Does anybody remember the story about greedy oil companies, their rapacious CEO’s and Big Oil’s conspiracy to bankrupt the American Consumer? In 2006 the average price per gallon of gasoline was around $2.00. By July 7, 2008 the price had risen to $4.00. All kinds of media moguls reported on “Big Oil’s” conspiracy to raise gasoline prices and keep them high. Just last summer Hillary Clinton was making campaign promises to put a windfall profits tax on oil companies. Almost no one doubted that greed was the cause of $4 gasoline. On July 7, 2008 virtually everyone hated the oil companies which were characterized as the new robber barons.
As an economist I’ve never accepted the “conspiracy theory” of gasoline prices. I argued that despite the size of oil producers and the oligopolistic characteristics of the oil business there was plenty of competition in world oil markets. High gasoline prices were, in the opinion of this economist, simply a consequence of supply and demand. High demand, relative to restricted supply was the reason for $4 gasoline. High gasoline prices weren’t a matter of greed, nor were they the result of a conspiracy. Sometimes I swear that when gasoline prices hit $4 a gallon in July of 2008 I was the only person in the country who blamed no one, choosing to respect market forces.
Over the past six months, demand for gasoline has abated and supply remained robust. As a result, the price of gasoline has now fallen below $2.00 per gallon; within pennies of the price of gasoline in 2000, 1990 and yes, even in 1976! In fact, adjusted for inflation, gasoline is about the same price today as it was for the entire twenty-year period from 1984 through 2004.
Over the past few weeks I’ve been watching television news channels and scouring the pages of newspapers looking for an article praising oil companies and their executives. After all, if big greedy oil companies and their conspiring executives were responsible for the tremendous rise in gasoline prices from $2 to $4 per gallon, these same companies and executives must have conspired to reduce the price from $4 to $2 per gallon! Oil company CEO’s must have changed their tune! The same companies and men who “gouged” us six months earlier must have had a change of heart and are now being benevolent to consumers! Let’s nominate Exxon CEO Rex Tillerson for a Nobel Peace Prize! If he is a conspirator, Mr. Tillerson is a hero, doing a lot more than Al Gore to make the lives of all Americans easier during the last six months!
Naturally those who are conspiracy theorists will offer no praise for Mr. Tillerson or his colleagues. That’s because conspiracy theorists are ignorant of basic economic principles and relish their role as suffering “victims”. They are spoiled brats who care not to learn about the world in which they live, substituting foolish theories for rational discourse. The headline of this blog is a spoof. Mr. Tillerson doesn’t deserve the Nobel Peace Prize, as he neither conspired to raise nor to reduce gasoline prices. To those who believe that oil companies conspired to raise gasoline prices, I ask a simple question. If not the forces of supply and demand, what accounted for the recent fall in gasoline prices?