About a month ago, I came across this Op-Ed in the Detroit Free Press, written by Robert Weiner and Cael Pulitzer, in response to the Q42005 earnings of Big Oil, arguing in favor of a windfall profits gas tax. Although I wholeheartedly agree that there is no need to subsidize the oil industry, I wouldn’t qualify my argument on behalf of their profits. They shouldn’t be subsidized in either case. Anyways, the article sat idly by in my blogger account, and I’m finally getting to it now. So here’s my punch-counterpunch to Mssrs Weiner and Pulitzer:

“Reports just out show that ExxonMobil achieved the highest quarterly profits ever for any publicly traded company, $10.7 billion”

I’ve noted before that gross numbers like $10.7 billion are meaningless when taken out of context. But I might add that when used irresponsibly, they can be downright harmful, by say, fostering falsehoods. Give me an ROI, or an ROE, and demonstrate that Big Oil’s was a better investment than CitiGroup last year. (news flash: it wasn’t)

“economic models say more supply equals lower cost”

ahhh, but you’re forgetting the all-important caveat, “other things being equal.” When there exists a change in global demand, by say, one-billion people in India and China begin the process of industrialization…

“[Anti-Trust legislation] needs to be applied to the current state of the American oil industry … Congress at the least must stop whatever discussions oil officials have that generate instant identical predatory pricing.”

Let me get this right: Instant. Identical. Predatory. Pricing. — WTF?

Predatory pricing, if I’m not mistaken, is generally accepted to be somethign along the lines of “lowering prices below cost, or below those which your competitors can sustain.” This of course neglects the fact that the larger the company is, and the larger a share of the market it controls, the greater are the losses they will incurr by adopting “predatory prices.” This is unavoidable. Now, either Wiener is claiming that prices are simultaneously too high, and too low, or he instead meant to call attention to what he believes is price collusion. But when dealing with a homogeneous good like oil, the Prisoner’s Dilemma, a game-theory standard, all but prevents price collusion.

“Oil companies, on average, raised gasoline prices 24 cents a gallon in the 24 hours after Katrina. Prices reached more than $3 a gallon, exploiting fear but for no empirical reason. It was greed exploiting a disaster. Then, under public and media pressure, prices dropped”

post hoc erego propter hoc. ’nuff said.