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Factor Follow-Up

In the Factor follow-up segment tonight, you may be interested to read what University of Wisconsin economist Don Nichols actually wrote (PDF) that caused Bill O'Reilly to say "Professor Nichols concludes the USA oil companies have some explaining to do." As you probably already expected, O'Reilly was a bit hasty in concluding that Prof. Nichols thought the oil companies were up to no good.

The publication wasn't so much a "study" as a forecast of the economic outlook that included commentary about the effects of Katrina:

Gasoline prices on the other hand have soared. How can gasoline prices soar if crude prices don't? Something between the crude producers and the retail gas buyers is choking gasoline prices. Are refineries down? Whatever it is, these chokeholds have usually been short-lived in the past and I do not expect to see gasoline at $3.00 a gallon throughout 2006, though oil at $65 a barrel is likely.

… if crude oil cost $95 per barrel, and if normal refining and distribution costs were 43 cents and taxes were 42 cents, we would expect gasoline to cost $3.00 a gallon, ($.08 in Wisconsin.).

The interesting point is that when crude oil cost $65 a barrel and gasoline cost $3.00 a gallon, the markup of 43 cents for refining and distribution was temporarily near $1.10. I have seen no explanation for why this markup nearly tripled.

The markup nearly tripled because refineries and pipelines were affected by Katrina. Prof. Nichols had already noticed the refineries. O'Reilly was simply putting words into the Professor's mouth with his "oil companies have some explaining to do" rhetoric.

Shame on you, O'Reilly. Bad economics and bad journalism.

Prof. Nichols did not respond to my request for comment on O'Reilly except to send me an earlier draft of his publication.

In blog news, my O'Reilly post was linked by Reason Hit and Run on Monday morning, making it easily the highest-traffic day since I've had counters — over 2,250 visits and the day's not quite finished yet. (I was Instalanched once before I had a counter, so I have no idea its volume.)

I don't have comments here, but Hit and Run does, and some of them are funny.

Tiny Island