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Tuesday, March 11, 2008

Economic Knowledge

What is it with Americans and a distinct lack of knowledge of basic economics. About once every few months I get an email from a friend urging me to boycott certain oil companies who allegedly get most of their oil from the Middle East. Instead, I should only buy from certain companies that are get their oil from the U.S., Canada, etc...

Now, Snopes has a page on this email. And yes, you should always check Snopes before you forward a chain email. But you shouldn't need Snopes here.

Boycotts only work when you can use a substitute product or refrain from using the product at all. But the substitute for a barrel of oil is still a barrel of oil. The markets don't care where it came from. Even if Middle Eastern gas was dyed green and and all other gas was dyed blue, it still wouldn't matter. Oil is fungible. As soon as everyone starts buying "blue" gas, there's going to be shortage of it, and vendors will simply buy "green" gas.

In about 6 weeks, I'm going to start getting emails asking me to participate in a gas boycott on May 15th, in a futile attempt to lower gas prices. Again, basic economics says that boycotting a product for one day does absolutely nothing. You're still going to have to fill up your tank at some point and it doesn't matter if you do it on the 14th, 15th, or 16th.

About a year and a half ago, my sister came home from high school and said that her principle claimed that gas prices were going down because the politicians decided to lower them before the November elections. This is coming from woman with at least one PhD. The friends who email me are usually highly educated professionals. They all should know better, but they don't for some reason.


I'm with you on the boycotts, but I don't see why you're so dismissive of politicians lowering the price of gas. Bob Woodward reported in 2004 that Prince Bandahar had pledged to George Bush, "certainly over the summer, or as we get closer to the election, they could increase production several million barrels a day and the price would drop significantly."
If that story is true, then all it shows is that the Saudis can affect the price of oil. Not exactly earth shattering news.

The one thing the President can actually do to directly influence gas prices is to release some of the Strategic Petroleum Reserve, which I believe Clinton did before the 2000 election.
The question wasn't whether it was earth-shattering; it was whether politicians can lower the price of gas before elections. The answer is yes, and it appears to have happened (at least twice, if you're right.)

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