Wednesday, August 31, 2005

Walter Williams and Carl Levin on Gasoline Prices

I like Walter William. He, like Thomas Sowell, is an economist who looks at some of the issues that drive today's hysteria and explains them in ecomomic terms that the rest of us can understand. Here is his column on the current spike in gasoline prices.
Few people realize that the U.S. is also a major oil-producing country. After Saudi Arabia, producing 10.4 million barrels a day, then Russia with 9.4 million barrels, the U.S. with 8.7 million barrels a day is the third-largest producer of oil. But we could produce more. Why aren't we? Producers have a variety of techniques to win monopoly power and higher profits that come with that power. What's a way for OPEC to gain more power? I have a hypothesis, for which I have no evidence, but it ought to be tested. If I were an OPEC big cheese, I'd easily conclude that I could restrict output and charge higher oil prices if somehow U.S. oil drilling were restricted. I'd see U.S. environmental groups as allies, and I would make "charitable" contributions to assist their efforts to reduce U.S. output
Contrast that with the dopeyness coming from our political class

Following unusually large and sudden increases in the price of gasoline throughout Michigan and other Midwestern states in the spring of 2000 and again in 2001, in May, 2001, Senator Levin directed the Senate Permanent Subcommittee on Investigations to determine the causes of these spikes in gasoline prices, and what actions could be taken to stabilize gasoline prices.

In April 2002, Senator Levin issued a report entitled Gas Prices: How Are They Really Set? [download file] One of the major findings of this report is that the decline in the number of refineries and increasing concentration within the refining industry are major reasons prices have become so volatile.

On April 30 and May 2, 2002, Senator Levin held hearings on this subject, with testimony from oil industry executives, economists, and state officials, including then-Attorney General of Michigan, Jennifer Granholm. [download large pdf file] At this hearing Senator Levin expressed his concern to the oil companies that some refiners have limited the supply of gasoline in order to boost prices. He has also urged the Federal Trade Commission to more closely review proposed mergers to ensure that mergers do not reduce supplies or increase prices.
Huh? Oil Companies? Hasn't he been paying attention? In the entire report there is not a single mention of OPEC or any of the Muslim oil-producing nations. I hope someone on his staff reads Walter Williams' column to him before he does some serious damage to the economy.

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At 8:37 PM, Blogger Valannin said...

Harry, thanks for giving me my first comment (other than trackbacks and spam). In other news, people often forget that oil companies make zero money on gasoline sales, so price setting would be counter-productive.

Overall, great site. I'm adding you to my links if you don't mind.


At 5:48 AM, Blogger Harry said...

Thanks for the compliment. I now have you linked too.


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