Freakonomics: Uncommon sense at four dollars a gallon.


Everyone has been griping about oil prices (I don't own a car, but I know people who do), and the recent tragedy down in the Gulf of Mexico people are worried its going to rise higher. I've heard numbers as high as $4 a gallon. This recent crisis has caused President Bush to release oil from the strategic reserve. Don't sound too relieved. It will still probably get that high. One of the constant lessons I harp on is how common sense is little more than a lie we tell to placate ourselves.

For a second, lets talk about cell phones. My father always said that people had accidents while talking on a cell phone are just people who can't do two things at once. Of course when New York banned handheld phones he just picked up a headset. A $5 investment and now he's inside of the law. A law that makes no sense. Lets ignore for a second that studies show that less than 6% of distracted driving is due to cell phones [1], and concentrate on why hands free cell phones are ok.

The logic would seem that if you're using one hand to use a cell phone then the other hand is busy and that's your distraction. Which is why we ban people from driving with only one hand. Well maybe the act of holding the cell phone is a distraction. Which is why we don't let people driving hold anything in their other hand. Or maybe, just maybe now, the number of accidents relating to cell phones is equally likely between hand-held and those with an ear piece (taken from Fatal Analysis Reporting System). Which would mean the real distraction is talking on the phone. With cell service spotty and conversations grabbled by poor communication, its not a reach. Freakonomics 1, Common Sense 0.

But back to gas prices. Not many people realize that gas price is only about 50% dependent on petroleum (crude oil). So common sense says that one petroleum doubles gas prices should go up by 50%, and if you look at prices for both from July 2003 - July 2005, it would look like you were right [2] [3]. Numbers lie, its a plain fact, they disguise their content, and prices are no different. Direct your attention to October of 2003. Gas prices were on the rise, and crude oil for some reason was falling. Weird. But that's not the only inconsistency. From May 2004 to September 2004 crude oil went from $40 to $55, a 37% increase, and gas prices... stayed the same? It looks like there is some other force at work here. In fact the difference is the refineries of great America, in their capitalist endeavors are making money off of you. The same refineries that were hit in the recent hurricane. See, crude oil needs to be refined, and refineries need to make money, the refineries that are shut down because of the hurricane. So don't count on the strategic reserve to bail you out.

take from: a study by the Harvard Center for Risk Analysis, NYMEX Light Sweet Crude prices, the U.S. Department of Energy, and The Statistics of Common Sense by Jim Tzenes