Carl Levin sounds as if he needs to re-enroll in Econ 101. He held hearings earlier this month on the volatility in last summer’s gasoline prices. He raised the notion of “parallel pricing” and “conscious parallelism,” which, Levin says, “may lead to the same effect as outright collusion.”
He cited parallel pricing as the reason the price of gasoline in Michigan rose uniformly across the board last summer regardless of brand, service station or major retailer. He said the practice may not be illegal, but that it also “is not a coincidence.” The senator asked, “If there were real competition in the industry, why would the prices of different brands go up and down together?”
The senator’s right. It was not a coincidence. But you have to wonder if he ever heard of commodities futures.
If the senator were to check the stock page of any daily paper, he’d find each commodity has one price, regardless of whether it’s cattle or Regular Unleaded. And when demand rises and commodity supply is touchy, prices rise across the board. (Levin apparently forgot gasoline supplies were touchy, because: 1. A gasoline main broke between Detroit and Chicago; 2. A major fire took a St. Louis refinery off line; 3. EPA requirements went into force for regional boutique gasoline formulas in the Chicago-Milwaukee megalopolis; 4. In the wake of the terrorism attacks, more people were vacationing closer to home and using their cars.)
If he were interested, Levin could find so-called parallel pricing in corn, soybeans, wheat and pork bellies.
Each has a single price and those prices rise and fall, not because of “conscious parallelism” within a vast agrarian conspiracy, but because of supply and demand. With a bumper corn harvest in sight, corn prices drop uniformly throughout North America. When frost kills grape blossoms (as happened just weeks ago in Michigan), wine-makers drive grape brokers crazy trying to secure enough fruit for the season ahead. Prices rise.
Will Levin hold hearings on parallel pricing in wines? How about collusion among Smucker’s, Welch’s and Spartan in the prices of grape jelly?
Actually, Levin is a very bright man who probably knows this as well as the rest of us. He certainly knows the best way to reduce gas prices is to increase gasoline supplies.
So why this conspiracy charade about Big Oil and high gasoline prices?
Well, for whatever reason, the Senate Democrats apparently have locked themselves into restricting the supply of gasoline. They bull-headedly oppose opening new areas for oil exploration in Alaska. Moreover, they aren’t about to offend the environmental lobbies. That’s why they won’t ease the restrictions that make it prohibitively expensive to build new refineries. (No new refinery has been built in this country since 1978.)
What Levin’s probably trying to do is lay smoke, and on this issue, he needs all the smoke he can lay.
Don’t forget that one of Levin’s key constituencies, the United Auto Workers, fervently supports oil drilling in Alaska, and Levin is one of the 54 votes blocking exactly that proposal. Moreover, the price of oil — and thus gasoline — could take a big jump this summer, especially if OPEC’s Islamic members decide to play oil embargo games.