Gas Price Conspiracy?
From yesterday's Detroit Free Press, my article on the "gas price conspiracy," which also appeared in papers in San Diego, Salt Lake City and NYC.
When gas prices were rising earlier this year, oil companies were accused of "price gouging" and were investigated by the U.S. Senate. Now that gas prices are falling, many Americans believe in a gas-price conspiracy by oil companies to lower prices deliberately for political reasons.
Whether gas prices are rising or falling, we're quick to scapegoat U.S. oil companies for our energy problems, but unfortunately, we're very slow to enable them to increase their output to meet our rising demand for oil.
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George W. Bush believes that gasoline prices are manipulated. In a review of Bob Woodward’s State of Denial, the LA Times reports,
During a meeting in the Oval Office, according to Woodward, Bush personally thanked [Saudi Prince] Bandar because the Saudis had flooded the world oil market and kept prices down in the run-up to the 2004 general election.
You could restate this belief as "Major oil producers and distributors often manipulate major political systems for their own benefit". That seems to me to be obvously true. Arguably it is even their fiduciary duty to do so if it is cost-effective.
A natural corollary is "When unexpected things happen in the oil markets, political manipulation by oil producers and distributors is a likely motivation."
You could argue that this is OK, but it seems misguided to call it a conspiracy theory.
The conspiracy theory has two seemingly reasonable theoretical propositions. 1. Oil companies prefer Republicans in general (George Bush in particular). 2. If a group of oil companies cooperated, they could temporarily manipulate gas prices prior to a U.S. election.
But there is an empirical problem with the conspiracy theory. Prior to the 2004 Presidential election, the U.S. PPI gasoline price index rose from 108.1 in January to 149.1 in October. You can find that on the BLS website. It is series WPU0571.
If I accept propositions 1 and 2, reasonable as they appear, why did the oil companies raise prices almost 50% prior to Bush's re-election in 2004?
Alternatively, energy prices (and food) are notoriously volatile which is why the Fed excludes them from its measure of core inflation.
Hmm, a conspiracy theory running rampant on the blogosphere or a measure used by the Fed to help conduct monetary policy? I think I'll go with the Fed on this one.
PS M Perry, great to see you on the blogosphere. Ted Murphy
...The old joke (or dogma for many) is:
When prices are high -- that's gouging & price manipulation.
When prices are low -- that's cut-throat competition & predatory dumping.
When prices are the same -- that's collusion & price fixing.
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