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Oil price mythology keeps Louisiana behind

Economic illiteracy seems to be the theme of this week, from elected officials to guest columnists, although, I repeat one more time, given our state’s fiscal situation it seems in Louisiana to be the theme of the month, year, decade, century …. And it all seems to revolve around the price of gasoline.

This column provides yet another example. Simplistic thinkers who do not understand human behavior in markets, economics, often fall prey to the notion of some kind of conspiracy theory girded by the mistaken notion that some force can control markets and that, ultimately, the consumer is not sovereign. We saw it yesterday, and I’m afraid we’ll see it for some time to come.

This hapless writer seems to promulgate that a conspiracy of oil companies supported by Republicans, especially Pres. George W. Bush, keeps gasoline prices rising over time to hurt the pocketbooks of most Americans (I think; he’s a bit tortured in his presentation but I think that’s where he’s going). To make such an argument requires the establishment of certain assumptions and a peculiar logical train that cannot be sustained.

For one, the assertion that a cycle occurs where gas “prices rise but never fall back down to where they began” happens more intensely and/or frequently during Republican White Houses is highly debatable. If you look at the average prices from 1949-2003 of first leaded regular and then starting in 1976 unleaded regular gas, the average price (in 2000 dollars) under Republicans was $1.50, and under Democrats $1.45 – statistically no different. Further, if you assume it takes two years for a president’s energy policy to work its way into gas prices, by lagging the results by two steps shows that average Democrat price exceeds the Republican average $1.50 to $1.44 (still not a significant difference).

But for the sake of argument, let’s assume there is a significant difference and policies unfold immediately and are immediately factored into price. The reason for that is not some grand conspiracy but because Republican regimes have been marked with more economic prosperity than those of Democrats (especially when lagging equations two years out). Better economic performance means more demand for energy and this demand rises faster than does supply. Hence, to make something clear the writer does not seem to know, price is a function of both supply and demand and will go up under this scenario of economic expansion, typical of Republican administrations.

The most ludicrous part of his argument comes with “Big Oil” making contributions to the GOP, particularly Bush, and the tired, disproven diatribes against Halliburton, showing it controls the White House and thereby Bush pursues an agenda for oil companies against the people. (Never mind that Bush has done much for the “middle class” – tax cuts for most Americans, easing regulatory burdens, and the like).

Let’s see how many oil companies or their organizations were big contributors in the past election cycle. OK, a few business groups, lots of unions, some professions – but no oil companies or their representatives. As far as just Republicans? No, not a single one in the Top 20. As a matter of fact, oil and gas interests gave only $6,690,045 total in the cycle to all Republicans. And this buys commanding influence when Bush alone spent $360 million in his quest for reelection? How idiotic do you have to be to actually believe this drivel?

The writer even is wrong when he asserts “Americans will get used to higher prices for oil and gas for one simple reason: Because we have to.” We don’t – as gas prices have risen, this has created economic incentives to open up new production which promises, as technology advances, to reduce prices to Americans.

One could laugh at this ignorance except it has had a real impact on the misfortunes in Louisiana. Until we educate enough people in the way the world really works, we are going to keep electing enough people who don’t know it themselves and we’re going to keep getting policies that leave this state behind others in economic development.

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