Oil Companies and Price Gouging

This is a point where I part with many of my conservative brethren. The point being the price gouging by the petroleum companies taking advantage of us over Middle Eastern tensions. Many prominent conservatives such as Sean Hannity, Mark Levin, Neil Cavuto, and Liberal-tarian Neal Boortz do not want to admit to the price gouging. Their argument is that gas prices are set by the market price of oil. They also state that gas costs what the public is willing to pay for it. I agree with them that there should not be a windfall profits tax, however I do think that there should be investigations and criminal charges for anti trust violations. These conservatives also state that the reason we are in this mess to begin with is because of liberal heel dragging on energy policy. Also, they point out that liberals for the most part are responsible for the government making more money on petroleum than the companies that sell it. In this, they are absolutely correct.

What they don't get, or don't want to get, is the economics of the issue. They repeatedly state that people such as Bill O'Reilly don't understand economics and are not looking at the issue correctly. That is where they are mistaken. Bill O'Reilly doesn't have the most astute observation of this issue, but he is closer to the facts than the four mentioned above.

Businesses operate on two basic types of cost margins: fixed costs and variable costs. Fixed costs include things such as payroll, cost of land, etc. Variable costs include things such as raw materials, crude oil for example. Much of the cost of operating the business is in fixed cost. This means that there will not be a one to one variation in price based on the variable costs. This means that if the price of crude goes up 1%, the price of refined fuel based on this increase should be much less than 1%. I have observed the price of crude oil trading and the subsequent increase in gas prices. Usually the price of gas goes up by a larger percentage than the price of oil. When the price of crude comes down, the drop in the price of gas (if it happens) is very small. A couple of weeks ago, the price of crude dropped by more than 12% in a couple of days. The following drop in the price of gas was about a third of a percent! Now, this would be appropriate if not for the double standard of how much the price increases when oil trades higher. The facts don't bear out with the syndicated conservative talk show host opinions on this. Understanding basic economic law makes it quite clear that we are indeed being gouged in a big way.

What's more, the market cannot correct this because of excessive government intervention. The way the market corrects things through competition is by offering a better product or a better price. Remember the heel dragging liberals? Because the government imposes specific environmental requirements on petroleum fuel products, a better product cannot be offered. The gas stations are all forced to offer the exact same product. Even worse, the government sanctioned virtual monopoly and simultaneous government indifference to petroleum company behavior have set up a climate of legalized price fixing. In every other industry, price fixing is illegal. Not so in petroleum.

Finally, Neal Boortz constantly drives a message about the difference between profit and profit margin. He is absolutely correct on this small part. What he is missing, though, is the fact that the petroleum companies tell it like they are not making a profit at all. That alone is more than enough to conclude that they are lying to us.

Psychoanalysis of "Global Warming"

I was reading an article the other day titled Scientists: Sea Creatures Dying Along Oregon Coast Due to Global Warming. Of course, so called global warming is a hotly contested hypothesis in the scientific community despite the bluffs that proponents put forth claiming unanimity. The purpose of this post is not to systematically refute it right now; for plenty of scientific evidence against this preposterous hypothesis, you can visit the Junk Science link at the right side of this page.

What I am interested in discussing here and now is the realization I came to when reading this article. First, however, I must digress for a minute. In psychology, we have a concept called attribution theory. This theory is truly scientific, and is unrefuted. It states that when we experience the world, we make certain attributions to events that occur based on our prejudices. For instance, if a young blonde woman in a pink convertible Corvette cuts you off in traffic, your immediate thought is that she is a spoiled rich girl who never learned manners or driving etiquette. You might even attribute a few four lettered labels to her. This may or may not be true, and you may not even really believe what you are thinking, but your concept of spoiled rich girl, combined with her physical attributes, and the single instance of what she did to you - whether intentional on her part or not - led you to conclude based on very loose evidence that she is an intrinsically bad person because of what she did to you. In other words, you perceive her as a threat. We also tend to make different attributions about ourselves than about others. When someone else trips, they are a clutz, when we trip, we are victims of something someone did to us, such as leaving an object in our path. These are mechanisms that we normally have that are considered normal, healthy, self esteem protection mechanisms. Not that it is a good thing to make prejudicial judgements of others, however, it is a natural survival related behavior. This behavior is so strong that we will even continue to seek any evidence to support our attributions and we ignore any evidence that refutes it.

What does this have to do with global warming and the article above? I was reading this article and came to a realization. The information in the article is nothing different from any other news report on a scientific subject per se. Perhaps it was just enough to cross the threshold into my own concious awareness of the behavioral dynamic that is occurring here. That explanation is satisfactory to me and in any way is not necessary for my point. What I realized is that now scientists have an attribution to make about any perceived problem they discover. No empiric link need apply. They immediately jump to a conclusion. Don't believe me? Here is an article about true scientific work actually linking nitrogen containing fertilizer runoff in the Mississippi River to the phenomenon: Scientist Links Nitrogen to 'Dead Zone'. But the global warming scientists preferred to use their own personal prejudices to find a conclusion that they prefer in order to protect their egos. This provides them with an easy explanation for this dead zone as well as "proof" of global warming using circular reasoning. It is amazing how closely the steadfast protection of global warming hypothesis by many scientists matches this well defined behavioral theory. This is disappointing to me because this jump to conclusion method is not the scientific method. It is just not how science is done, but it is how scientific politics are done.

About me

Because the host of this blog doesn't give us enough space to give a good profile statement, I thought I would use my first blog to give my background so that when you read my posts you will know why I say what I say and why I know what I am talking about. First of all I have been trained in all lines of insurance and series 6 and 63 of financial planning. I previously had a career of selling insurance and mutual funds. I tried to start my own computer business as my Dad (an electrical engineer) trained me in basic technical electronics and I did a lot of self study on computers and hardware. I am a little rusty on both of those areas, but still have useful expertise. I have worked as a clinical pharmacy technician in a hospital for over 5 years now. I returned to college in 2001 to get into medical school, and as I write this post, I am applying to medical school. I studied both biology and psychology in undergrad receiving a degree in each with a minor in chemistry, and I am at this moment a master's degree candidate in biology and applied statistics for a focus on epidemiology. I have training in 4 martial arts, I am a weight lifter now for about a year and a half so far, and I like to garden, fish, play golf, and read about just about anything. I watch or listen to politically oriented TV and radio as often as possible. I think that just about covers the basics about me.