On Gas Prices

Two neat, funny, and interesting videos on gas prices.

This first video goes through some common explanations and reasons why these aren’t true. The speaker talks about tension in the Middle East, speculation,1 greed, and rising demand in developing countries. He blames money expansion. I can see the merits of his criticisms of the other positions, but the money explanation has really never persuaded me — very few people can explain the causal mechanism, which is usually a sign that their conceptualization of their explanation is incomplete. Here is the first video,

This second video goes in a different direction. Here the speaker discusses gas prices, taxes, and the actual amount that petrol-industry firms actually earn per gallon. I’m sure there are some methodological issues, but the point he makes is probably more-or-less true. (An example of issues people might have — and are probably justified in having — is that these firms also enjoy tax loopholes, which may reduce the burden of taxes on their revenue. But, I don’t know the tax structure well, or how it impacts oil companies.)

Notes

1. “Speculators” do form part of the causal mechanism of price changes. The problem with blaming speculators is that by overemphasizing their role we can forget about other factors which, more often than not, provide speculators with a sense of direction. Speculators should be seen as people seeking to reveal the “true” price; changes in the “true” price aren’t caused by speculators, but they do tend to follow it. I realize that this might be an inadequate way of explaining the role of speculators, but I think it holds as a general principle.

3 thoughts on “On Gas Prices

  1. Pingback: David Angelo Explains Gas Prices & Taxes | The Big Picture

  2. Info Sample

    I found you from The Big Picture Blog. This is hilarious and very informative. Thanks so much. I look forward to more. P.S. I don’t need a snack after 3 minutes.

    Reply
  3. jaffi411

    The fact that “speculators” are blamed both when prices go up, as well as when they come down, tells me that there is no worry about speculation. It’s kind of like when the Dow goes down, it’s a big selloff. Yet, people forget that somebody is buying that sell. I do agree that the so called “speculators” help to arrive at an equilibrium price more quickly, and are more apt to seek the “true” price, but this is only because they are more involved in doing so (it’s what they do for a living).

    An argument that I like is that everybody speculates, and that they tend to speculate more on things in which they are most familiar, knowledgeable, and/or interested. It’s the same deal here, only it is dealing with assets and money.

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