Posted on 09/01/2005 4:22:37 AM PDT by chronic_loser
Understanding economics has never been a requirement to be a politician. With gas prices reaching $70 per barrel on Monday and hotels outside of the disaster area raising rates, "price-gouging" seems to be politicians' favorite phrase these days. In the coming weeks, as people living in the disaster area try to get everything from fallen trees removed to food, the outcry against higher prices will only get worse. Yet, if political threats of price controls and price-gouging lawsuits prevent prices from rising now, it is the consumers who will suffer in the long run.
In Illinois on Monday, Democratic Gov. Rod Blagojevich started pressing to prosecute gas companies that profit from the recent price hikes brought on by the hurricane, and he is concerned that some of these increases occurred even before the hurricane hit the oil fields in the Gulf. In Hawaii on Sept. 1, the state government is supposed to begin imposing price controls on wholesale gasoline. Michigan, Oregon, California, New York and Connecticut have also debated regulating gas prices.
Even the Bush administration has gotten in on the act by having the Justice Department and the Federal Trade Commission look for evidence of price-gouging and believes retail and wholesale gasoline prices are "too high." Congress is planning on holding hearings on oil company "price-gouging."
In Texas, Attorney General Greg Abbott is threatening legal action against what he called "unconscionable pricing" by hotels that took advantage of desperate people fleeing the chaos in nearby Louisiana. In Alabama, Attorney General Troy King promises to vigorously prosecute businesses that significantly increase prices during the state of emergency.
You would think that people had learned their lessons about price controls during the 1970s, though memories have surely faded. Price controls didn't stop the cost of gasoline from rising. They just changed how we paid for them. Instead of prices rising until the amount people wanted equaled the amount available, chronic shortages of gasoline had Americans waiting in lines for hours. Yet, the supposedly permanent shortages disappeared instantly as soon as price controls were removed.
The free advice being offered by politicians is that it was improper for prices to start rising before Hurricane Katrina disrupted production in the Gulf of Mexico. But waiting to raise prices means that consumers will end up paying even higher prices when the reduced oil flow out of the Gulf is finally felt.
Higher prices today reduce consumption and increase inventories and thus reduce how much prices will rise tomorrow. The overall increase in price will actually be less.
The possibility of higher prices when disasters strike also gives oil companies an incentive to put aside more gas to cover those emergencies. Storing gas is costly, and if you want them to bear those costs, you had better compensate them. The irony is that letting the companies charge higher prices actually reduces customers total costs when you include such things as having to wait in long lines because there will be more gas available when the disaster strikes.
The American oil industry is no more concentrated when prices started rising immediately before Hurricane Katrina hit than it was two weeks earlier, and oil companies possess no sudden increase in monopoly power. Neither have they suddenly become greedier.
Stamping out "price-gouging" by hotels merely means that more of those fleeing the storm will be homeless. No one wants people to pay more for a hotel, but we all also want people to have some place to stay. As the price of hotel rooms rises, some may decide that they will share a room with others. Instead of a family getting one room for the kids and another for the parents, some will make do with having everyone in the same room. At high enough prices, friends or neighbors who can stay with each other will do so.
There is another downside to price regulations. Companies in states all across the country, hoping to make a few dollars, are thinking of loading up their trucks with food, water and generators and heading down to Louisiana, Mississippi and Alabama. The higher the prices, the faster these "greedy" companies and individuals will get their products down to desperate customers. But their greed means less suffering. The more products delivered, the less prices will rise. Political grandstanding today means future disasters will turn out even worse.
What about the poor?
Making the companies pay for others' altruism not only creates the wrong incentives, it is also unfair. If we need to help out, make everyone pay.
Bashing companies may be profitable short-term political behavior, but the discomfort will be over far sooner and less severe if markets are left to their own devices.
Do you think higher gas prices are simply needed to replace supplys that are more expensive or is it a chance for the oil companys to make a nice fat profit over the situation?
I have and always will be a #3 thinker...
" Try buying eternal life with your dollars sometime."
Wow, your list of platitudes is never ending.
Don't you have something better to do, like protest evil corporations, who act all corporation-y, outside of gas station somewhere?
I'm sure you could get a few of your friend at democratic underground to join you in your fight against the free market.
Well, "right-wing"doesn't mean much anymore except "religious conservative".
This board would be full of socialists if the socialist party suddenly became pro-life.
How very funny you should bring this up in the context of a philippic about how we should bow down before Economius at the scenario of retail prices running up in response to nothing but rumor -- the next load of fuel was not going to cost a dime more than it would have otherwise. Somehow this all manages to inure to the benefit of the vendor. Somehow.
You're right.
It's highly regulated (formulations, etc.) by the government.
In addition, the cost of entry isn't low, either.
That's another factor which limits the relative market freedom.
And when the government tried allocating supplies around the country, guess what happened?
Gas lines- and far worse than what we're seeing now.
Hayek was right when he wrote what he wrote about the knowledge of the marketplace and its vast number of daily transactions being far superior to the amount of knowledge of any individual or groups of individuals who would attempt to control such things (IT'S CALLED CENTRALIZED ECONOMIC PLANNING, BY THE WAY-- Kinder, gentler Five-Year Plans, if you will), and Hayek is still right today.
Just because you feel dizzy doesn't mean that the laws of physics have suddenly changed.
Free markets are not a belief system. Supply and demand is just as real as gravity. That some choose to ignore it doesn't mean it isn't true. It's just that misjudging gravity usually only effects the individual, whereas ignoring the laws of supply and demand have a detrimental effect on many others.
I tell you truth. What you do with it is up to you. I laugh at your shadow.
HOW can a business PAY for future inventory that they have to turn around fro a profit or even BREAK EVEN!
Thats assuming that with higher prices thats all they are doing is breaking even . Do you think they are making big profits above and beyond what they need to replace supplies as well ?
I'm wondering, too, how much speculators like Mark Rich (remember him?) have played in driving up the price of crude oil.
The price of a gallon of regular unleaded went from $2.65 to $3.16 here in 4 days. Price gouging? Nope. Just making sure they can afford the next load. We are on the wrong border for Hurricanes.
Yup
It's simply a matter of time until oil company exec's and speculators have their names, addresses and photos up on some web page, just as have many abortion doctors.
" I laugh at your shadow."
Uh, ok, I chuckle at the thought of you in a string bikini.
Now we're even.
I disagree. It requires faith to put your fait in the hands of a system that no one person can understand. I understand why people want authorities to make the decisions. They are wrong but I understand it.
Oh, so you don't cast a shadow.
We agree for once. Good.
I understand how threads degenerate, but you really are hitting below the belt when you insinuate that people who argue for free markets are only doing so from "greed." 1) it is a violation of I Cor 13:10, which commands you to think the best, rather than the worst, when you approach someone with different opinions 2) you don't have a clue as to his motivations, lifestyle, personal sacrifices. He may give away most or all of his money, for all you know. 3)arguing for principles of personal morality to be legislated into national policy is just plain idiotic. By this rationale, the command to "turn the other cheek" outlaws not only the military, but the police force as well. If you are personally thrifty and generous, GREAT!!! We really need more people like you. "He who gives to the poor (aka "disaster victims) lends to the Lord, and God will not forget his good deeds." Having God in your "debt" so to speak beats AAA bonds any day. Live frugally, give generously, conduct business honestly. It is the ONLY way to enjoy a life of material blessing. However, the politics of ENVY ("I know I can't have it, but since I can't, I don't want YOU to have it either) is hateful, not loving. It has its origins in another "GOD," and his name is not "economius."
Let me ask you something. Let's say you owned a hardware store, and you sold hammers. You sell hammers for 20 bucks, and you have 10 in stock. You think you will probably have to pay more than usual when you replenish your supply, and you are uncertain when your new supply will come in. Suddenly, a bunch of raving morons here some rumour on the internet and flock down to your store waving money in their hands. Are you going to sell all 10 of your hammers at 20 bucks? Or are you going to raise the price to whatever satisfies the demand?
I simply point out that there is an element of selfrighteousness in claims of price gouging.Free market prices communicate scarcity; anything that costs money is scarce (at least locally, consider $1.25 bottles of water). If something becomes more scarce - gasoline after a significant fraction of our refineries are damaged - prices will reflect that scarcity. To complain about the increased price is actually a second guess - after all, you coulda, woulda, shoulda bought a lot at the "normal" price before Katrina changed the situation we're in. But back then, you didn't think that money to build a storage tank and fill it with gasoline would be a good investment. Or else you woulda done it.
To now criticize someone else for doing precisely what you wish you had done is just a bit rich, don't you think?
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