Saturday, November 15, 2008

Slipperly Logic

After noting the fall of oil prices, a friend of mine suggests oil companies could have "gotten away" with higher prices longer. When prices rise, it's a conspiracy in the greedy pursuit of profits. When they fall, it's still a greedy pursuit of profits?

Supposedly, prices fall because colluding firms want to assuage calls for regulation and taxes. Anyone even remotely familiar with commercials, advertising low prices, knows how sloppy that argument is. There's no evidence of sustained collusion, because there's no way to enforce such deals. Prices rose due to sudden demand and are falling because this competitive industry is finally catching up.

This is not a new story. From Amity Shlaes' The Forgotten Man. In 1934,
[Harold Ickes] had discovered that at numerous points oil was being extracted clandestinely and illegally, outside his NIRA [National Industrial Recovery Act] production quotas, and sold at prices that undercut the policy to force prices upward. He was outraged and opened a campaign against the oil bootleggers, describing them as possessed of a "sly animal cunning." (p 203)
No wonder oil CEOs are paid so much. It's not fun being the villain no matter what you do.

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