Ques­tion­ing claims by AIMS

Northern Pen - - EDITORIAL -

The North­ern Pen re­cently printed an ed­i­to­rial com­ment­ing on a study by the At­lantic In­sti­tute for Mar­ket Stud­ies (AIMS) (“Burned at the pump,” Aug. 25). The ed­i­to­rial noted that the study “es­ti­mates mo­torists paid more than an ex­tra… $63 mil­lion in New­found­land and Labrador” as a re­sult of reg­u­la­tion, with oth­ers in At­lantic Canada pay­ing tens of mil­lions in ad­di­tional costs be­cause of reg­u­la­tion in their prov­inces.

It con­cluded that the “in­for­ma­tion put for­ward by AIMS is com­pelling” and sug­gested that gov­ern­ments were ar­ti­fi­cially rais­ing the price of gaso­line to col­lect more taxes.

These claims by AIMS are bo­gus, but they have been re­ported un­crit­i­cally across the prov­ince. Let’s see why the num­bers are wrong.

The new AIMS study, “What’s Still Miss­ing From Your Wal­let?” up­dates their 2009 study “What’s Miss­ing From Your Wal­let? How Gas Prices Reg­u­la­tion Robs from Con­sumers.” That 2009 study re­ported that reg­u­la­tion had cost con­sumers $65.3 mil­lion in the roughly seven years it had been in place. The new study re­ports a cost sav­ing to con­sumers of $2.2 mil­lion for 2009-2017, giv­ing a to­tal of $63.1 mil­lion.

This al­ready looks strange. Why should the costs have been so large in the first pe­riod af­ter reg­u­la­tion and neg­a­tive af­ter that? To an­swer this, we have to see where these num­bers come from.

What AIMS is try­ing to cal­cu­late is how much con­sumers paid whole­salers and re­tail­ers for a litre of gas for a pe­riod of time be­fore and af­ter reg­u­la­tion. If this “mar­ket­ing mar­gin” rises af­ter reg­u­la­tion, AIMS claims that reg­u­la­tion caused it. Know­ing the to­tal num­ber of litres of gas pur­chased gives an es­ti­mate of the change in to­tal costs to con­sumers.

How­ever, com­par­ing dol­lar val­ues over time re­quires ad­just­ment for in­fla­tion. Their 2009 re­port didn’t do this, while also us­ing in­cor­rect ex­change rate val­ues.

I cor­rected these mis­takes in a pa­per pub­lished later in 2009 by the Cana­dian Cen­tre for Pol­icy Al­ter­na­tives (“De­bunk­ing the Myth That Gas Price Reg­u­la­tion Robs From Con­sumers”). I found that there had ac­tu­ally been a de­cline of half a cent per litre (in to­day’s dol­lars) in av­er­age mar­ket­ing mar­gins af­ter reg­u­la­tion in the three cities for which there were data (St. John’s, Gan­der, and Cor­ner Brook).

Us­ing AIMS’s method, this im­plied sav­ings to con­sumers of $23 mil­lion up to 2009. Their 2009 claim of a $65.3 mil­lion cost to con­sumers was wildly wrong. Re­mark­ably, AIMS per­sists in us­ing it, an in­di­ca­tor of the in­tegrity of their re­port.

Their cur­rent study at­tempts to ad­dress my ear­lier crit­i­cism by ad­just­ing for in­fla­tion. Ac­cord­ing to the num­bers re­ported in their study, the in­fla­tion-ad­justed av­er­age mar­ket­ing mar­gin de­clined by 0.4 cents per litre af­ter reg­u­la­tion.

AIMS could have sim­ply used this value and mul­ti­plied it by the num­ber of litres of gaso­line pur­chased since reg­u­la­tion be­gan to con­clude that reg­u­la­tion saved con­sumers $39 mil­lion.

But they didn’t. They chose to use the er­ro­neous $65 mil­lion cost to con­sumers from their 2009 study and to ap­ply their -0.4 cents per litre es­ti­mate only to gaso­line con­sump­tion since 2009.

De­spite years of claims that gas price reg­u­la­tion has raised prices for con­sumers in New­found­land and Labrador, AIMS has yet to pro­vide a shred of ev­i­dence to sup­port its po­si­tion. De­bates about pub­lic pol­icy should be based on fact not fic­tion.

Rod Hill is a Pro­fes­sor of Eco­nom­ics at the Univer­sity of New Brunswick, Saint John cam­pus, and a Re­search As­so­ciate with the Cana­dian Cen­tre for Pol­icy Al­ter­na­tives — Nova Sco­tia.

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