[saymaListserv] Ken Spitze Column for May 14: "Economics 101: How (not) to Lower Gas Prices

[Janet Minshall]

Dear Atlanta Meeting and SAYMA Friends,  I have written in the past 
about economics and how we find "the Truth" on issues which affect 
our lives and social/spiritual actions.  This column speaks truth 
clearly.  I hope you will pass it on the next time you get an 
off-the-wall e-mail suggestion for addressing an economic/ political 
issue.  Peace, Janet Minshall




Date: Fri, 19 May 2006 19:31:36 EDT
Subject: My column for May 14: "Economics 101: How (not) to Lower Gas Prices
To: KenSpitzeDemocrat at yahoo.com
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Economics 101:
How (Not) to Lower Gas Prices

By Ken Spitze


By now, I imagine many, if not most, of you have seen one of the many 
ways that we can supposedly lower gas prices by following some very 
simple strategy. One of the early ones that I saw a few years ago 
claimed that if we all bought gas only on odd-numbered days, oil 
companies would "choke on their oversupply" and would be forced to 
lower prices.

One of the versions of this "strategy" claims that if we all refuse 
to buy from ExxonMobil, they would be forced to lower their gas price 
and all other companies would be forced to follow suit. This scheme 
was so convincing that the Bee County, Texas County Commission 
actually passed a resolution urging citizens to boycott ExxonMobil stations.

The most recent one I've seen is a lengthy story about shoppers and 
shop owners and egg producers. It goes through a meticulously story 
and argument that boils down to this simple recommendation: if we all 
just buy a half-tank of gas each time we go to the service station, 
we'll drive down the price of gas.

These are but a few of the many schemes that are circulating via the 
Internet and are undoubtedly making it into newspapers, discussions 
among friends and barbershop gossip. Let me state categorically that 
they are all completely illogical: they will in no way have an effect 
on the price of gasoline.

Perhaps the most fundamental relationship in economics is between 
supply and demand and price. "Demand" refers to the sum total of 
something that all of us buy. The only way to lower prices from "our" 
side of the economy is to lower demand, that is, to buy less.

Let's look at these schemes one by one so that we can examine what 
the story purports will happen, what will actually happen, and what 
will be the effect. I hope that my readers will get a bit more 
understanding of this basic economic principle so that they can 
recognize these "easy solution stories" as they continue to circulate 
in existing and (undoubtedly) new forms.

If we don't buy gas on even-numbered days, but don't reduce our 
consumption, then we simply buy twice as much as before on 
even-numbered days. Our overall purchases, and therefore our overall 
demand, will remain unchanged. What isn't sold on odd-numbered days 
will be there and sold on even-numbered days. At the end of every 
two-day period, the stations will be in exactly the same state 
whether this "strategy" is followed or it is not. This will have 
absolutely no effect of the overall demand for gasoline, and will not 
affect price.

The "boycott ExxonMobil" story is a bit more complicated. To 
understand what will happen, we simply have to realize that if the 
overall quantity of gasoline we purchase is unchanged, then whatever 
isn't bought from ExxonMobil will be bought from some other company. 
ExxonMobil will simply sell their gas to other companies. The overall 
demand in this "strategy" is completely unaffected. That is, the 
overall amount we purchase will be unchanged. Therefore the price of 
gas will not be affected.

The "egg" story is complex. It is lengthy and goes through a series 
of supposed interactions between a shopper at a local store, the 
store's purchasing behavior with the distributor and the huge 
producer replete with egg-laying chickens. As I said above, the whole 
scenario supposedly justifies the notion that if we all buy just a 
half-tank of gas each time we go to the service station, that this 
will somehow result in an oversupply. To understand the true 
consequence of this "strategy", one simply has to realize that buying 
two half-tanks of gas each week is exactly the same as buying a full 
tank once a week. It will have absolutely no effect on overall 
demand, that is, no effect on the amount we purchase, and therefore 
will not affect prices.

The insidious thing about all these schemes is that people believe 
them and adopt the "strategy" think they are doing something to drive 
the price of gas down. They are fooled into thinking that there is 
some easy way to accomplish this. Most importantly, they are fooled 
into thinking that there is some way that they help lower gas prices 
without really modifying their behavior in any meaningful way. 
Whatever energy they had intended to devote to helping lower gas 
prices is simply wasted on these hoaxes.

If you run across any other stories like these, go to www.snopes.com 
to see if it is, in fact, yet another "urban legend".

Very intelligent people fall victim to these hoaxes. The intricate 
details and seeming earnestness of these schemes have time and time 
again successfully fooled our smartest friends and neighbors. The 
question that arises is: What is the purpose of these scams and who 
is creating them?

My Guess? I'd bet that these stories originated within the major oil 
companies themselves. If you were employed by ExxonMobil's PR 
division and wanted to divert the anger people feel toward oil 
companies for the current high prices, what might you do? If your 
personal ethics were somewhat suspect, you might very well concoct 
such schemes in an effort to get people to believe that they were 
doing something meaningful when in fact they were doing nothing at all.

How can we really lower the price of gas? Well, let's start with the 
basic answer from economic theory: we must lower demand. If we truly 
did buy a half-tank of gas each week instead of a whole tank, we 
would lower demand. If we would park our cars on even-numbered days 
and walk or bike or ride the bus, we would lower demand. If we bought 
cars that got more miles per gallon and drove the same number of 
miles, we would lower demand. In truth, there are some relatively 
simple ways to lower demand, but none are "magical".

First published in the Carroll Star News on May 14, 2006.
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