Market Correction

25 May 2006

Program Director, Washington Post Radio (WTWP)

Dear Sir or Madam:

Interviewed by morning host Mike Moss (May 24), Mark Cooper of the Consumer Federation of America argues that the reason oil companies have built no new refineries in the U.S. for the past thirty years is that they possess "monopoly power." According to Mr. Cooper, the resulting lack of refining capacity keeps gasoline supplies artificially low and prices and profits artificially high.

Mr. Cooper's allegations fit poorly with the evidence. In 22 of the 27 years from 1978 through 2004, return on investment in U.S. refining capacity was below that of the average of all other lines of business.* This relative unprofitability of refining, rather than "monopoly power," is the most plausible reason why investment in refining capacity has been lackluster.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

* http://www.eia.doe.gov/emeu/perfpro/fig28.htm

23 May 2006

Editor, The Washington Times

Dear Editor:

Re the Federal Trade Commission's failure to find price-gouging by oil companies in the wake of last-year's hurricanes ("FTC Finds No Katrina Gas-Price Gouging," May 23): when next asked to search for evidence of devious plutocrats chiseling innocent people out of their hard-earned money, the FTC should dispatch its investigators to Capitol Hill. There, even a cursory inquiry will uncover swindlers whose arrogance and gluttony for power and lucre are matched only by their deceitfulness.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

22 May 2006

Editor, The Chicago Tribune Magazine

Dear Editor:

Eric Schlosser's account of the American economy of 100 years ago is to economic history what Star Trek is to space exploration: popular but phony ("'The Jungle' Turns 100," May 21). For example, the so-called "monopolists" back then did not charge "whatever price they liked" - unless they liked to charge low prices. Data from the period show that the real prices of kerosene, coal, meat, steel, tobacco, and other allegedly monopolized products fell continually and dramatically,* suggesting that being a big firm is not synonymous with having monopoly power. Also, the vast bulk of child labor took place on farms, not in factories. And that which did occur in factories was in steady decline for at least 25 years before Upton Sinclair wrote "The Jungle."

Like Sinclair's novel, Schlosser's celebration of it is a piece of muckraking fiction.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University


* See, for example, Thomas J. DiLorenzo, "The Origins of Antitrust: An Interest-Group Perspective," International Review of Law and Economics, June 1985.

22 May 2006

Editor, The Christian Science Monitor

Dear Editor:

Gerry Roll wants to classify as "homeless" families who are "doubled- and tripled-up with friends and relatives" ("Understanding poverty and homelessness in America," May 22).

While such families might be poor, they are, in fact, not homeless. To classify them as homeless would be, well, a lie. Among other ill consequences, this lie would mask the significant fact that a century ago the typical American household housed 5.63 persons while today the typical household, despite being larger than its counterpart of 100 years ago, houses fewer than half that number (2.37 persons).

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University