Cynical Synapse

Thu, 18 Sep 2008

An Apple A Day…

Filed under: Behavior, Business, Economy, Gas Prices, Oil, Profiteering — cynicalsynapse @ 10:51 pm

Many bloggers—at least those I seem to run into—tend to be conservative, free market types. I’m okay with that in general. But we seem to find discord with Big Oil profits and the recent gasoline price hikes following hurricanes Gustav and Ike. I should note that 2 dozen US refineries remain closed or are just starting up following the hurricanes.

It is simple supply and demand economics, therefore, that gas pump prices are up. This is largely a factor of panic at the pumps. Following many blogs and news stories over the weekend, there were very few shortages due to Ike. Localized problems were the result of a frenzied, “chicken little” types reminiscent of reaction to the War of Worlds radio broadcast in 1938. Wild rumors and media hype made people act like frenzied sharks after chum.

When people overdrive the available supply and ability of the distribution system to keep up on the local level, the impact of what would probably have been slightly higher prices with little or no noticeable shortages will now have longer consequences. I understand that. I also appreciate consumer choices—in this case, a “me first” rash purchase, sometimes even personal hoarding—resulted in a run on gasoline supplies. Apparently nobody remembers the effect the run on banks had in 1929 that led to a little thing called the Great Depression.

But, the extremely high profits of Big Oil put them on a prove your innocence footing with me. It’s hard for me to accept they still need their drilling incentives. It’s hard for me to accept they need the higher profits. It’s hard for me to pay higher prices, knowing the station operator doesn’t get but a small amount of that, while Big Oil reports record profits every quarter. I’d be far more tolerant if they’d “share the suffering,” even just a little bit. Say, maybe, 5 cents a gallon. I’ll bet they could still enjoy record profits, but think of the customer good will!

Since I make no bones about distrusting Big Oil, I don’t rule out the possibility they had some small role in the shenanigans since last Friday. It may be innocuous, informing the media that refineries in Ike’s path will be shut down. It’s just that I think the media is very predictable and Big Oil sophisticated enough to manipulate the unknowing media. Either way, the media created a lot of attention—I’d call it hype—that generated increased purchases. This led to some increased prices which begot rumors. Next came higher prices, fear-buying, lines, fights, and some localized sell-outs. There are, after all, only so many tanker trucks and drivers to keep the stations supplied. The sell-outs didn’t mean there was no gas. But by then, the Martians had landed, if you know what I mean.

Lots of people started using the G word—gouging. I visited a blog the other day claiming $6 plus prices in one area. But, a quick trip to told me the prices for that Saturday were never anywhere near $6, not even within $1.50 of that. That doesn’t mean some stations weren’t profiteering. Michigan’s Attorney General is investigating 16 gouging allegations. That’s not Big Oil, however. That’s station operators.

Another popular argument against those who “have it in for Big Oil” is the claim other industries have higher returns on investment or higher profit percentages. Rich’s comment on this blog said those differences were like apples to oranges, hence the title of this block entry. A common choice for comparison is software companies, a euphemism for a Washington state-based operating system and productivity suite developer and marketer.

An apple a day?Here’s where that analogy fails, however. You see, I don’t need that operating system or office suite. There are competing commercial products as well as open source products. Even Big Software’s web browser has competition. So, while I may need to use software, I have options. Another market segment cited for high ROI is pharmaceuticals. Bear in mind, now, that pharmaceuticals is, essentially chemicals. To be honest, I could climb on this bandwagon because I think the Big Pill people are raping us, too. But, again, I have choices. Generics are available for a number of medications. There are alternatives for some of the big sellers (how many different allergy, blood pressure, and cholesterol meds are out there?) and others are not essential, such as the hair loss and ED pills whose commercials I really detest.

With oil, however, I don’t have much choice. I can pick between brands or go with “no name” brands, but the price is usually pretty close. And, while I won’t buy from ExxonMobil (because of their disgustingly high net profits) and Citgo (because they’re Venezuelan-owned), I realize the gasoline I buy could come from any of the refiners and the crude that went into it from any oil region on the globe. So, even the minute choices I have are actually rendered virtually non-existent. I work 87 miles away from where I live, so bicycle is not an option. I don’t have a mass transit choice. Petrol is it and it’s not discretionary. Without employment, there’s no food on the table.

Ok, pharmaceuticals, software, and petroleum might be like trying to compare peaches to oranges to apples. But all the varieties of apples are still apples. And the apples I gotta have.

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