[saymaListserv] Ken Spitze Column for May 14: "Economics 101: How (not) to Lower Gas Prices
jhminshall at comcast.net
Mon May 22 15:06:10 JEST 2006
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
X-Mailer: 7.0 for Windows sub 10712
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
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
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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