Chapter 7: Economists and the oil industry: facts versus analysis, the case of vertical integration
Paul Stevens INTRODUCTION This chapter is a return to a theme developed some time ago by Stevens (1995). It concerns the way in which economists can or cannot illuminate the working of the international oil industry. Economics is about questions. There are two aspects. First is to ask a question about something very complicated and then use simple economics to make the answer understandable. This is a major contribution and simple economics can be an extremely powerful explanatory tool. Unfortunately, many economists are losing sight of this and take delight in increasing obscurity. The second aspect about questions and economics comes from the late Joan Robinson who used to remark, ‘the function of economists is to make sure the right questions are being asked – any damn fool can provide the answers!’. In the context of this chapter, the questions concern the operation of the international oil industry. Once the question has been posed, the next stage in the process is to look in the economist’s proverbial tool bag. This contains a variety of concepts and ideas whose function is to provide an analytical framework to address the question. However, there are two potential problems. The ﬁrst is that the concepts may pull you in diﬀerent and conﬂicting directions. The second problem (which is the focus of this chapter) comes from the old academic adage: ‘never let facts get in the way of good analysis’. Too often economists have reached into their tool bags but then have completely...
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