What do you get when you combine a popular public issue, a press hungry governor, a dishonest UW “economist” and a lazy press?
You get articles like this one, in which Governor Doyle calls for oil companies to return $88 million to Wisconsin consumers, saying they had been “gouged” in the wake of Hurricane Katrina. From the article:
“To price-gouge consumers under normal circumstances, that’s dishonest enough,” Doyle said. “But to make money off the misery of others is downright immoral.”
Exactly what is price gouging “under normal circumstances?” Aren’t “extraordinary circumstances” exactly what cause gouging to be gouging? If someone doubled the price of toilet paper under normal circumstances, you’d figure out a way to get it cheaper. If someone doubled the price of toilet paper after you had downed an order of Denny’s Moons Over My Hammy, that would be (the worst type of) gouging, and an extraordinarily bad circumstance all around.
And just how did Jim Doyle come up with this $88 million number? He called his buddy, Doyle campaign contributor and University of Wisconsin-Madison “economist” Donald Nichols to cook up a bogus “study” that purports to show oil companies overcharging consumers.
One needs only to read this laughable “study” to realize either:
1. What a terrible economist Don Nichols is, barely capable of teaching a seventh grade economics class;
2. What a political hack Don Nichols is, willing to stain his reputation by putting out a dishonest politically motivated “study” to help his preferred candidate, Jim Doyle, get a good press hit;
3. How lazy the press is that they themselves wouldn’t even bother to read the study written by Nichols and used by Doyle as the centerpiece of this naked press hit;
4. All of the above.
Nichols’ thesis is essentially this: Since the price per barrel of oil before Katrina was roughly the same as it was after Katrina, then the price of gas shouldn’t be any greater. See the bottom of page 6 of his study, where he projects what the price of gas should be given the price of a barrel of oil.
In doing this politically motivated calculation, Nichols ignores all the differences in gas production and marketing that occurred after Katrina. For instance, crude oil has to be refined before it becomes gas. Refineries off the gulf coast went off line for weeks after the hurricane, which left a shortage of refined gas. Although the supply of crude oil wasn’t affected in any substantial way, the process of turning that crude oil into gas was affected significantly, which left less gas for the same number of consumers.
To put it in Wisconsin terms, imagine if cows around the state were inflicted with a disease that caused half of them to stop producing milk. By Nichols’ logic, milk should stay the same price because there were just as many cows as there were before the disease hit, although there is now half as much milk being produced.
Additionally, transporting the refined gas after the hurricane proved to be a tremendous challenge. Trucks and tankers couldn’t enter the region for weeks, which led to scarcer supply of refined gas.
Nichols also completely ignores the market force of increased demand on gas prices (being an economist, he likely has heard of both “supply” and “demand”). After Katrina hit and the stories of the shortage of refined gas were plastered all over the news, citizens across the U.S. rushed out to get gas, fearing a crippling shortage might be imminent. And when citizens are willing to pay a certain price for something, businesses are usually willing to sell it for that price.
I love it when consumers sit in line for a long time and complain how expensive gas is. They never figure out that gas is that expensive because you are willing to sit in line for a long time to get it. Generally, consumers think that cheap gas is some kind of birthright that government has to supply for them. “How dare those mean gas stations sell something for a price that I am so willing to pay!”
If gas stations held the price of gas down artificially for the sake of the good of mankind, there would have been lines miles long for gas and there would have been shortages, as the first people in line would have bought it all up. Maybe Nichols missed his economics class on the way to becoming an economist, but prices are one way a free market has of rationing goods and supplies. Surely he remembers the Arab Oil Embargo of 1973, where the government mandated price controls, thereby exacerbating the scarcity of gas and causing long lines and gas shortages around the U.S.
So what would cause such a distinguished economist at the UW to provide such a sloppy “study” of gas prices? Could it be the four contributions he has made to Governor Jim Doyle, totaling $350? Or the numerous contributions he has made to Chuck Chvala, or the Assembly Democratic Campaign Committee? (For his full list of contributions, click here and here.)
I assume the call went something like this:
Doyle: “Don, it’s me, Jim. I need a favor.”
Nichols: “I’ve already given you almost four hundred bucks. On my measly $136,000 per year salary, I can’t afford to give any more. It’s like getting syrup from a turnip.”
Doyle: “Don’t wet your pants, Donnie. This is even better. I need you to put on your lab coat and cook me up some numbers that show oil companies are gouging Wisconsin consumers. And make it a big number, like $200 billion.”
Nichols: “I’ll make it $88 million if you throw in a George Foreman grill.”
In fact, some enterprising reporter might want to take a look at the Doyle office correspondence with Nichols, either by phone or e-mail. Did Doyle actually order the report, or did Nichols loan out his demonstrable intellect on his own accord?
Of course, since this fraudulent press hit, gas prices have dropped without any government interference, due to refineries coming back online, transportation being more available, and consumer demand subsiding somewhat. In fact, gas prices are falling to below pre-Katrina levels. Apparently Nichols knows exactly how much money oil companies should be making (to the dollar). I am anxiously awaiting Doyle’s press release calling on Wisconsin consumers to write a check to the oil companies to make up for the revenue they are losing by keeping gas prices so low.
I would hope Nichols would flunk any one of his students that came to him with such a shoddy report. Apparently in all his years of study, Nichols has learned the most important economic lesson of all – suck up to the governor, academic standards be damned.