081404

The Nossiter Net
The net that shall enmesh them all
Edited, Written, and Published by J.C. Nossiter

The Morning Mendacity
Saturday, August 14th, 2004

The Nossiter Net is cast to snare some of the riper rascalities of the day. Comments? editor@nossiter.net

Although there are plenty of cows in the world, a serious shortage of tanning capacity has caused the price of shoe leather to go up 80% in the past year, leading to very expensive shoes. Ridiculous? That’s precisely the argument my old classmate Floyd Norris advances in Friday’s New York Times. Floyd, the Times’ Chief Financial Correspondent, presents the oil industry’s phony case for the all too real increase in oil prices, from $25 per barrel a year ago to $46 per barrel yesterday. That price increase is making the stock market stagger and the economy falter, casting a pall of gloom over the economic future. And according to Floyd, despite the fact that the world is awash in oil, prices won’t be dropping any time soon.

Floyd, along with nearly everyone else who writes about oil, treats the industry as though it participated in a regular competitive market, like the shoe market. That’s simply not the case. Suppose hides really were abundant, but insufficient tanning capacity was keeping shoe leather from getting to the shoe stores. Leather prices might rise temporarily, but in short order existing tanners would ramp up production, and new entrants, attracted by higher profits in tanning, would swell capacity. Before too long leather supplies would increase to meet demand, and leather prices would drop to their normal, equilibrium level. If prices temporarily rose to extreme levels, consumers would switch to plastic sandals, or go barefoot (at least in warm climates.)

That could only happen, of course, in a free market. If the market were rigged, the cattle ranchers, acting in concert, would control the tanning business, keeping out new entrants and deliberately holding down production to keep prices artificially high. And if the cattle cartel was aided by friendly government policies that kept plastic sandals expensive and difficult to obtain, and made barefootedness socially unacceptable, even where the climate invited it, so much the better.

That’s the kind of rigged market the oil industry operates. Government policies discourage alternatives, like solar power or public transportation. The oil cartel, acting in partnership with friendly governments like the U.S., manipulates the price of oil at will. The same sober New York Times that solemnly attributes rising prices to insufficient refining capacity and distribution bottlenecks will, you can count on it, cover with equal sobriety and solemnity the next OPEC meeting at which our good friends the Saudis and their partners get together to decide the price of oil. Maybe Floyd and his colleagues should read their own newspaper.

The Afternoon Affront

Further NYT reading: Friday’s business section table of the most widely held stocks is instructive. Apart from the wireless phone industry, whose stocks are up for the year after being severely battered, two companies stand out as solid winners amidst the long list of year to date losers. One is ChevronTexaco, up 9.2% for the year. The other is ExxonMobil, up 8.7%. Quite a performance, considering that the overall market is at a new low. Not everyone suffers when the price of gas rises.
©J.C. Nossiter 2004