A Flaw In Logic

El Presidente had himself a little press conference last night. Now I didn’t get to watch, but for a very brief critique of it, check out fellow UPC member PSOTD for his rundown. I’m currently in the middle of reading a transcript, and I came across this little gem:

“Actually, I said in my opening statement that the best way to affect the current price of gasoline is to encourage producing nations to put more crude oil on the market.
That’s the most effective way, because the price of crude oil determines in large measure the price of gasoline. The feed stock for gasoline is crude oil, and when crude oil goes up, the price of gasoline goes up.”

Which is very very true. When anything costs more to make, it costs more to buy. But the implied other side of the coin is an absolute falsehood. The tricky part here is that the President doesn’t actually come out and say it. The implied part of the quote that is missing is this:

“When crude oil goes down, the price of gasoline goes down.”

It’s implied, but never said. Never misunderstimate this man. This here really does point to the simple political awareness that GeeDub possesses. By saying what he did, and leaving out the quote above, the effect is enormous. In the minds of the laymen, they hear, “when crude oil goes up, the price of gasoline goes up,” and they quickly think there after “so when crude oil goes down, the price of gasoline goes down.” That’s what they think, a political benefit that Bush gets without having to actually lie in order to say it.

Because the truth of the matter is that while gas will go up when crude oil goes up, there is absolutely no guarantee that gas will drop when crude does.

Take CD’s for instance. Remember when they came out? (If you don’t, I don’t want to talk to you as I’m too young to be feeling old.) As tapes back then cost about eight bucks, the newly introduced CD’s topped out at about fourteen to fifteen.

But, the industry promised us, that was supposed to change. CD’s would eventually be cheaper than cassettes because they would be cheaper to manufacture, cheaper to store, blah blah blah. And people bought it. It made sense. Cassettes required intricate plastic molding and the production of the magnetic ribbons. CD’s were, well, compact discs. No moving parts.

Yet, as the years went by, a very curious thing happened. CD’s slowly went UP in price. What happened to cheaper production? Lower prices? I’m no economic expert, but my guess is a simple word. PROFIT.

Another way to look at this is an analogy that I can’t remember where in the hell I picked it up from, but it’s pretty damn interesting. If you throw a frog in a pot of boiling water, the frog will jump out. If you take a frog and put it in a pot of room temperature water, and slowly bring it to a boil, chances are, the frog will stay in the pot.

Which pretty accurately discribes the way consumers behave. When gas prices jump twenty cents or so, there is typically a large outcry, but this doesn’t represent the steady increase of gas prices which over the course of twenty or so years jumped from around a dollar or less a gallon to nearly two and a half dollars a gallon.

Going back to the dropping price of crude oil. The fact is that by the time oil production increases and oil prices theoretically drop, there are two frogs that we have to think about. One frog, the consumer, has to some extent gotten used to paying a higher price for gas. The other frog, the oil companies that distribute to gas stations, has gotten used to charging higher prices. Further, that second frog sees a potential for bigger profits.

In either case, what one could expect to see is a drop big enough in gas prices to quell the bulk of public dissatisfaction, but still keeping the prices high enough to keep a bigger profit than before. Or in other words, don’t be fooled by the flawed logic that just because there is more oil, it’ll be any cheaper. All that cash we pay out of a necessity based on supply and demand, we will similarly pay based on need and profit.

M

One Response to “A Flaw In Logic”

  1. Karlonia says:

    Hmmm…this is a different angle on the crude oil vs. gasoline price issue from most that I have seen. If the oil prices ever do come back down significantly, it might be interesting to do some comparisons across different historical periods when the gasoline prices were approximately the same, and then see if the oil companies are taking a greater share of the profits now vs. then.

Leave a Reply

Your email address will not be published. Required fields are marked *

Connect with Facebook