the price to Gasoline dropped, inflation adjusted figures, to the lowest prices since the depression in 1999) has had the effect that dominant (and I do mean dominant) market player feels know need to invest in new facilitlies. See this week's Business Week http://www.businessweek.com/magazine/content/07_22/b4036057.htm?chan=top+news_top+news+index_businessweek+exclusives

3. Price gouging is simply charging what the market will bear. If we make it illegal, we might as well do it with all prices and wages for all goods and services (something that everyone now, Left and Right, acknowledges leads to disaster). But if you raise gas and other carbon taxes, along with CAFE standards and provide subsidies for alternative fuels and fuel efficient cars and trucks will lower the price of gas, since you have lowered demand. But it takes time.

4. The merger of Exon and Mobil needs to be undone as truley anti-competitive. Fixing gas prices will simply lead to rationing by gaslines, and then we will see some real fireworks.

Posted by Rick Kane | May 22, 2007 3:37 PM

1. What is ultimately driving the price of Gasoline is rising demand in China and India.

2. Nevertheless, the refinery consolidation that occurred during the oil slump of the 1990s (amazing how no one said conspiracy when the price to gasoline dropped in 1999, with inflation adjusted figures, to the lowest prices since the depression) has had the effect that dominant (and I do mean dominant) market player feels no need to invest in new facilitlies. See this week's Business Week on Exon-Mobil's zero interest in exanding capacity: http://www.businessweek.com/magazine/content/07_22/b4036057.htm?chan=top+news_top+news+index_businessweek+exclusives

3. Price gouging is simply charging what the market will bear. If we make it illegal, we might as well do it with all prices and wages for all goods and services (something that everyone now, Left and Right, acknowledges leads to disaster). But if you raise gas and other carbon taxes, along with CAFE standards and provide subsidies for alternative fuels and fuel efficient cars and trucks, that will lower the price of gas as it will lowered the demand for gas. But it takes time.

4. The merger of Exon and Mobil needs to be undone as truley anti-competitive. Fixing gas prices will simply lead to rationing by gas lines, and then we will see some real fireworks.

Posted by Rick Kane | May 22, 2007 3:39 PM

It would be nice if people had even a vague familiarity with the reasons why market prices can be influenced by market power, and why in such cases "price gouging" is demonstrably different than "charging what the market will bear".

Just to help anyone who either didn't take or didn't understand econ 101: market power lets you hold back supply to raise prices, which does not happen in markets with a sufficient number of competitors. This is what people suspect the refineries of doing. Maybe they are, maybe they aren't, but you can't disprove it by heaping contempt on anyone who raises the issue.

Posted by mq | May 22, 2007 4:33 PM

I dunno ... if you follow the Bible, it prohibits "over-reaching" in terms of prices.

I would imagine those who want to legislate Biblical morality will support any bill prohibiting price-gouging on gasoline?

Or maybe not ... I guess I shouldn't hold my breath for those who claim to follow Biblical "Old Testament" morality and who claim we ought to legislate it to actually push to legislate it, eh?

Posted by DAS | May 22, 2007 4:46 PM

simply charging what the market will bear. If we make it illegal, we might as well do it with all prices and wages for all goods - Rick Kane

Which, FWIW, is actually illegal under Talmudic law for many (though not all) classes of goods. This is based on a fairly straightforward (or at least as straightforward as Baba Metzia gets, which is to say, maybe not so much) interpretation as to what the Levitical prohibition against over-reaching actually prohibits.

So I'm waiting for the religious right, which is wont to legislate Biblical morality, to weigh in on this one. But I hope you won't blame me if I don't hold my breath.

Posted by DAS | May 22, 2007 4:53 PM

I agree with Matt that the the main Congressional priority should be the policy changes needed, especially higher CAFE standards. But Move-On demaqoguery regarding price grouging? I don't think so. The price gouging by the oil companies is pretty clear. First, I want to see these supposed refinery problems and be shown the supposed clear causality there. Maybe PBS's NOW can get on this. I'm doubtful. Moreoever, you can even somewhat predict these things by the political winds. There's only so many times where you can say, oh gee, isn't it interesting that the prices went down before X election and, oh gee, now they're climbing back up again. Come on.

Posted by Warren | May 22, 2007 5:07 PM

"Michael Kinsley estimated that American oil companies have made at least $45 billion per year in windfall profits due to the Iraq War. I agree with him that these profits should be taxed away."

My mother is a widow and ExxonMobil (XOM) is her largest stock holding. Why do you and Michael Kinsley want to take money out of her pocket? What if Exxon earnings took a hit instead as a result of the Iraq war (say, if a liberated Iraq had quadrupled its oil production, lowering prices) -- would you and Kinsley be advocating giving money to Exxon (and, by extension shareholders like my mother)?

There are hundreds of thousands of Exxon shareholders. They aren't all rich old men who smoke cigars and wear monocles. Plenty are long-time oil rig workers, geologists, or even middle class widows like my mother who tried to be prudent and invest their hard-earned money in a leading American corporation, knowing that if the company did badly, they would bear that downside risk. Why do they deserve to get hammered when their investment does well?

Posted by Fred | May 22, 2007 5:44 PM

The risk of adverse legislation is among the many risks assumed by shareholders.

Posted by Steve | May 22, 2007 6:35 PM

"....middle class widows like my mother who tried to be prudent and invest their hard-earned money in a leading American corporation, knowing that if the company did badly, they would bear that downside risk. Why do they deserve to get hammered when their investment does well?"

You are so right! I think we need to file a class-action suit on behalf of all the IG Farben shareholders in Germany whose stock tanked when the Nazis lost the war.

Posted by James Gary | May 22, 2007 6:59 PM

Sorry, that came out totally backward. But you get my point, which was also stated far better by Steve above.

Posted by James Gary | May 22, 2007 7:02 PM

Steve:

"The risk of adverse legislation is among the many risks assumed by shareholders."

True. All the more reason for shareholders to vote against any politicians who threaten such legislation.

James Gary:

Maybe you ought to take a break from arguing by analogy for a while.

Posted by Fred | May 22, 2007 7:12 PM

All the more reason for shareholders to vote against any politicians who threaten such legislation.

And all the more reason for the shorts to vote for those same politicians. If this was your point, it was something of a truism.

I rather doubt there will ever be a windfall profits tax, although it's a fun thing to demagogue, I suppose. On the other hand, if I thought such a law was a realistic possibility, I sure wouldn't bet my mother's economic security on the Republicans winning the next election.

Posted by Steve | May 22, 2007 7:23 PM

RE; The possibility that this market could be seriously manipulated by Exxon et al through some sinister conspiracy is pretty close to zero.

Um, all you have to do is throttle back on production on various pretexts at the refineries and, presto!, skyrocketing prices. And yes, I noted the gas futures market which is stable to (slightly) falling which makes the current price surge even more suspicious.

Re: What is ultimately driving the price of Gasoline is rising demand in China and India.

Over the very long term, yes (though thsi has to do with tejh price of oil; we do not compete with either China or India for refined gasoline) And it's not like China and India suddenly started driving more back in March.
It's really, really weird to find so many people on a liberal blog rushing to make excuses for corporations that they usually love to hate.

Re: amazing how no one said conspiracy when the price to Gasoline dropped, inflation adjusted figures, to the lowest prices since the depression in 1999

What would be the point of such a conspiracy: Oil company CEOS: "Gee, let's hatch a nefarious plot to rive down our stock value an cut our meillion dollar bonuses."

Re: amazing how no one said conspiracy when the price to Gasoline dropped, inflation adjusted figures, to the lowest prices since the depression in 1999

Price gouging is market manipulation. Examples exist all through history. Good grief. "Perfect" markets, rather like frictionless surfaces and pure vacuums, only exist in entry level college texts.

Posted by JonF | May 22, 2007 7:43 PM

"And all the more reason for the shorts to vote for those same politicians. If this was your point, it was something of a truism."

Not exactly. If I really thought this sort of windfall tax was likely, I would be wary about being long or short Exxon, or any other stock: after all, if I thought the political class would arbitrarily wack Exxon longs, what would stop them from arbitrarily wacking shorts (say by raising the cap gains tax on shorts to a punitively high level)?

"I rather doubt there will ever be a windfall profits tax"

Same here. Even most Democrats are smart enough to not want to kill America's golden geese -- especially since that would destroy the golden eggs too, and most Democrats have as much money tied up in the those golden eggs as anyone else.

"On the other hand, if I thought such a law was a realistic possibility, I sure wouldn't bet my mother's economic security on the Republicans winning the next election."

My mother has owned Exxon stock and has been reinvesting the dividends since before I was born. Fortunately, American governments of both parties over that time frame have largely avoided anti-investor policies. Form the perspective of the stock market, it matters less whether a Republican is elected than whether there's a chance a true leftist, anti-business Dem might get elected. Right now, the odds favor Democrats winning the '08 elections, but the market indexes are up because the expectation is that these won't be anti-business Dems.

Posted by Fred | May 22, 2007 8:05 PM

I have no problem with "letting" them keep their profits, but we should at least stop subsidizing them - its not like they need it.

Posted by r4d20 | May 22, 2007 8:37 PM

One of the last things the Clinton-era FTC did was to publish a report concluding that the major oil companies collude to fix prices. They do by what is known as "zone pricing," which is a technique they all use to maximize prices in areas where the traffic will bear higher prices - wealthy neighborhoods, commuter thoroughfares, crossroads near highway interchanges - and charge lower prices in areas where the profit-maximizing price is lower - poor neighborhoods and low-traffic roads. The result is that gas stations that should have low prices due to high volume and hig competition actually have higher prices. The FTC concluded that zone pricing was made possible by the oligopolistic behavior of the big oil companies.

Of course, once Bush was elected and both houses of Congress became majority Republican, the issue of price fixing disappeared.

Matt, having taken econ 101, believes fervently in the operation of efficient markets, regardless of what his own eyes show him. Efficient market theory is to a modern-day Harvard graduate what Aristotelian science was to a medieval scholar. If you don't believe it even when you can see it's wrong, you're ipso facto a demagogue or an idiot.

Posted by Bloix | May 22, 2007 9:56 PM

Re ""Perfect" markets, rather like frictionless surfaces and pure vacuums, only exist in entry level college texts."
---------
I concur. When I was a college student , I first realized my professors were full of crap when I took an Econ 101 class. The argument being that --while Economics cannot predict the decision making of one individual -- it can predict the statistical behavior of a mass of people.

Which is utter bullshit. In almost every industry, there are two, maybe three , dominant companies --each run by one CEO and all sending price signals to each other.

Plus, much of our national wealth is held by a few individuals -- whose names rarely show up in the New York Times political coverage. They quote what Senators say -- as if a Senator is not merely the sock puppet for his backers.

How many voters have ever heard of billionaire Haim Saban ? Yet Saban indicated in his Haaretz interview that he merely had to say "Shit" to have President Clinton squat and start making grunting noises.

Posted by Don Williams | May 22, 2007 10:03 PM

I like the idea that it's weird that prices are high "even though" profits are also high and that this is the evidence of "gouging."

Of course you mean "like" sarcastically, so.. er.. what exactly is wrong with that idea?

Imagine a market where one company (or cartel) sells a product that everyone needs no matter what. My gas consumption, for example, is basically independent of price. Gas would have to reach something like $40 per gallon before it became economical for me to stop driving to work.

So you've got a set of consumers who will buy, say, a million gallons every day no matter what it costs, because they have places to go and public transit is a joke. Raise the price by $1 per gallon and you instantly increase your profits by $1,000,000 per day, taking advantage of the fact that your customers have no choice but to pay your higher price. How is that not gouging?

If they weren't gouging, wouldn't we expect to see profits staying the same, or growing at a rate determined only by the increase in consumption, not the increase in per-gallon price?

Posted by Jesse | May 22, 2007 11:34 PM

that pimp dude sure seems to be envious of MY, doesn't he?

Posted by merlallen | May 23, 2007 3:24 AM

pimp dude is Douthat

Posted by Bareback Flanagan | May 23, 2007 3:54 AM