The San Francisco Chronicle

The Not-So-Great Gas Boycott

by Howard Fienberg and Iain Murray
May 8, 2001

You've probably heard about the e-mail virus warning hoaxes. You've probably also received the e-mail proposal circulating nationally suggesting a one-day "Great North American Gas Out." Now, an e-mail making the rounds is demanding simple and decisive action to counter soaring gas prices: a boycott of the biggest oil companies in the nation -- Mobil and Exxon. More foolish than imaginative, the boycott idea reeks of bad economics and mis-directed activism.

The e-mail implores us not to buy gasoline from "the two biggest companies. " In so doing, we will "force" them to lower their prices. Then, because of Mobil and Exxon's "size and market share . . . the other companies will too."

The e-mail sounds convincing. But certain markers should alert you to its dubious origins. An argument is pretty poor when the arguer has to appeal to unnamed authority figures -- in this case, an "economist within the fuel industry" and an "economics professor at Cal." Without any way to confirm the authorities' expertise, we should already be skeptical of the theory they have supposedly offered.

And rightfully so. Assuming enough people followed this e-mail's dictate, to what extent would the price of gas plummet? Nada, zip, zero.

For better or for worse, we are a gas-guzzling nation. And because we are so dependent on oil, the producer has the power, not the consumer. In economic parlance, oil prices are "inelastic" -- if the price goes up, demand does not fall. The reverse would be true if we had alternatives to power our transportation, but until someone develops a viable electric car, we must play along with the pricing games.

In fact, it is the very inelasticity of oil prices that leads to the enormous prices paid for gasoline in other countries. Governments across the world recognize their people's need to buy gas. So governments feel free to tax it to the stars.

Often, as in Britain, where petrol is currently selling at about $4.50 a gallon and four-fifths of that price is excise duty, the government justifies this by claiming environmental benefits if people stop using their car as much.

But in reality, government officials know that a higher price has little effect on demand, and they proceed to rake in the tax proceeds.

A complex equation rules the price of gas, including supply, future projections, hidden taxation, cost of transportation, etc. It fluctuates by how much and how often you use it, not by from whom you buy it. Because Mobil and Exxon are so large (the e-mail is right about that), any boycott would have to be persistent (more than a few months) and global in scope -- i.e., everybody around the world would have to sign on to the boycott. Oil will still be sold through one company or another, and since we need to fill up, we will find someplace to do it. In finding that someplace, we would have to drive extra distances, thereby burning more fuel -- and any mythical savings to be had from the boycott scheme. Plus, this gives companies an incentive to raise their prices overall, not drop them.

It is understandable that many may have fallen prey to first the gas-out e- mail and now the boycott e-mail. Annoyance and anger make us do strange things.

So what can we do? We could give up driving, but that would not be too popular. We could lobby to ease many of the regulations governing fuel refining, but that might hurt progress in protecting the environment. What about taxes? America does not tax its gas at anything like the rates of other developed countries, but the price at the pump still contains a significant element of federal, state and local taxes. Due to variations in calculations, the percentage of the price you pay at the pump due to taxation could be anywhere from 28 percent to 51 percent.

Protests, boycotts, begging before foreign leaders -- these activities offer nothing more than the feeling of motion on an issue. If anyone in America has any power to reduce gas prices, it's the politicians who impose those taxes and other energy regulations. The e-mails urging direct action would have a more direct impact on prices if they were properly targeted where they could make a difference.

Howard Fienberg is a research analyst and Iain Murray is a senior analyst with the Statistical Assessment Service, a nonprofit nonpartisan research organization.

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