Governors Charging Gas Price Gouging Misrepresent Wisconsin Economist

It’s quickly becoming a moot issue, as gas prices drop back down below $2.40 per gallon. But we can’t help noting that the politicians have demagoged the issue of gas prices, claiming “price gouging” by the oil companies, and misrepresenting the work of a University of Wisconsin-Madison economist to do it. From the Journal-Sentinel.

Madison - Gov. Jim Doyle demanded Tuesday that oil companies refund Wisconsin drivers $88 million, saying the firms gouged consumers after Hurricane Katrina.

Doyle and seven other Democratic governors sent President Bush and congressional leaders a letter asking them to order oil companies to return “excessive, ill-gotten profits” to consumers, and to conduct a nationwide investigation of gas prices.

“To price-gouge consumers under normal circumstances, that’s dishonest enough,” Doyle said. “But to make money off the misery of others is downright immoral.”

Doyle cited a recent study by University of Wisconsin-Madison economist Don Nichols that concluded the recent gas spike was not caused primarily by the hurricane because prices at the pump have risen much faster than the price of crude oil.

Also signing the letter sent by Doyle were New Mexico Gov. Bill Richardson, Michigan Gov. Jennifer Granholm, Iowa Gov. Tom Vilsack, Oregon Gov. Ted Kulongski, Montana Gov. Brian Schweitzer, Illinois Gov. Rod Blagojevich and Washington Gov. Christine Gregoire.

Looking at the press release that came from the Governor’s office, it seems that the newspaper correctly represented Doyle’s position:

Governor Doyle cited a recent analysis by Don Nichols, Ph.D., economist, and director of the Robert M. La Follette School of Public Affairs at the University of Wisconsin-Madison, which showed recent price spikes can’t be explained by Hurricane Katrina. In fact, his study found that the markup from the price of crude to the price of gas has nearly tripled in the aftermath of Katrina.

In reality, Nichols clearly established that gas prices had increased much more than the price of crude oil could account for. But he never said that Katrina could not account for the spike. Here is one of his statements:

Gasoline prices on the other hand have soared. How can gasoline prices soar if crude prices don’t? Something between the crude producers and the retail gas buyers is choking gasoline prices. Are refineries down? Whatever it is, these chokeholds have usually been short-lived in the past and I do not expect to see gasoline at $3.00 a gallon throughout 2006, though oil at $65 a barrel is likely.

And further:

I have seen no explanation for why this markup nearly tripled.

Finally, in a short memo on gas prices, Nichols asserts:

It is possible that this spike in was a result of normal market factors and that no individual or company had control over what happened. Nonetheless, it was painful for households to pay $3.00 per gallon and as a result of the higher markup, billions of dollars left their pockets and went into someone else’s pockets. I am curious to know who received these billions. “Gasoline Prices in 2006” (September 27, 2005)

We think that Nichols, who is a political supporter of Governor Doyle, is being a bit disingenuous here. He seems to be leaving a little room for the possibility of “price gouging,” but he never ever asserts it. He is, after all, an academic, and would lose credibility among his peers if he asserted something silly.

He explicitly asks “Are refineries down?” (in the wake of Katrina, everybody knows they were). He says “It is possible that this spike in was a result of normal market factors and that no individual or company had control over what happened.” He never endorses the notion of “price gouging.”

Note that all the governors who signed the letter were Democrats. This is not a legitimate difference of opinion about a public policy issue. All of these governors know that the price gouging charge is nonsense.

Hit Tip: Dennis York