Rocket Feathers

You can spend ages describing curves, lines, arcs, dips, depressions, and textures with mathematical precision…

…or you can just call something a statue.

One of the greatest gifts a communicator can wield when given an inscrutable scenario to explain is the proper analogy. If a picture is a thousand words, and analogy can be a thousand pictures.

I was in search of just such an analogy, to explain a phenomenon that too often gets over-simplified to a point of rage and envy: the disparity between the rapid acceleration of gas price increases, and the slow leisure of their descent.This particular situation was brought to mind by one of the best minds in Public Relations — Peter Himler. Peter recognizes the challenges facing those in the energy industry to keep the regulatory wolves at bay, and keep public opinion from destroying the reputation of an entire industry. The problem is that gas prices are by their nature tied to the price of crude oil. Whenever there is a shock in crude, refined gas “rockets” up. When the crude prices fall, the price you pay at the pump drifts down like a feather.

The built in bias here is one of simplicity: the simplest possible answer is one that involves conspiracies, cabals, illegal trusts, and oligarchies. It is much easier (and comforting to some) to believe in a smoke-filled room populated with rotund little Monopoly tycoon caricatures, rolling around on obscene piles of cash while carving mystic runes on the still-beating hearts of minimum wagers, working moms, and first-time home buyers. We naturally gravitate to those archetypes, because it comforts us to know there is an explanation — even one we don’t particularly like. (Apparently, that includes 96% of the respondents on a London Daily Telegraph online poll, but come on! These were the same people that listed “Jedi” as their religion…)

Alas — the truth is more complex than we ordinarily like to explain. Yet I tried anyway, in a comment on Peter’s blog:

So many people respond with amazement and wonder that prices “rocket up” and “feather down.” Rarely do these same critics place themselves in a competitive environment for pricing.

With small profit margins, gas stations will always drop prices incrementally. The point is to drive traffic into the convenience store, where the markup is healthier and the money is made.

If you and your competitor both see a 20-cent drop in wholesale prices, there’s no rush to drop to the cellar. You only need to be a penny below the guy across the street. The next day, he might drop two pennies to counter, and you might drop a penny or two in retaliation, or even preemptively.

The problem for the outside observer is they want the final equilibrium to hit immediately, and by the time the situation starts to settle, other factors can weigh in — such as seasonal driving patterns, weekly patterns, a one-time glitch in the refinery that slows a delivery…

Too often, the “pundits” who weigh in on economic matters look for the simplest of all solutions, even if that means ascribing a motive to one of the players. In this case, it means creating a conspiracy or cabal, when in reality there are tens of thousands of independent agents all jockeying for position in a free market.

(Yes — this will become a blog post for me — I’ll track back to you, Peter.)

Bottom line: the truth of the price fluctuations is impossible to compress into a soundbite, and it’s just too easy to point a finger of blame. The PR implications are just as real as they are maddeningly intractable.

Alas, as it happens there was someone else who already wrote it better and more succinctly than I.

General lesson? Sometimes Occam is wrong, and the simplest answer is not a true reflection of the truth.

Specific lesson? Sometimes the work is already done for you, if you bother to look for it.

[tags]Ike Pigott, Occam’s Razor, Occam’s RazR, Peter Himler, economics, communication[/tags]