Gasoline Prices are the Resultant of Free-market Dynamics?
May 24, 2007 6:33 pmAs gasoline prices steadily increase and as public complaints become more boisterous, we are bombarded with the expository dribble of the punditocracy, which informs us that the price of gasoline is determined by the free-market, and the elevated prices are due to the dynamics of supply and demand. We are also - on occasion - told that there are limited refinery capacities currently operative and the malfunction of a single refinery can precipitate a spike in the pricing of gasoline.
I think the generalized description of the discourse espoused by those who serve as apologists for the petroleum industry is nearly exhaustively representative, and, consequentially, there is no need for any further rendering or analysis of the explanations provided by the henchmen of corporatism - who, within a Straussian political model, serve as the gentlemen class whose social function is to provide explanations for the way things are in terms understandable tot he vulgar masses - this aspect to Strauss’ political theorizing is, of course, an appropriation of the Nobel Lie, as it was detailed by Plato.
Nevertheless, despite the rhetoric - which almost always involves the inculcation of the free-market to justify the instancing of price hikes - the empirical reality of the matter does not conform to the explanations that the punditry endeavors so vehemently to popularize.
- There have not been built any additional refineries in the last thirty years, which has resulted in limited capacity for production of gasoline by the major United States oil companies.
- The fact that no incentive exists for a member of the petroleum oligarchy to invest in - not only additional refinery capacities - but in improved technologies for the processing of crude oil - indicates that there are dynamics at work - shaping the oil industry - that bare little resemblance to the neoliberal deity - and its attributed dispositions - referred to as the Invisible Hand of the Free-market.
The obvious truth to the matter is that the oil industry is by no means a field of competing entities whose interests are endogenous, respectively, to each of the individuated agents, antagonistically - in relation to one another - vying for an ever greater market share within the economic sector; a ceaseless struggle motivated by the preemptive concern for the maximization of profits.
Rather, the dynamic is far more complicated, and the empirical reality bares little resemblance to the idealized matrices of relations forming the presumptive free-market; an illusory conception of economic activities that we are indoctrinated into believing as if it were a natural order; an emergent set of circumstances that only requires deregulation in order to manifest.
However, the brute raw fact remains, the oil refineries are the embodiment of absurdly obsolescent technology; and, nevertheless, no member of the oligarchy seems to have incentive to invest resources allocated for the modernization of its mode of production.
A tacit settlement has encroached and has become entrenched; an unspoken - although explicitly and quite publicly denied - monopolistic culture of complacency, where each oligarch realizes that it benefits if they all benefit together in a collectivized scheme that intentionally and systematically inflates the prices of gasoline by tempering its production.
In many respects the evaluation of the carbon in petrol is no different than the artificial price of the carbon in diamonds.
The state of the oil industry in America would make an excellent case study for a Game Theorist. By refusing to compete with one another - an activity that would entail investments designed to improve their productive infrastructures - each respective member of what we should properly refer to as a Trust - certainly not a market - maximizes its profitability.
Consequentially, the normative premise underlying economic theory - people make decisions based upon a calculus that determines the option most profitable to the agent - has led to a negation of competition; a dynamic that operates contrarily to the presumptive foundations that are proffered and circulated as expositions for the fluctuations in prices suffered by the all-too-naive consumer.
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5 Responses to “Gasoline Prices are the Resultant of Free-market Dynamics?”
Wow. That was a whole lot of assertions made with really big words, without a single piece of evidence to back any of it up.
This is a good one:
“In many respects the evaluation of the carbon in petrol is no different than the artificial price of the carbon in diamonds.”
How does one evaluate carbon? A quiz, perhaps… over dinner. Maybe he meant to talk of the valuation of carbon which would put a dollar value on it. Either way, he never mentions any reason why he thinks that petrol (darned Brits) is artificially priced, nor does he bother to talk about what he means by “artificially priced.” Maybe it means “priced by man” instead of the price of iPods which are priced by a small grove of maple trees in Oregon.
I particularly like the implication that the are so “many respects” that he doesn’t even need to mention one of them.
Allow me to translate:
Obligatory-overgeneralization wrong-big-word scientificey-sounding-term unsubstantiated-accusation unsubstantiated-accusation unrelated-element.
For his next high-school paper report, I suggest some research and a paper shredder for the thesaurus. The topic can be: How goldfinches are subverting the academic infrastructure of Europe’s leading institutes of learning with a disregard for managed care subsidies.
I eagerly await this update.
I suppose I will respond to this comment. To begin, the comparison with the diamond industry should be obvious enough as far its implications are concerned. De Bers monopolizes the mining of diamonds and carefully meters their distribution in order to maintain their value as a rare commodity. Therefore, the analogy is meant to indicate that oil - similarly to diamonds - has a value aritificially inflated by the intentional restrictions placed upon its production. As far as empirical support for this ‘unfounded’ accusation, I will simply cite - once again - that no new oil refineries have been built in over thirty years.
As far as artificially priced, I am indicating that oil is not priced according to the dynamics associated with free-market competition; rather, it is elevated by means of a cooperative endeavor on the part of all the major members of the industry, who - I will reiterate - have made no investments in increasing their capacities for production - clear evidence that there is indeed a monopolistic culture of complacency that dominates the industry, creating an implicit understanding on the part of the oligarchs that no new investment entails no new investment by all members included; thus, the price of gasoline remains elevated due to the lack of any innovation or expansion of the modes of production.
As far as clear evidence is concerned, the lack of evidence of there being any investments made by the industry members in refinery capacities is evidence enough. Try thinking through it with a little more sobriety as skepticism.
So this article is saying that there is not really a free market in oil or gasoline but instead a kind of oligarchy where the oil companies are colluding to keep production and innovation lower and therefore keeping prices and profits higher. Okay, I think that I understand the basic concept, but I somewhat agree with the first comment - that was a *lot* of hifalutin verbiage that really could have been expressed much more succinctly and made more understandable to a wider range of people.
I have read all the previous comments and frankly, I am surprised that no one gets it. Rising sweet crude is going up at a rate matching how quickly the US Dollar is going down due to inflation. Thanks to a number of issues…, financing the Iraq war.., corporate bailouts, along with providing financial support to foreign countries the dollar is reaching a point that it cannot compete globally. I predict 5 dollars a gallon by December. Merry Christmas. But do not blame OPEC.., blame the Federal Reserve for continuing to print money, thereby decreasing the value of the dollar.
“Inflation is by design for the purpose of enslaving all of mankind.”
I wrote this before a number of factors cited by Mr. Wrightsman became evident, and I think his explanation is probably closer to the mark than my own. However, inflation cannot be the only precipitent because the increase in oil prices far exceed any other commodity in our economy, and we do import on a massive scale. So what is it about oil that exacerbates its price elevations?
R Cole
Care to comment?