Sisyphus Does Energy Policy
For well over twenty years in my various energy pricing and policy classes I have pointed out that every energy price spike leads to accusations of manipulation and gouging and a call for an FTC investigation . . . which is always announced with great fanfare but never finds anything–something that is announced sotto voce, if announced at all.
And lo and behold, right on cue, due to the rise in energy prices in recent months Biden (or more likely, Howdy Joe’s ventriloquists) has asked the FTC to investigate rising gasoline prices:
President Biden called on the Federal Trade Commission to investigate whether oil-and-gas companies are participating in illegal conduct aimed at keeping gasoline prices high, in the latest effort by the White House to respond to public concerns about costs for everything from fuel to groceries.
Sisyphus would understand the drill. “Time to roll the price gouging rock up the hill again.”
And for the most idiotic, demented hot take, let’s turn to Lizzie Warren, speaking on Joy Reid’s show (talk about a singularity of stupid*):
Recall, this is about a change in prices. So if the change in prices is due to gouging by oil companies, it would have to be due a change in gouging behavior. (I think even Joy and Lizzie should be able to follow this, it’s so basic: but maybe I’m too generous.)
But let’s follow that thread. It would imply that until recently, oil companies were not exploiting the opportunity to “double their profits” by price gouging.
So what happened? Did one day a few months ago the CEO’s of Chevron and ExxonMobil et al have a V8 moment, and slap themselves on the forehead and say “Wow! I could have doubled my profits by jacking up prices!”
So if they could screw consumers at a whim by jacking up prices why did they let oil prices go to single digits in 2020? Why does the urge to gouge seem to wax and wane?
This is so incandescently stupid. But I guess I should consider the sources, and remember that this sort of incandescent stupidity spikes every time oil prices do.
If the FTC exhibits the integrity it has in the past, this investigation will end the way all the others have, with a whisper not a bang, stating that fundamentals are the driver. But there is no guarantee that the current FTC will indeed exhibit such integrity, given how degraded government institutions have become (not that they were ever paragons, but everything is relative). Political imperatives and narratives, not realities, rule the day.
* Lizzie was dean of Harvard Law School, and a professor of law there. Joy Reid went to Harvard. God save us from Harvard.
Barney Frank came to CME once and pondered if regulating OTC derivatives and having stricter position limits on futures would cause prices to drop. We explained to him that if they did that, markets would be less transparent, bid/ask spreads would be wider, and prices would be more volatile. On moves to the upside, they’d go higher than they would have with the lessening of liquidity.
There is no free lunch with energy. It cannot be “free”. It’s not a public good. Exploration and exploitation of it causes pollution but the opportunity cost is far less to pay than doing without it.
Sad sad sad and no amount of academic logic will help them. Maybe if we turned off the heat to Lizzie’s homes and offices.
Comment by Jeffrey Carter — November 21, 2021 @ 5:03 pm
Craig, Lizzie was a law professor at the University of Houston Law Center before she went to Harvard!
Comment by Tom Kirkendall — November 21, 2021 @ 5:49 pm
@Tom-I know that well, and try to forget it. Although I do think we owe Harvard a debt of gratitude for using Lizzie’s genealogical fictions as a reason for taking her off our hands.
Comment by cpirrong — November 21, 2021 @ 5:56 pm
@Tom–I’ve tried to read some of her supposed scholarly research. I tried. Really, I did. But I failed. I had to stop. For my health. I would have killed fewer brain cells if I had slammed Everclear shots instead.
Comment by cpirrong — November 21, 2021 @ 6:04 pm
Fauxcahontas and her pals believe that oil companies just “have” oil.
The truth is they buy it, essentially in the same way as Joe Sixpack fills his ute.
Oilcos buy drilling rights, expertise from a gamut of contractors, from seismic gunmakers to metallurgists to hyperbaric welders to… you get the picture.
And only then can they sell it. Into a market typically five to ten years in the future where the price for the suff is anyone’s guess.
It amazes me that any sane person would take such a risk. They do not “have” oil, they buy it for future delivery. So good luck to them.
Comment by philip — November 21, 2021 @ 7:10 pm
It’s not incandescent stupidity. It’s ‘Hey, look! A squirrel!’ They’re trying to distract the public from their own malfeasance and massive failures of policy.
Comment by Pat Frank — November 21, 2021 @ 10:05 pm
“And for the most idiotic, demented hot take, let’s turn to Lizzie Warren, speaking on Joy Reid’s show”
I’m struggling to believe that there is any consumer demand for this product. There simply aren’t enough outraged economics professors from which to build a market-viable audience, surely?
Comment by Jeremy Bray — November 25, 2021 @ 4:01 am
@Jeremy. If by “this product” you mean this blog, well, I’ve been attracting a not insignificant audience of non-economics professors (outraged or otherwise) for going on 16 years. No accounting for taste, apparently.
GFY and good day!
Comment by cpirrong — November 26, 2021 @ 6:52 pm
Cool your jets, Prof.
I meant Joy Reid’s show.
Comment by Ex-Global Super-Regulator on Lunch Break — November 29, 2021 @ 9:03 pm
@LOL. Sorry. Didn’t catch the connection initially. Speed kills 😛
Comment by cpirrong — December 4, 2021 @ 3:08 pm