This is a response I wrote to a letter I got in an ongoing discussion about the price of gas...
I just find myself wondering (in terms of changing the rules) if really there is a difference between “collusion” and “industry’s collective decision.” The difference between the two would appear to be something along the line of the “smoke filled room” but when the motive is so obvious, they don’t really need to talk, do they?
It seems like had one company decided to maintain a higher inventory or to make the investment in refining that right now the others would be unable to meet their price at the pump. To me that seems anti-competitive and even smacks of collusion without the overt act.
I never thought you were defending oil companies. My original point was that the price of oil and the price of gas aren’t necessarily related, as in “the price of oil goes up so the price of gas goes up.” It seems to me that the original data tracking you did suggests there is at least a correlation, but I think that’s more of a fig leaf than an excuse. What I think we’re finally seeing in the press is that it is far more complicated than oil up gas up, and that the oil companies prefer it to be complicated, because complicated is opaque and opaque is hard to fix from the outside.
I’m coming to the stand that energy, even as gas, because of our dependency ought to be treated as a public utility. It’s just not whack that they are able to make that kind of money when prices are going up like they are. It’s unseemly, and while not un-American, it is somewhat un-Christian which ought to matter to the players involved. You just don’t raise the price of bread when your neighbor can’t afford bread and I really do believe that’s what’s happened here.
You are right that there is no way to expect the oil companies to behave more in the manner of a public trust and that government is the route to dealing with it and that the moment of inertia there is large, but I have to say that before we are buried under debt for Medicare or social security we are likely to see things crumble around energy & transportation prices – especially since the trail from transportation costs to food prices is so short.
So, you ask: “what is the proper behavior for an oil company?” And I think I have to answer, in a very non-capitalist kind of way, that we have built our society in such a way as to depend on the good public citizenship of oil companies and if they cannot be trusted to keep the general public’s best interest level with their own pocketbooks then they need to be more heavily regulated and compelled to do so; for at least as long as it takes for our society to raise the yoke of gasoline through technical innovation, conservation, and sustainable living practices. For the time being, in the real world we’ve built, the market is a liability.
I guess maybe that makes me a communist. But as much as we are a capitalist society, we do operate in a more collective way for many things – things that are essential get more regulation. While supplies were high and demand was manageable we could afford to let the market handle the price of gas. Now that the topography has changed our national management must react. And really, if an “on hand inventory” requirement and an “infrastructure growth and maintenance” requirement both of which could be offset with tax credits will do the job, I don’t even think its that onerous a regulative posture.
The real interesting thing here is that if it were outright collusion then the justice department could sue them and change the behavior. With it just being a shit sandwich it pretty much falls to new legislation, which would be the hardest way to get anything done.
It just continues to strike me that there are things that are just too important to the function of every day life to be left to the care of the market. Especially since the market doesn’t care about me, it cares about making money – and I guess that’s good for my 401k, if I ever get to retire. But with gas at $3.50 and rising I think many people are going to find retirement further off than they had anticipated. And even more than that since the market can be gamed if any block (overt, covert, real, or just “for all practical purposes”) can gather enough influence.
For oil, I think we are seeing the result of that kind of “quiet” market cornering.
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