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December 05, 2005
A New Price Theory
Don Boudreaux
This exchange between Bill O'Reilly and Neil Cavuto speaks for itself:
CAVUTO: Okay. Gas prices are down a lot. Why do you think that is?
O’REILLY: Because they’re afraid they’ll go to jail. And those C.E.O.s who manipulated them–
CAVUTO: Why are you sure that they manipulated them?
O’REILLY: I have guys that are inside the five major oil companies - my father used to work for one of those oil companies, by the way - who have told me that in those meetings they look for every way to jack up oil prices after Katrina, every way. When they didn’t have to. And they got scared because in my reporting and some other reporting, they said –
CAVUTO: Wait, you’re taking credit for gas prices being down?
O’REILLY: My reporting and reporting of others.
CAVUTO: Has nothing to do with refineries that came back online or the crisis calmed after the hurricanes?
O’REILLY: The demand for oil in this country is the same now as it was one day after Hurricane Katrina. It’s the same. Selling the same amount of gas and oil.
CAVUTO: But the supply has increased, right?
O’REILLY: The supply has increased? Who knows.
CAVUTO: And it’s traded like a stock, correct?
O’REILLY: It’s traded by speculation, and the bottom line is they were afraid of a federal investigation and they said–
CAVUTO: I think you’re crazy, but you're right on the Christmas, but wrong on this.
Is Bill O'Reilly really that ignorant of basic economics?
(Hat tip to Curtis Melvin and my better half.)
Posted by Don Boudreaux in Prices | Permalink
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Comments
Bill does tend to speak before thinking on many issues. One would think that having a public voice would make one more cautious - and yet the opposite is so often the case. I guess being controversial pays better.
Posted by: Randy | Dec 5, 2005 10:46:59 AM
Probably not - I think the above is an example of calculated self-aggrandizement. It seems to me that O'Reilly is trying to become more attractive to viewers who are more middle-of-the-road, politically speaking, and his way of accomplishing this is to strike a pose as a some kind of self-appointed tribune.
So while it may be partially about ego, I think it's more about ratings.
Posted by: dff | Dec 5, 2005 11:13:37 AM
Randy,
I don't believe this is a case of O'Reilly speaking before thinking. He's been accusing oil companies of price-gouging and collusion for about three months. Cavuto and several guests have patiently tried to explain supply and demand. O'Reilly never lets them finish and never appears to pay any attention to what they say.
I used to admire Bill O'Reilly, but I'll be sending back my "The Spin Stops Here" coffee mug. He's become just another demagogue, except that a daily program increases the potential danger of his influence.
Posted by: JohnDewey | Dec 5, 2005 11:30:53 AM
I disagree. Supply and demand can vary but the price can remain constant as long as one party (group) is willing to lose out on new transactions.
Price adjustments towards equilibrium are necessary if and only if we assume that agents want to maximize their earnings.
If oil execs are pressured by public opinion to incur loses, then it's not the Econ. 101 basics which are in question here.
Posted by: Gabriel Mihalache | Dec 5, 2005 11:31:00 AM
Oil execs looking for ways to jack up prices proves nothing except that they work for corporations driven by a profit motive. Duh, Bill.
And not only do the lower prices now stem from capacity which is back online, I believe there is also some significant reduced consumption (~2.5%) in the wake of the recent contractions. Plummetting SUV sales alone are proof enough of this.
For commodities like oil, where demand is relatively inelastic and supply is limited, small reductions in demand have an enourmous effect on price.
So its consumers that deserve the pat on the back for reducing oil prices by optimizing energy efficiency in their lives, not Bill O'Reilly for blowing wind.
Posted by: Aaron Krowne | Dec 5, 2005 11:33:29 AM
I'm afraid he is. I admire Bill O'Reilly, but he fails in economic theory. Two or three good books on economics would be a lot of help for him.
Posted by: José Carlos Rodríguez | Dec 5, 2005 11:49:31 AM
"Is Bill O'Reilly really that ignorant of basic economics?"
I think it may be more accurate to say that he's "impervious" to basic economics. He sells himself as the friend of the little guy. That image involves attacking big oil for "gouging" us hard-working Americans.
Posted by: John P. | Dec 5, 2005 12:08:56 PM
"Is Bill O'Reilly really that ignorant?..."
Yes.
Posted by: David | Dec 5, 2005 12:14:54 PM
It's scary that someone that appears otherwise intelligent and very well-educated (much more than I in both cases) just doesn't get it.
Chris
http://amateureconblog.blogspot.com/
Posted by: Christopher Meisenzahl | Dec 5, 2005 12:22:10 PM
The answer is Yes. My good friend works for O'Reilly on the show and I put this issue to him. His response (he, btw, respects BO alot) was that BO simply has a blind spot on oil economics and won't be converted. It is a little embarrassing, but we all have blind spots, and we generally net out in the plus column despite them.
Posted by: Don | Dec 5, 2005 12:22:56 PM
O'Reilly invented the laws of supply and demand just before he co-invented the internet with Al Gore. He is working on the hardest project yet: getting women to love football.
Posted by: Neal Phenes | Dec 5, 2005 3:05:28 PM
O'Reilly otherwise appears intelligent and well-educated? He's just another braindead commieservative loudmouth.
- Josh
Posted by: Wild Pegasus | Dec 5, 2005 5:11:20 PM
Yes, yes he is.
Posted by: Noah Yetter | Dec 5, 2005 6:07:21 PM
I think the exchange shows that O'Reilly is extremely rational. He's figured out that being economically ignorant (at least in his public comments) pays better with his target market than being more evenhanded and economically literate.
All it takes is putting a low valuation on being right. That makes selling out easier.
Of course, I could be wrong and he could merely be a fool. But, he appears pretty shrewd at least in terms of marketing, so I doubt he's a fool.
Posted by: The Unknown Professor | Dec 5, 2005 6:25:18 PM
He really is that ignorant. And his ignorance is only rivaled by his ego.
Posted by: Camilo | Dec 6, 2005 7:23:13 AM
O'Reilly prides himself on ignorance. I used to watch his show and have some respect for him until one night when his story hit a little too close to home.
There was an occurence in Benton Harbor, Michigan, where a (black) Benton Harbor resident died while resisting arrest from a (white) St. Joseph police officer. There was some minor rioting in Benton Harbor following this.
Bill O'Reilly came on the air saying "Look, even in small towns black people can't resist the urge to be violent barbarians" or something to that effect.
One of his guests tried to explain the deep-seated racial tensions than exist in St.Joseph-Benton Harbor, and O'Reilly responds "Well, I don't know anything about this Benton Harbor..."
Hello? You made it your top story? It's kind of, I don't know, your job to at least know something about Benton Harbor.
Posted by: dagny | Dec 6, 2005 8:28:09 PM
I'm convinced that the reason that Democrats (and others) clamor for investigations when gas prices go up is that they know they are going to come back down and they need to have a reason.
Economics at this basic a level is common sense.
Posted by: dismal | Dec 7, 2005 6:40:20 PM
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