Friday, June 22, 2007

The High Price of Gasoline

June 22, 2007

Re: The High Price of Gasoline

From: Dean Lawrence R. Velvel

Dear Colleagues:

Because of the high price of gasoline, a letter sent to a prominent NPR public affairs show about its failure to discuss the operations of the futures markets seems worthy of being put on the public record. It is appended below. The name of a young researcher for the show has been redacted.*

June 22, 2007

Via Email and Federal Express

Mr. Tom Ashbrook
On Point
890 Commonwealth Avenue 3rd Floor
Boston, MA 02215

Dear Mr. Ashbrook:

On June 13th, you did a program on the price of gasoline, with Tyson Slocum being one of your guests. In the portion of the program that I was able to listen to, it was astonishing that neither you nor he mentioned the operation of the futures markets for oil and gas as a cause - - in fact a major and probably the leading cause - - of both the high price and the volatile price of gasoline. Nor, and of crucial importance, were futures markets mentioned as vehicles that divorce the price of gasoline from the costs of production, refining and transportation. These omissions were particularly shocking to me because, both at lunch with our faculty and on a television show with me, Mr. Slocum had said that the futures markets played a dominating role in establishing price and had caused price to be divorced from costs; he had also approved a press release and internet posting which made those very points.

I called your program to ask an on-air question about the omissions I mention, but was rebuffed.

Shortly after your program was over, I sent, by email and fax, a letter detailing this; it was accompanied by a copy of the aforementioned internet posting. The letter plainly registered displeasure, so I was the more surprised when, later that same day, your researcher, [name redacted], called me to explain why the crucial role of the futures markets had been omitted. I thought it was nice of her to do that.

[Your researcher’s] explanation reduced (as it were) to this: The people at On Point had been aware of claims that the futures markets were of great importance in establishing the high and volatile price of gasoline, and also (if memory serves) that these markets divorced the price of gasoline at the pump from the cost of producing, refining and transportation. But experts she had called at various universities had said - - simply unbelievably to me - - that this was wrong, and Slocum himself did not have a degree in economics. Thus, your program did not feel comfortable in bringing up the matter of the impact of the futures markets.

[Your researcher] and I discussed the situation, and I told her that I would pass on the information to her if I happened to think of experts who have made the relevant points about the operations of futures markets. Thereafter I asked one of our librarians to do some research, and she quickly came up with the information. It is in a Senate Report on the price of gasoline (issued while the Republicans were still in office), in articles by and testimony from experts, in reports by federal agencies, in reports on futures markets generally by state universities, and in other materials cited by these materials. It is ample. And it also shows that some think the futures markets have added 20 to 25 dollars to the price of a barrel of oil - - given the range of the price per barrel in approximately the last nine or twelve months, this estimated additional amount would account for roughly 30 to 40 percent of the price per barrel.

I am enclosing, with the Federal Express copy of this letter, the materials given to me by our librarian, and have put brackets next to parts where relevant points are discussed regarding the effect of the futures markets in creating high and volatile prices and, crucially, in divorcing prices from costs.

I recognize that my view is liable to count for little, yet it is my view that On Point is obligated - - I use the word advisedly - - to do a program on this matter. As is often illustrated by statements made by your callers, many people, particularly thinking people, rely on On Point to learn crucial information about important matters. Yet the program has (inadvertently) misled its wide body of listeners by telling them of supposed reasons for the high and fluctuating price of gasoline without mentioning what many experts think to be the crucial role of the futures markets, whose operations and effects may be responsible for approximately 30 to 40 percent of the high price of a barrel of oil. Especially given the extent to which people listen to On Point in order to gain information needed by citizens, I believe On Point has a responsibility to correct its inadvertent oversight by doing a program that informs listeners of what many think to be the crucial role of the futures markets in raising price, causing rapid price fluctuations, and divorcing price from cost.

Sincerely yours,

Lawrence R. Velvel, Dean
Massachusetts School of Law

 This posting represents the personal views of Lawrence R. Velvel. If you wish to comment on the post, on the general topic of the post, or on the comments of others, you can, if you wish, post your comment on my website, All comments, of course, represent the views of their writers, not the views of Lawrence R. Velvel or of the Massachusetts School of Law. If you wish your comment to remain private, you can email me at

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