Posted on 11/29/2005 8:51:26 AM PST by John Semmens
In response to this year’s soaring gasoline prices, Arizona Attorney General Terry Goddard is on a crusade to try to get Congress, the state Legislature — anyone — to buy his plea to try to repeal the law of supply and demand. His case rests on a foundation of economic ignorance.
Mr. Goddard has observed gasoline prices rising in the face of anticipated shortages and concluded that “market forces are not working.” Mr. Goddard is mistaken in his analysis. Rising prices under such circumstances are both inevitable and remedial.
The solution, Mr. Goddard says, is to give him the power to prosecute those who raise prices excessively during shortages. You see, right now he is hampered in his ability to terrorize vendors of scarce commodities by the requirement that he have evidence of collusion or deceit. He would prefer to convict vendors based on simple statistical comparison of pre- and post-crisis prices.
The emotional appeal of Mr. Goddard’s move is understandable. The most visible of suspects are vendors who raise their prices. Those who don’t understand economics are incensed that people would raise prices on items that were stocked at pre-crisis prices. Marking up existing inventory is perceived as greedy profiteering.
Well, greedy profiteering is precisely what we need to help us get through a crisis. Prices rise because there is a mismatch between supply and demand. More is wanted than is available. Raising prices on the dwindling supply is the most effective way to bring supply and demand into balance.
Higher prices discourage waste or frivolous use of the item in short supply. Higher prices encourage producers to try to increase the supply. The vendor who raises prices on his existing inventory is a vital participant in this remedial process. He is helping encourage people to conserve the resource for only the most important uses. His higher retail price enables him to afford the cost of restocking his inventory at the higher replacement cost he will face in the future.
Vendors who fail to raise prices during a shortage may enjoy a short-lived popularity for holding the line on prices. However, they will more quickly run out of inventory leaving customers without any supply. Their ability to restock their inventory will be hampered by lack of sufficient funds to acquire new stock at the now higher prices. They may congratulate themselves for their selfless sacrifice, but they will not have contributed to alleviating the problem.
It is bad enough when some vendors make pricing errors in times of short supply. It would be far worse if government, as Mr. Goddard demands, were to force all to make pricing errors.
The notion that there is a “fair” price that the government is competent to determine and enforce is pure foolishness. Prices should be expected to fluctuate to reflect changing conditions of supply and demand. Stopping the fluctuation of prices doesn’t address the underlying conditions of supply and demand. On the contrary, stopping prices from rising will block the most proven mechanism for balancing supply and demand.
If government intervention in the marketplace to control prices were such a good idea the Soviet Union wouldn’t have collapsed. In the Soviet system the government had comprehensive control over prices. The government’s efforts to ensure affordable prices for consumers led to chronic imbalances in supply and demand. The economy operated way below its potential. Consumer needs were ill-served. We ought not to try to imitate (even on a limited, emergency basis) the misguided price control practices of the Soviet system.
The only possible outcome from enacting price controls on gasoline would be to introduce government meddling that would prolong and deepen shortages. Existing stocks would be more quickly depleted. Resources and incentives to provide replacement supplies would be reduced. The most urgent needs wouldn’t be able to be met at any price.
John Semmens writes a weekly satire called “Semi-News” that is published by http://www.azconservative.org. He also is an adjunct scholar with The Goldwater Institute.
I've got a better idea. How about eliminating state & fed gas taxes when the price goes over $2.50/gal? This would also give congress an incentive to encourage domestic production.
Right, put gas prices in the HANDS OF A LAWYER. Right. EXACTLY what you want to do.
Very well put. I wonder why this concept seems so hard for some people to grasp?
Please tell me this guy is a liberal. Please do not tell me it is a conservative.
Does anyone know?
He is a Demonrat. His Demonrat roots go back a generation - his father was governor of Arizona back in the early '60s.
Thank goodness.
Perhaps I should send him Thomas Sowell's "Basic Economics:A Citizen's guide to the Economy"
Oh, I forgot. Liberals don't read anything but fiction.
Shortly after the cap took effect on Sept. 1, average Hawai'i retail prices soared to a record high $3.68. Now they've dropped to below $3 and are likely to go down another 18 cents this week. But is that volatility beneficial?
"People are rejoicing it's under $3 (a gallon), which is pretty ridiculous," said Keoni Soares, 33, a telephone company manager who drives a Honda Accord. "It's because of the gas cap we got pushed up to $3.60 a gallon."
An Advertiser review of AAA retail price data shows the price gap widened between Hawai'i and Mainland gasoline as exaggerated price swings roiled the local market.
The Advertiser review revealed:
The cap's goal of having Hawai'i's retail gasoline prices track with Mainland markets is working. Average prices are following Mainland trends, albeit on a lag of seven to 10 days.
The average difference in prices between Hawai'i and the U.S. grew to 50.4 cents a gallon under the cap, from 45.3 cents in same period a year earlier.
Hawai'i went from being one of the most stable pricing markets in the nation to becoming one of the more volatile.
In September and October of 2003 and 2004, Hawai'i's average gasoline price moved within a 7-cent range.
After the cap was imposed, the volatility of Hawai'i gas prices increased ten-fold. During that time period that Hawai'i prices traversed a 75-cent range, the national average moved within a 44-cent range.
STILL THE HIGHEST
To be sure, September and October were two of the most chaotic months for the nation's fuel market because of pricing fluctuations caused by hurricanes Katrina and Rita.
Still, Hawai'i's gas prices moved more than Mainland prices and remain the highest in the nation.
Terry Goddard is a liberal and Democrat.
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