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Perhaps it isn’t ‘the Law’ that is simple…

I read the Calgary Herald, even though I live hundreds of kilometres away from Calgary, primarily because my wife thought it would be a good idea to stay in touch with what is going on there. So, for the last year, we have received the hardcopy edition on the weekends. I usually read the first section all the way through and discard Entertainment, Sports, and New Homes. However, I save The Editorial Page for last. In my old age and my years in Alberta, I have become used to the mindless social and fiscal conservatism that runs rampant through the province and have enjoyed and learned from debates with thoughtful conservatives. It still seems to me, as it has for a while, that too many people here are in the grip of a picture. The ideological filter with which they live their lives—and write their opinion articles—dominates their ability to do some very basic logic. A very straightforward mistake can be found in today’s Herald. In an article that seems to have the dual purpose of arguing against nationalisation of the oil and gas industry in Canada and suggesting to people to shut the hell up about gasoline prices because Coca-Cola and bottled water cost more than gasoline, this passage can be found:

Even Prime Minister Stephen Harper tried to sound like the common uninformed man, instead of the economist he is. When asked if he thought price gouging was going on, he responded, “It certainly appears that way to me.” Uh, quick brush up course on Economics 101, PM. If one quarter of America’s refining capacity closes down, as happened last week as a result of hurricane Ike, prices are sure to rise. It’s called the simple law of supply and demand. What’s more, those refineries are focusing on making more diesel and other commodities right now, because there’s more money in it. (’Be grateful things really don’t go better with Coke’, L. Corbella, Calgary Herald, 20 Sep 2008).


The snotty attitude aside, we have a pretty clear set of claims here:

  1. Harper said that it appeared to him that oil companies were ‘gouging’ with respect to immediate gasoline price increases due to Hurricane Ike activity.
  2. Harper is an economist and should know better, so he is being disingenuous about his claim.
  3. When supply falls, prices rise: the ‘simple law of supply and demand‘.
  4. Twenty five percent of the refining ability of the US was shut down by hurricane activity.
  5. Refineries are focussed on making things other than gasoline.
  6. So, ‘prices are sure to rise’.
  7. So, prices are justified in rising.
This argument, which I believe I have faithfully captured above, might seem to follow. However, it doesn’t.
The question directed at the Prime Minister wasn’t ‘Is it gouging when oil companies raise the price of their products due to lack of supply?’ It is somewhat instructive to note that Corbella left out the context in which the question was asked. 
Byrne’s comments came after Stephen Harper had strong words for reporters at a campaign stop in Halifax last week when he was asked about rising gas prices while the price of oil per barrel keeps sliding. Reporters asked Harper if he thought it was price gouging and he responded, “Well, it certainly appears that way to me.” (Byrne asks Harper to drop Marine Atlantic fuel surcharge, CBC, 15 September 2008)
So, we can see that ‘close quoting’ doesn’t ensure accuracy. Nevertheless, it would seem that the question wasn’t about price hikes due to Ike, but why, when the cost of the raw materials for a product keep dropping and the cost of transmuting the raw materials into product stay the same, does the cost of the product rise? Well. That doesn’t seem to be a question that can be so easily turned aside by a flippant reference to the ’simple Law of Supply and Demand’. Corbella seems to think that the ’simple Law of Supply and Demand’ is like the Law of Conservation of Energy, in that it applies regardless of what human beings might think or desire. Well, it doesn’t and the reporter (and presumably Harper, who is a economist and understands that economics is a social science rather than a physical one) knows it. The reporter wasn’t asking for an economics lesson; asking after a description of what could possibly account for the oil company’s behaviour (’price gouging’ is far from a balanced, unloaded term).  The reporter was asking for a judgement; whether Harper could see any justification for gasoline prices to go up when the cost of oil was going down.  So, Harper was, in effect saying that he cannot see any justification for gasoline prices rising while oil prices fall. He knows, as all economists know, that the reason that gas prices stay high when oil prices fall is that oil companies make more money that way and they get away with it. The Law of Supply and Demand is a description. So what Corbella has done, more or less, is answer the reporter’s question by saying ‘well, that’s what people who run oil companies do’ as if that answered the question. Serial killers kill people—that’s what they do—but that they do hardly answers the question as to whether they are justified in doing so.   So much for teaching Harper anything today.
The comment made at the end of the article is also instructive:
Making gasoline is a very costly and complex process. You have to explore, dig deep holes, pump and refine oil in refineries that cost billions of dollars to make gasoline. And it’s still cheaper than municipal tap water poured into a bottle (op cit). 
I think her point is supposed to be something like ‘it’s really expensive and difficult  to make gasoline—look at everything that goes into making it and it is still cheaper than bottled water! So shut the hell up already–you’re getting a deal.’ This presumes so much that I can only assume Corbella was going for a cheap rhetorical flourish near the end… a snappy punch line for the article, rather than provide some solid argumentation. Fair enough. But her snappy little passage here presumes any number of things: that bottled tap water is justifiably priced, that because something is cheaper than some other thing some sort of normative conclusion can be drawn, etc. Nothing she has said in the article goes to a justification for gasoline prices. All we have is an ideological (rather than a reasoned) argument against nationalising the oil and gas industry (NB: when you have few arguments of substance, drag out the NEP and slag it; that always seems to trick a lot of people into thinking your arguments have some  weight), a conflation of description and prescription, and a hackneyed old bit about various things we think nothing of paying for costing way more than gasoline.

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