Lula: Explaining the Price of Gas
And why boycotting ExxonMobile is a dumb idea
Karolina Lula, op-ed columnist
Issue date: 4/24/06 Section: Opinion
- Page 1 of 1
The Bush administration informed American consumers that they should be prepared this summer for gas prices to average $2.62 a gallon.
Recently, an e-mail has been circulating around the Internet urging the readers to "take some intelligent, united action." This "intelligent" solution we are talking about is boycotting ExxonMobile.
"For the rest of this year, DON'T purchase ANY gasoline from [ExxonMobile]," the e-mail urges. "If they are not selling any gas, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit."
This will never work. The author of this urban legend was not familiar with simple economics.
Douglas Coate, professor of economics at Rutgers-Newark, says that such claims are ludicrous. "With respect to the specific proposal," says Coate, "shifting demand from one provider to another will not reduce overall demand and will not affect price.
Even if such a boycott would be successful, the companies could easily deliver to other non-name brand gas stations like BJ's, WalMart or Costco. A successful boycott could drive many small independent gas stations out of business and benefit the wholesaler (who can simply sell to someone else).
We want to punish the oil companies because we hate to pay the high prices. Maybe a boycott attempt would give us a feeling of satisfaction. Just remember what happened when we tried to boycott French wine. This boycott had virtually no impact on the country of France.
Not only is the ExxonMobile boycott idea futile, but it is also unwarranted.
But many people refuse to believe that. The Big Oil criticism comes straight out of U.S. Senate and is blind to party lines. A bill was even introduced that increased scrutiny over oil companies. In other words, our senators believe that Big Oil can control their own prices.
Former Exxon boss Lee Raymond said last week that part of the reason our politicians don't understand the oil industry is because the industry runs on cycles of decades. A Big Oil boss might see as many as 20 U.S. Congresses and all the changes that go along with it.
The corporations are not our enemy and Big Oil does not set prices. According to an article on the Motley Fool Web site, prices are affected by the costs of crude oil, refining, distribution and marketing. The main factors that caused the increase were changes in refining and distribution of crude oil.
And, of course, increases in state and local taxes.
"There are three ways to have lower gas prices this summer," says Coate. "Free the U.S. from the Iowa corn farmers! Free the U.S. from the EPA! Free the U.S. from our politicians!"
Coate's proposed three points are a far more intelligent solution than an Exxon Mobile boycott.
First, move the Iowa Caucuses from the first of the presidential primaries to the last. Chucking the Iowa primary would make it politically feasible to eliminate the ethanol subsidies, freeing up refining capacity.
Second, we could get rid of the U.S. Environmental Protection Agency and the assortment of gasoline concoctions the government requires refiners to provide this summer. New regulations starting in June will require 10 percent ethanol in all gasoline. The switch is costly for oil companies - and the cost is passed on to the consumer.
Third, reduce government taxation of gasoline which exceeds 50 cents per gallon. This solution means relaxing gasoline taxes back to what they were meant for: highways and road maintenance
The bottom line is we can either accept the soaring prices or realize that the government is not here to help. We can hate ExxonMobile with all our might, but that will not make our gas any cheaper.
Columnist Karolina Lula is an NCAS political science and economics double major.
Recently, an e-mail has been circulating around the Internet urging the readers to "take some intelligent, united action." This "intelligent" solution we are talking about is boycotting ExxonMobile.
"For the rest of this year, DON'T purchase ANY gasoline from [ExxonMobile]," the e-mail urges. "If they are not selling any gas, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit."
This will never work. The author of this urban legend was not familiar with simple economics.
Douglas Coate, professor of economics at Rutgers-Newark, says that such claims are ludicrous. "With respect to the specific proposal," says Coate, "shifting demand from one provider to another will not reduce overall demand and will not affect price.
Even if such a boycott would be successful, the companies could easily deliver to other non-name brand gas stations like BJ's, WalMart or Costco. A successful boycott could drive many small independent gas stations out of business and benefit the wholesaler (who can simply sell to someone else).
We want to punish the oil companies because we hate to pay the high prices. Maybe a boycott attempt would give us a feeling of satisfaction. Just remember what happened when we tried to boycott French wine. This boycott had virtually no impact on the country of France.
Not only is the ExxonMobile boycott idea futile, but it is also unwarranted.
But many people refuse to believe that. The Big Oil criticism comes straight out of U.S. Senate and is blind to party lines. A bill was even introduced that increased scrutiny over oil companies. In other words, our senators believe that Big Oil can control their own prices.
Former Exxon boss Lee Raymond said last week that part of the reason our politicians don't understand the oil industry is because the industry runs on cycles of decades. A Big Oil boss might see as many as 20 U.S. Congresses and all the changes that go along with it.
The corporations are not our enemy and Big Oil does not set prices. According to an article on the Motley Fool Web site, prices are affected by the costs of crude oil, refining, distribution and marketing. The main factors that caused the increase were changes in refining and distribution of crude oil.
And, of course, increases in state and local taxes.
"There are three ways to have lower gas prices this summer," says Coate. "Free the U.S. from the Iowa corn farmers! Free the U.S. from the EPA! Free the U.S. from our politicians!"
Coate's proposed three points are a far more intelligent solution than an Exxon Mobile boycott.
First, move the Iowa Caucuses from the first of the presidential primaries to the last. Chucking the Iowa primary would make it politically feasible to eliminate the ethanol subsidies, freeing up refining capacity.
Second, we could get rid of the U.S. Environmental Protection Agency and the assortment of gasoline concoctions the government requires refiners to provide this summer. New regulations starting in June will require 10 percent ethanol in all gasoline. The switch is costly for oil companies - and the cost is passed on to the consumer.
Third, reduce government taxation of gasoline which exceeds 50 cents per gallon. This solution means relaxing gasoline taxes back to what they were meant for: highways and road maintenance
The bottom line is we can either accept the soaring prices or realize that the government is not here to help. We can hate ExxonMobile with all our might, but that will not make our gas any cheaper.
Columnist Karolina Lula is an NCAS political science and economics double major.
Viewing Comments 1 - 1 of 1
Anonymous
posted 5/10/06 @ 2:11 PM EST
Awesome Karolina is *the* sharpest knife in the drawer at R-N.
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