Every once in a while, I get a chain email with something so silly in it that I don't know whether to laugh or cry. Years back, I had lengthy debates with people who swore that if you keep forwarding an email, Microsoft would pay you for every recipient. This was just plain silly, but since the email said it was not a hoax, there was no listening to reason. Cell phones do not in fact blow up innocent gas pumpers; there has never been one documented case of such an explosion occurring while pumping gas, yet the signs abound at gas stations and some lawmakers have actually proposed legislation to enact tough fines for such atrocities. The list goes on.

Well, today was the perennial gas boycott in the old U.S. of A. All this really does is highlight the gullibility and general lack of understanding of one of the most basic tenants of supply and demand in our society. Americans do a pretty good job of embarrassing themselves on the world stage without having to add fuel to the fire. Don't get me wrong, this is undeniably the best country in the world to live in (Tony Blair hit the nail on the head when he said that a good measure of a country is how many people are trying to get in versus trying to get out; I don't see Hollywood actors flocking to France, they just like to bash the U.S. on their soil when there for the Cannes film festival), but we do a great job of making the general populous look pretty silly.

Why is the boycott silly?
First of all, the fact that we can't just accept the supply/demand properties of perhaps the single most efficiently traded commodity in the world is just plain silly. Although people hate OPEC (who selfishly cheat on their output when oil prices rise, artificially lowering the price again), hate big oil, and hate gas over 2 dollars, I don't see protests over bottled water which is routinely purchased for a higher price per unit volume. Water pumped out of a tap similar to what we have in our house and stuck in a bottle goes for more than crude extracted half a world away, shipped, refined and dispensed. Incidentally, when politicians say we need to stop buying oil from the Middle East, they're silly too. Oil is traded in a highly efficient fashion. If we buy it from the North Sea instead of the Saudis, the spot price of either contract remains unchanged due to the shear volume of trade, obscenely thin spread and insatiable demand. So, for once, let's stop being silly and focus on the real solution, REDUCING OUR CONSUMPTION! Ride a bike, sell your 13 mpg tank of a vehicle, don't live in the exurbs with a 50 mile commute. Until we change our fundamental behaviors, we will continue to demand gas at an obscene rate. And ethanol is not the answer, it is a complete hoax (subject of a future post).

Now for the economics:
I'm not going to do this silliness justice with a detailed analysis and provide research and citations. Basically, the people gearing up for this brazen assault on big oil simply top off their vehicles on May 14th or refill later in the week. On an aggregate basis, the consumption of gas in the U.S. remains unchanged since nobody actually changed their personal consumption during this particular week. It would be like your employer saying their going to reduce costs by withholding paychecks this week only to pay for two weeks pay next week (OK, if splitting hairs, for the cost of cash, they could make a few bucks on the float like banks do when they hold your money for days waiting for a check to clear, but anyway...).

Here are some other considerations:
Most of the world pays more for gas than we do. We have a weak dollar. In dollar terms, gas is still extremely cheap here in the U.S. While we have seen the dollar weaken against foreign currencies and enjoyed the benefits of low interest rates (mortgages at 5%!), multinational earnings benefits (and hence a strong U.S. stock market) and the like, we fuss over a rise in our gas price. In terms of the EURO, they're really hurting at the pump. Over the past several years, in terms of what we pay for gas with U.S. dollars, it just ain't that bad.

So, bottom line is: It is a worthy cause to try and decrease our gas consumption, but as we enter a new campaign of ridiculous debates, make sure to scrutinize the candidate statements on "decreasing our dependence on foreign oil", "ethanol is the answer" and "renewable energy sources". I don't hear them talk much about changing our behaviors. That doesn't win the vote. Telling the public that subsidies to corn farmers is essentially forcing up the cost of food for all U.S. consumers (outweighing the benefit to a few farmers), that Brazil has already depleted a sizable portion of the Amazon rain forest in their thirst for ethanol/biodiesel and that food prices have risen dramatically worldwide since we started consuming ethanol (notice how much you're paying for milk from those corn-fed cows lately?) would be too honest.

Until next May's boycott, enjoy your gas!

Dan