Sunday, June 18, 2006

Gas and Butter

This morning I caught Tim Russert interviewing a few CEOs of oil companies (I didn't catch which ones). Focusing naturally on public opinion, Russert pointed to the overwhelming popular consensus that oil companies are to blame for rising gas prices, not macroeconomic changes, as the CEOs maintained.

He then tried to get the corporate heads to understand the public's position. I paraphase: "When they see Shell, Exxon, BP gas stations with all the same prices, that suggests you guys are gouging and colluding." They responded unremarkably, citing changes in the global economy.

It instantly reminded me of when John Stossel tried to answer a question I laid down concerning the rhetoric of defending free markets. He said he's always surprised how poorly executives express themselves on that subject.

So let me offer them some advice in defending free markets in mainstream media. Respond with something vivid and witty and then use that to lead into your point. It allows you to turn the conversation in your favor. For example, I would respond to that question with "But we see constant prices in butter and no one's suggesting some kind of secret butter cartel. The price of oil is due to changes that affect all of us equally, just as average butter prices would rise if industry could use butter to power its factories."


Tim said...

Woe are we, poor slaves of the market, servants to consumer will...

Anonymous said...

"But we see constant prices in butter"
No we do not. I was at a grocery store on Saturday and saw a big tub of butter on sale for $1 when the usual price is $3. There was no competing sale at another store. When was the last time we had something like that with gas?

Do butter prices go up right before holidays and summer? Which is more necessary for modern American life, gas or butter? How often does the average American buy butter compared to gas? Can you buy gas in bulk and safely store it for a few months until you need it? Are there butter futures that dominate the pricing of the product? Do butter prices change daily? How often are there sales on gas? Dollar-wise, how much butter does the average person use a week compared to gas?

I feel your compairson leaves out so many important differences as to be misleading.

Tim said...


If you think gas prices are the same throughout the country, you're missing something. I lived in Illinois, where prices are some of the highest in the country - prices were higher in other places.

And I think all of this debate is besides the point. SO WHAT IF THEY RAISE THEIR PRICES! That's their right. It's their oil, and if they want to charge so much nobody can buy it, they can choke on it. No big deal, not my problem. All that means is that they'll swiftly either rethink, or alternatives will be trotted out quick as a bunny.

The next complaint of "price gouging" I hear when it's not directed at the government (the only one who can legally force you to buy something that you may not want), I swear I'm going to cry.

And by the way, YES you can safely store gasoline in bulk. Yes, butter prices CAN change daily - they just don't because of a very efficient supply structure, and consistent demand (until the next lo-fat craze).

Sales on gas? HELLO! I only go to BP on "Wacky gas wednsdays" or whatever, where every week they lower their prices (along with the station across the street, not one to be left behind).

And as a chocolatier, let me tell you that butter is MUCH more important to my life and work than gasoline - I'm only riding public trans, so my costs are pennies on the gallon. And how much relative to gasoline? I'm projecting using about 60 dollars to 120 dollars a week on butter - maybe half that on gasoline.

And here's a shocker - GAS IS CHEAP! CHEAP CHEAP CHEAP! Prices rise absolutely, but relatively they fell from their highs of decades ago. If they rise? Guess why? China and India are consuming more than ever before, on their ways to being like big brother (us).

Foo. I'm worked up.

Anonymous said...

There are products that may seem as though they're a choice. You can purchase them or not and the price, when loooots of people choose the same way, will adjust accordingly. That's all fine and dandy-like. But what about products that *seem* to be a choice, that you can *theoretically* choose not to purchase, but really you can't? Really you have no choice? That's the case with gasoline and, well, most of America. Only a few cities have public transport that can actually get people where they need to go and could hold the amount of people who would use the system if they chose to use it (due to gas prices rising too high). Some of our largest cities (Detroit, for obvious reasons, Houston, Los Angeles, Dallas...) have very little public transport options. And forget the suburbs and swaths of rural areas. Those people really are forced to buy gasoline at any price. if they don't, they can't leave their homes! You can talk all you want about alternatives being trotted out, but it wouldn't be soon enough for those who are really struggling and really can't pay their bills. We're talking months before the pressure builds, before new model non-gas cars can be built and sold, and years before public transportation can be built. And gas is just one example of an ostensibly "chosen" product that a lot of people are actually forced to buy.

Anonymous said...

No it isn't. Oil and gas are necessities for the entire nation. If you don't use it yourself, then the products you buy are delievered by using it. That is too much power to go unchecked. And don't go talking about market forces. It's not a tenth as effective libertarians make it out to be.

"The next complaint of "price gouging" I hear when ... I swear I'm going to cry."
David is the only one who mentioned it. Of course your keyword is "legally", as if a large business every let something like the law get in the way. Corporations scatters legal responsiblity so much lawsuits are virtually ineffective. All you can really do is fine them and if you think fines really punish corporations I have a ski resort in Flordia to sell you.

"And by the way, YES you can safely store gasoline in bulk."
Two words: fire hazard. You may not know this but gasoline burns pretty well. Keeping more over a few gallons not only puts your place at risk but your neighbor's too. Should other people have to risk their lives so you can save a few bucks? If storing large enough quantities of gas to keep a suv happy was really possible, Home Depot would have a sale on them every other week.

"butter prices CAN change daily"
Never saw it happen. Stores change prices by the week. Even then not every price is changed.

"And how much relative to gasoline?"
Don't go saying "relative", we're talking about actual dollars. $5 worth of butter lasts longer for $5 of gas for 90% of the population. Trying to put things in "relative" prices is a hat trick unless you're talking about inflation. But you're not.

"but relatively they fell from their highs of decades ago"
So how about sallaries? You know, what real people use to buy gas. Have they risen like gas prices?

"Sales on gas?"
I've been in Illinois for 7 years and never heard of that. I also listen to 780AM with their gas prices. If there was a sale every week on gas, I would have heard of it by now.

"butter is MUCH more important to my life"
Not everyone is like you. (Thank goodness!) If everyone was like you, ideas like communism with its faceless conformity would work a lot better. Different people have different needs and requirements. It's something I haven't seen acknowledged very much in libertarianism. We're not drones. By what I've seen here people, I mean "employees", are expected to work excessively at our jobs to keep them then work more to find a new job just in case our company decides to move oh and for good measure work to learn a new trade if our industry collaspes. The biggest reward goes to the one who gives up the most of their private lives for a company who doesn't value loyality. We're still treated like cogs, no matter how much brass plating you put on us.


Tim said...

OK all, this is getting too big to leave in a tag to a post - I'm tossing it front-page.

David said...

Jason: please re-read my post. The reference was a counter-argument that similar prices across companies at the same time implies collusion. Of course prices changes across time.

There is of course not perfectly uniform prices (in defiance of the Law of One Price). Some areas have cheaper gas, some stores have cheaper butter. But when was the last time you saw the same product being sold for vastly different prices at the same time? (Note that "product" in this case bundles other factors, such as location and service.)

Anonymous said...

"But when was the last time you saw the same product being sold for vastly different prices at the same time?"
Is that a trick question? I have the feeling if I answer with an example you'll find some other factor that counters it. Like my example of the tub of butter being sold at 1/3rd it's usual price. Let's see, I remember last year seeing a Transformer at KB that was 1.5 the price at a Target a short distance away. The homes I found while house-hunting? No, can't use them, too much difference for a fair comaprison. I saw anime at one online store being sold for almost 2/3 the price at another. Actually that's a good example because the location is irrevelent and service the same. Both had the "buy over X and get free shipping" deal. All you have to do is look and you will find examples of the same product at different prices.

To answer your question, TODAY. Over lunch I saw a bag of chips on sale for $1 at a Wallgreens and the same bag of chips for $0.80 at a CSV 2 blocks away. 20% is a pretty big difference and no, it was not something you had to be a club member for.