Did it require a federal investigation?

Or, could have we resolved this with about 45 minutes in an econ 101 class (which we did, all across the country)? From Gas Prices Legitimate ...

Despite suspicions among consumers about rapidly rising gasoline prices and record oil industry profits, a federal investigation concluded Monday that the jump at the pump over the last year had not been the result of unlawful price manipulation.

The Federal Trade Commission said the sharp increase in fuel costs was attributable to market forces — namely big drops in supply and production and runs on inventories after major damage to refineries, ports and pipelines. In a report that Congress ordered last year after hurricanes struck the nation's refining hub on the Gulf Coast, the commission found no evidence of price collusion or improper reductions of inventory or supplies to increase company profits.

"The evidence collected in this investigation indicated that firms behaved competitively," the commission said.

Nevertheless, we must do something, anything to fix the problem:

Since the report did not find an industry villain, it was not likely to quell voter anger over the high gas prices. That is likely to add political pressure on Congress to take steps to lower prices or reduce the earnings of some oil companies. It could also provide some impetus for legislation, already adopted by the House, to outlaw price gouging and impose high penalties for violations.

We must outlaw price gouging even if there is no price gouging:

The commission said it found 15 examples of pricing by refineries, wholesale companies and retailers that technically fit the definition of "price gouging." (It defined gouging as a price increase in the month after the hurricanes that was not attributable to the additional costs caused by weather-related damage.) But it said that in nearly all of those instances, there was probably not gouging because of regional or local trends that justified the higher prices.

"Some price gouging by individual retailers did occur to a limited extent," the report said. "Local or regional market trends, however, seemed to explain the price increases in all but one case. Exceptionally high prices on the part of individual retailers generally were very short-lived." The report did not identify the retailer involved in the one case.

Mom and Dad are P.O.'d:

While the agency had been expected to reach the conclusions that it formally announced on Monday, senior commission officials said they expected the agency would come under criticism when the five commissioners appear before the Senate Commerce Committee on Tuesday.

Of course, the FTC could be a bunch of partisan hacks, bought and paid for by "big oil":

But Democrats in Congress, who have been the biggest critics of the commission for the way it monitors the industry, challenged the report's conclusions.

"The F.T.C. white paper on gas price gouging is a whitewash," said Senator Ron Wyden, Democrat of Oregon. "They find substantial numbers of refiners engaged in anticompetitive practices. They don't like the remedy Congress is proposing, namely a law on price gouging. But they just walk away from responsibility and don't propose a remedy themselves."

Senator Charles E. Schumer, Democrat of New York, also criticized the commission.

"It just defies belief that they didn't find price gouging because there is simply no price competition," he said. Mr. Schumer said that the Senate "could do a lot if it had the backbone."

"We could issue subpoenas, we could call in the executives, we could get to the bottom of this," he said. "The problem is that the Senate leadership believes, as the president does, that what's good for big oil is good for America."

This would make for great TV during an election year!

What's missing from the Dems response is a recognition that the price of the raw material for gasoline is set in international commodities markets and the price at the pump is set by the retailers themselves. The cases where it seems that price gouging actually occured appeared to be a few rogue, I could tell they were rogues because they wore eye patches, retailers and distributors.

Just a suggestion: In order to decrease gas prices we've got to figure out how to significantly ... significantly ... increase supply or decrease demand.

And another suggestion: Since high gas prices are a political problem*, not an energy, environmental or economic problem (except for a small percentage of households), government should do nothing to try to lower them. Whatever poorly conceived gas price policy we end up, will turn out worse than what we have now (i.e., price controls) or have no effect (i.e., windfall profits tax, price gouging laws).

*A problem for Republications ... An opportunity for the Democrats!

Comments

[Fritz]

I'm not an economist nor am I a genius, but what you state is so glaringly obvious I don't understand why the vast majority of Americans don't get it.

[Tim Haab]

Fritz,

You are now officially part of the club. John, can we put Fritz'z quote in the 'What they're saying' section?

[John Whitehead]

Done!

[Mark]

I do believe that the rise in price of gas is not illegal price manipulation.
I think it is manipulation that is not illegal.

Do all the oil companies own exactly equal shares of domestic & international oil supplies?
If they do, that would look like collusion, but I don't think they do.
If they don't, why isn't the gas sation on one corner 20 cents cheaper than the station on the next corner, and 50 cents cheaper than the station a block away?
Sometimes US oil is cheaper than OPEC oil, and sometimes it isn't. It can't always be the same.

(Someone will respond that all oil supplies are set to a global price; but if BP owns its wells and refineries and pipelines and delivery trucks and gas stations, they are the source, the wholesaler, the supplier, and the retailer. They can take advantage of the global market price when they want to, but can't they also use their own efficiencies and take a competitive advantage at times?)
How does it happen that the BP station has the same price as the other three stations on the corner 350 days of the year?

[odograph]

A cynic would have considered this outcome preordained. Of course politicians will investigate, because their voters demand it. Of course no one will be found guilty, because campaign contributors demand it.

... nothing to do with true or false.

(For the record I think 'high prices' are 90% a market phenomenum. People are quibbling about corner cases.)

[odograph]

Mark, the trick is to find an unsubsidized gasoline market that is cheaper than ours in the US. That would go a long way to proving market manipulation. But as far as I know the only countries with cheaper gas are oil exporting nations who give their folks a special price.

[Steve Haas]

It was at least necessary just to check the honesty of the distributers yet Congress does not inform --I should say educate-- the public that the price of gas was truly a free market event and not the long suppression of gas prices that has stopped since the " Bush" administration. The emergency oil reserves was an readily avaible supply bought and sold at a lower price. Excuse me for the lack of details and data but my suspicions also is aware "underground" oil supply from our former friend Saddam Hussien.
I always questioned that Europe paid 3-4 times the price of gas than we do.Besides gasohol, ethannol, converting farm harvest as an supply of energy was reseached and planned back in the 70's and selved.My only question is why let the price spring now? Just to get the real free market rolling? The timing is a little inhumane and something I would not do to my children.

[Gareth Doutch]

I reached here after clicking on that quote by Fritz.

I thought I have to say that neither am I an Economist or a Genius, but that all of the reading I have done into economics to date has lead me to believe it ecomomics is such a simple topic, but it has been throughly corrupted and deliberately obfuscated to preserve the status quo, at odds with the best interest of humanity.

[I Lastdance]

High Oil Prices ??? True or False

Why is it, that people think : that oil is needed to run a combustible engine.

Most Likely - because the American people, have been indoctrinated to think this way.

Why is it : that the formula for gasoline, has always been considered an : Industrial Secret.

Why is it : A government agency doing an investigation. Into the possible illegal activities of the oil industry.
Concluded the investigation saying : " They had found nothing wrong."

What they didn't say was : " Since the formula for gasoline is an : Industrial Secret.
They could not make a competent, intense and complete investigation.
Therefore : They could not come to a conclusion."

That government investigation committee : Did nothing more - than to echo.
What they had been instructed, to say.

(Telephone conversation with an oil executive - 2003)

Question : Why are oil prices so high?
Answer : I don't know. We don't set, the price of our oil. A committee in Texas, tells us the price, we will charge for our oil.
If we don't charge the price we are told to. The big guys, will put us out of business.

Question : What is the cost, to refine oil?
Answer : The cost is very minimal.

Question : How much does it cost, to pump oil, out of the ground ?
Answer : Oil is not pumped, out of the ground. They use steam, to force the oil up, out of the ground.

Question : I don't understand, what do you mean - " force the oil up, out of the ground?"
Answer : Steam is forced - into the ground. The steam - being as hot as it is. Turns that oil sludge, into a thin liquid.
Because the steam, is heavier than the liquid oil. It forces the oil up out of the ground.

Have you ever seen a news clip. Where a valve is opened and water runs out?
That's - the steam condensed back into water.

Question : Then what is the real cost, of getting oil, out of the ground.
Answer : The cost is next to nothing. Think of ocean oil riggs - plenty of pressure - plenty of water - plenty of natural gas.
Free for the taking - The cost is next to nothing.

Question : On the news media. Why do we always see, these Texas oil riggs pumping oil?
Answer : That's just propaganda. Given to the news media. In order to be feed, to the American people.
This makes people think, that there is a high cost, to get oil of the ground.
The real cost is next to nothing.

Question : Is there really an oil shortage?
Answer : There is no oil shortage or crises. They got more oil, than they know - what do with.
The only oil shortage occurs - is - when they turn off the valves.
As far as I'm concerned : There never - has been a oil shortage.
There never will be - an oil shortage.

Question : How much should a gallon - of gasoline cost ?
Answer : Silence .......... (The telephone conversation now turns, to a different subject matter)

--------Read On -------------

In 1917, John Andrews approached the US Navy with his claim that he could convert fresh or salt water into a fuel with the same power as gasoline. The chemical costs were about 2 cents/gallon.

Andrews was allowed to demonstrate his invention at the Brooklyn N avy Yard, where a motor boat was fitted with a dynamometer for the test. Commander Earl P. Jessup, who was Captain of the yard, said:

"We gave Andrews a bucket of water drawn from the Navy Yard [fresh water] hydrant by one of the yard attaches. He got into his car with a gallon can which we inspected and found to be empty and a little satchel he carried with him. In about a minute he handed out the filled can which I personally carried to the open fuel tank. While pouring the liquid into the tank, Andrews held a lighted cigarette close to the liquid, which did not ignite. That showed it was not gaseous or inflammable at that part of the demonstration, which to me was most important. The engine caught just as quickly as it would have done with gasoline, and after a moment’s adjustment of the carburator, it settled down to its work, developing 75% of its rated horsepower, a remarkable showing with any fuel with so slight a readjustment of the carburator".

In a second test, Andrews was put in an empty room with no possible way to get rid of the bucket of salt water with which he had been supplied, except to empty it into his one-gallon gas can. Commander Jessup said:

"In a minute he emerged with the can filled, and the engine again used it up, no difference being noted between the salt water and fresh. Besides myself, Rear Admiral G.E. Burd, the Industrial Manager of the yard, was present and with the precautions we had taken --- our own Navy engine, tank and carburator and our own men supplying the water --- there was no possibility of deception.

"From a military viewpoint, it is almost impossible to visual"ze that such an invention means. It is so important that we have hurried an officer to Washington to make a report to the navy Department. It is obvious that Andrews has discovered a combination of chemicals which breaks down water to a form that is inert until mechanically vaporized by the carburator, when the spark causes it to burn as gasoline burns".

Walter Meriwether, the Navy editor of the New York World, met with Andrews at his home in McKeesport, PA. Andrews was extremely paranoid. He said:

"Somebody poisoned my watchdog last week. The only reason my dog was poisoned was so somebody could get at me more easily. I am being followed everywhere, day and night. A lot of people know about my invention --- how it will put every oil company in the world out of business. Two cents a gallon for a substitute as good as the best they can refine? I tell you, my life is not worth that [snapping his fingers]! Think of what my invention means to nations at war".

Meriwether offered to arrange for a thorough test of his invention with the Navy Department in Washington DC, and Andrews accepted his help. Meriwether managed to arouse the interest of Secretary Josephus Daniels, who said:

"Tell the man to come on at once; I will have a submarine and airplane detailed and ready for him on his arrival".

Meriwether telegraphed Andrews, but received no reply. He returned to McKeesport, but Andrews could not be found. Meriwether then accompanied the police to Andrews’ home, where they found signs of a violent struggle in the ransacked house. No trace was found of Andrews.

But Andrews had not been kidnapped or murdered; he had simply reported back to his seaman’s post in the Canadian Navy. He returned to the USA in the 1930s. In 1942, a reporter named James Kilgallen found Andrews living on a farm near Library, Pennsylvania. Andrews said that he had forgotten the formula.

Another version of the Andrews mystery states that he was found murdered in his home in 1937, and all of his notes and supply of green powder were missing. His sister allegedly took the notes and fled to Scotland, where she too was murdered only a year later. The eminent journalist Tom Valentine, who has written numerous articles about suppressed technologies, once received a phone call from a man who claimed to be John Andrews, Jr. His innuendos could not be proven, of course:

"My aunt was killed and then some of my relatives suddenly got rich and I believe the process for making the powder is known and the people who know are the Phillips Petroleum Company".

The next person to demonstrate the conversion of water to fuel was Guido Franch, a former coal miner who tried for nearly 50 years to find financiers for his product. He too used a green powder to turn water into 105-octane fuel. He called it "Mota", which is atom spelled backwards.

Franch demonstrated Mota hundreds of times, but never produced it commercially. He did, however, sell about 3000% of his rights to interested investors. In 1973, Franch was subpoenaed to appear in Chicago’s Federal Circuit Court "with any records relating to the purchase or the proposed purchase of any fuel, fuel powder, or fuel formula in your possession". He demonstrated his Mota transmutation in the presence of judges William Bauer and Philip Romiti, who believed what they saw, and Franch was acquitted of charges of fraud.

The fuel is produced with one pound of the reagent in 50 gallons of water. It burns clean and leaves no residue. In one demonstration with a lawnmower, it ran for about 15 minutes on a small amount of Mota-treated water. An equal amount of gasoline lasted only 3 minutes. Mota fuel is very sensitive to sunlight, which will turn it back to water with a white powder residue.

Gary Bolz, a consultant on carburetion and fuel engineering, was able to test Mota with the help of chemists at Michigan State University and Havoline Chemical Laboratories. Bolz stated:

"The granules are dark olive green. As they enter water, they dissolve in a string of green, which begins to spread fiber-like throughout the water. As the water begins to react, there is a swirling effect. Reaction is complete in a few minutes. If the crystals are mixed in 1:1 ratio with water, the resulting fluid is highly explosive and can be detonated by a small shock. But it isn’t shock-sensitive when mixed at a normal ratio of one ounce of powder per half gallon of water. The finished fuel is lighter than water".

Franch claimed that the manufacture of Mota was taught to him and others in 1925 by a German scientist named Alexander Kraft, who died in 1941.

Franch received about $100,000 from small investors over a period of 40 years. He used that money to live on, and never manufactured any Mota. He received several serious offers from major investors, but his financial demands were unreasonable and nothing practical ever came of his demonstrations and negotiations.

It appears that we are obliged to continue burning gasoline until some genius rediscovers the secret of extracting green crystals from coal.

[Monty Cassel]

Its a great idea, however you know the water conservation crowd would go through the roof.
The answer is a combination of renewable ideas coupled with increase in efficient energy consumption or better said a decrease in consumption as populations increase. Unfortunately there are to many groups that limit progress due to there special interest.

Which should(that is the key word)lead to dependence on free market forces and private investment to fuel (sorry had to use the adj.) alternative energy sources and growth.

What you say is true but "special interest" has led to limited offshore drilling in the name of the environment. Thus increased costs to consumers, us US citizens. There is some truth to Roger Daltry's ideas. (Yes I know a bit extreme) by the time we use up our resources alternative methods will have been developed, Why worry!

[Monty Cassel]

Sorry

I thought mota was the Spanish word for an illegal drug smoked heavily in the 60's and 70's