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.
Define "big" profits.
You see, that's an emotional rather than a quantitive term.
Just like that hypothetical "fair share" of taxes that we're supposedly not paying.
I certainly hope that they're making more than just what they'll need to replace current inventories with more expensive product.
After all, they have other things they have to pay for such as rents, utilities and salaries.
I wish there was much less prevalence of environuttiness in the gasoline biz. Environuts deserve a large portion of the payback. All of this fussiness about blends, and madness about never drilling for oil on the California coast or building more refineries anywhere in the USA, is buying us exactly what?
What does charging excessive interest rates have to do with this article.
Other conversation has made it clear that he has contempt for the bible. The bible, in that sense, is a mirror.
I wish they would just be honest, and rather than make up claims about how evil the oil companies are without facts, they would just say "Gimme Gimme Gimme" which is their real position.
There is one thing for there to be a "law" or "principle" -- there is another thing to view the end as the summum bonum. You are disingenuously confusing the two.
The reason is simnple...they can NOT scrape up the money on the front side to purchase the product and turn around and sell it to cover the last tanker and make enough money for the NEXT tanker purchase. Each new tanker load is getting MORE expensive and with acts of G-d or unplanned events (damaged pipelines for example or refinery fires or explosions) suddenly the price of gasoline can rocket out of control...
SOON the only people selling gasoline will be the ones who refine their own and limit their sales to the Ma and pa stations...you won't see Kroger (grocery stores) selling gas or small convenience stores...THEY CAN'T come up with the money to pay for it up front...and stay ahead of the expense.
AND while you are worried about feeding your gas guzzling automobile...have you thought about the real problem...heating oil...bad winter = dead people up north.
It's not really hard to understand. The buyer wants the lowest price possible, and the seller wants the maximum price possible. Where they meet is the market price. Lower it and you reduce the incentive to sell. Raise it and you reduce the incentive to buy.
I think maybe he just has contempt for you, although all the damn smoke in the thread between you two makes it hard to tell.
Trust me, friend, I'm not one who'd look to the government for a solution to this problem. I'm simply suggesting that those here on FR who trust that the great laws of economics will best solve the gasoline problem might be overlooking the fact that this particular market isn't a textbook free market. This market is just a bit unusual---thus, the laws of economics might play in this market unusually.
All other things being equal and keeping all variables constant, I'd say "absent any other force" is the crux of the matter. :-)
The political force of people ticked off at paying what they believe is an outrageous and unfair price for a necessity will result in an unwelcome intervention by government. The only question is at what level of outrage will people act to force politicians to intervene?
Markets are not inherently rational. They simply work better when they come closest to being rational. But, the psychology (politics) of buyers and sellers cannot be factored out. It has to be factored in.
If he were around to talk about it, Nixon might provide unhappy testimony to the power of political demands upon a once economically conservative president. Remember his wage-price board? Such foolishness most certainly could happen again.
Gouging, or the mere perception of gouging, is not only possible, it is an enemy of the free market and a free society.
IMHO, of course. :-)
No, that's why you join or contribute to the local fire company. Remember those iron wall placques on people's chimneys ? All to let the local fire co know you support them financially, so you get good service. Don't want to contribute every year ? Then why would they want to help you. Rather pay taxes for service - so your contribution is "forced". Any way you look at it, you'll pay. I'd rather it be voluntarily. There are many creative ways around a problem if you leave people alone to find it.
Indeed there appears to be quite the personal vendetta in many of his charges.
That was pretty good funny come back...
Economics is a social science, my friend. Not much different than political science. Drawing an analogy between its laws and the laws of physics is somewhat disengenuous, don't you think?
Might I suggest a good immersion in the works of Adam Smith and F.A. Hayek, who seem to understand it quite well.
I consider "The Road to Serfdom" to be the most important book written during the Twentieth Century.
"A society will not last long," he said (I paraphrase), "if it is filled with otherwise intelligent people whose response to a bread shortage is to burn the bakery to the ground."
LOL. Thanks for the compliment.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.