May 15, 2007
Tuesday AM

The Internet is a powerful tool, and we may get some inkling of just how powerful on May 15th. That's when there's supposed to be a nationwide boycott of gas stations. If it comes off -- if millions and millions steer clear of the pumps -- we'll know that an organizing effort via e-mail, Web sites and chat groups produced extraordinarily successful results.

But because the premise of this boycott is that U.S. oil companies are greedy, exploitative and conspiratorial, we will also know that these millions of our fellow citizens haven't the slightest notion of economic reality.

The thesis of the boycott organizers, or at least those I have encountered, is that the oil companies can set just about any price they want and are now getting unbelievably rich at the expense of all us poor slobs who either have to pony up what's demanded or walk to our various destinations.

It's a narrative that just about anybody can grasp because it makes the world oh so simple. You see, there are bad guys and good guys, and if the good guys will just stand up for themselves, they can bring the bad guys to their knees.

Now there are in fact some known, open conspirators, the OPEC nations that attempt to control the flow of oil to also control the prices so vital to their own economies, but after that, it gets more complicated. These nations have a powerful influence on supply, and that is crucially important to prices. Also important is demand, not just here, but around the world and especially in China's emerging economy.

The U.S. companies have virtually nothing to say about this. Especially since they are cut off from vast fields of oil in Alaska and offshore, they have a meager impact on total supply, but do have to adjust to world prices because if they don't make something quite a bit higher than their costs, they grow ever punier and risk going out of business.

If you look at what they are making in absolute dollars, it may make you cringe, but if you look at their 10 percent profit margins -- the difference between all their costs and their revenues -- you will find they are making a lot less than many other industries, such as chemicals and computers.

Could they get by with something less than that? They could try, but they desperately need to make money to attract investors and to undertake their expensive, risky operations when they can because they so often make far less profit and put much back into their operations. Over a period of two decades, columnist George F. Will has pointed out, ExxonMobil invested more than it earned.

If the planned boycott really reduced demand significantly over a prolonged period of time, it could bring prices down, but it won't. Most people who participate will likely make up their one-day avoidance of gas stations by buying more on previous or later days. The less dramatic but more certain way of bringing prices down is to alter driving habits significantly over the long haul, cutting out much of what is nonessential. The fact that this isn't happening more than it appears to be is a signal that as high as oil prices have climbed, they haven't climbed higher than what many people feel they can afford.

Of course, the oil companies could get scared at public anger and damage themselves and the prospects of further price-reducing discovery of new oil resources by intentionally lowering their profit margins. This would serve the nation poorly. It could ultimately have the opposite effect of what the boycotters seek.

What the Internet organizers should focus on instead is persuading environmental groups to drop their opposition to drilling in places where it is now inexcusably prohibited. They could also demand lower gas taxes and an end of mandated use of costly ethanol. Not everything gets solved that way, and you can argue the gas taxes are needed, but all this would make more sense than the goofy tactic of a gas-station boycott.

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