Friday, September 02, 2005

You can't call it anything else

Capital Freedom had a perfectly titled entry: Price "Gouging" and Economic Ignorance. President Bush, like practically all Americans, has fallen for this economic fallacy. For an excellent explanation of why price gouging isn't the evil almost everyone thinks it is, I recommend what Thomas Sowell wrote after last year's hurricanes that hit Florida.

Josh Hendrickson pointed to the renewed attempt at a very ineffective oil boycott: on "Stick it to them Day" (which has varied, this time it was September 1st), don't buy any gasoline. The premise is that oil companies will suffer a huge shock from losing a full day's sales, and they supposedly will have to pay attention to consumers' economic might. Josh pointed to http://www.freakonomics.com/2005/08/please-buy-gas.html, which has a generally good explanation of the economic stupidity.

Clearly this boycott won't work, because it's purchasing gasoline yet continuing to use it, so people will fill up their gas tanks at other times. There's no reduction in their total purchases of gasoline, only a shift in when they buy it. I can imagine the boycott organizers saying, "OK, we're going to do another boycott. How about in another week, which will give you enough time to fill up?" Let's say the entire neighborhood decided to boycott my aunt's wine store on a particular day. Would she worry at all if everyone still bought the same amount, except on the few days before the boycott? Would she worry about an individual day's sales dropping because customers started coming in on another day instead, still purchasing the same quantity?

I have a couple of minor criticisms. He said Americans use about "9 million barrels of crude oil" daily (yes, about 9.4 million). But the U.S. population is roughly 300 million people, so I find it overly simplistic to say "about one gallon per person," even if it doesn't affect the overall idea. Also, oil company revenues are not "probably 5% or less": ExxonMobil's ratio of net income to total revenue, from 2000 through 2004, respectively, has been 7.8%, 7.3%, 5.7%, 9.0% and 8.7%. Shell (the Royal Dutch Petroleum Company) since 2002 has had ratios of 17%, 17% and 16%. These are just a couple of examples that I pulled right from the "investor information" portions of the companies websites. Levitt would have done better to take a few minutes instead of deciding on some arbitrary figure.

Another thing he said is, "So everyone, please buy gas on September 1st." It would be better to say, "Please buy gas on September 1st as you normally would." If people weren't normally going to buy gasoline on that day, why should they incur high costs in time so they could buy gasoline? Perhaps Levitt did mean what I added, and he was just not specific enough, but it shows a need to choose your phrasing carefully.

I had heard the boycott's resurfacing Wednesday afternoon, on Wendy Williams' radio show. My officemates like the show; I would never listen to it by choice, because it's a truly terrible show, and she's one of the worst radio show hosts I've ever had the misfortune to hear. She indicated her level of education when pronouncing Dubai as doobie'-ya, and she demonstrated her logical abilities by advocating this boycott while adding she'd have to fill up her SUV that night.

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