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Really Awful Wall Street Journal Headline

Summary:
This is the headline on the print version of a Wall Street Journal news story in the November 12 edition. Fortunately, in the electronic version, it is now a more-accurate “Frackers Prepare to Pull Back, Exacerbating a Slowdown in U.S. Oil Growth.” Why the problem with the first headline? Because it says that frackers’ motivation in pumping less oil and gas is to push up prices. But for that to be their motivation, they would have to have a lot of market power as a group and be able to collude. The first condition could hold; there’s no way the second condition does. There are too many players for any collusive agreement to hold up. The agreement would fall prey to the prisoners’ dilemma: each individual member would have an incentive to “cheat” on any agreement

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This is the headline on the print version of a Wall Street Journal news story in the November 12 edition. Fortunately, in the electronic version, it is now a more-accurate “Frackers Prepare to Pull Back, Exacerbating a Slowdown in U.S. Oil Growth.”

Why the problem with the first headline? Because it says that frackers’ motivation in pumping less oil and gas is to push up prices. But for that to be their motivation, they would have to have a lot of market power as a group and be able to collude. The first condition could hold; there’s no way the second condition does. There are too many players for any collusive agreement to hold up. The agreement would fall prey to the prisoners’ dilemma: each individual member would have an incentive to “cheat” on any agreement to cut production.

To their credit, the news writers, Rebecca Elliott and Christopher M. Matthews, don’t make that mistake in the article. Instead they explain the lower fracking by the standard economist’s explanation: moving down a supply curve in response to a lower price. They write:

Among them [shale producers that are cutting back] is Pittsburgh-based EQT, the country’s largest natural-gas producer, which plans to spend roughly $400 million less next year and said last week its production could decline slightly. Chief Executive Toby Rice said spending could fall an additional 30% after 2020, citing lower gas prices.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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