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.
That's called "rent seeking"; so-called capitalists beg the government to indulge in just-a-teensy-bitta fascism for their benefit. The long-term solution requires depriving government of the power to do these fascistic favors.
But do you really think the MSM is going to put the blame on the environuts?
Not any more than they will put the blame for millions of Third World deaths due to malaria on Rachel Carson and those who believed her.
The price of gas went from $2.69/gal to $8.99/gal (at one station) in 12 hours. BUT
SO WHAT?
Scarcity increases price. Increasing price decreases demand thus reducing scarcity. Increasing supply lowers price.
Your strawman that any dare by mortals to meddle in the affairs of Economius, no matter what the scope, will bring an end to the whole society, is so laughable it does not require further answer from me. It is self-disproving; there has NEVER been a society that has operated by your lights.
Uh.
Ok.
You REALLY have some issues.
You certainly do.
Except for those whom it has priced out altogether.
Part of this crunch is caused by people's own choices in where they want to live, what they want to drive, etc.
Those of us who need a vehicle which does not get the greatest mileage, or live/work in areas which have limited options for alternative transportation have been paying for the whims of the masses for a while, now, and will continue to.
I must say this, though. I am simply stunned at how many people who claim to be conservatives were/are screaming for the government to intervene the second gasoline prices started going up.
No one complained at paying $19.99 for a hollywood DVD (cost to produce? about $1.00)
I don't recall much griping when the 4WD was weenied out to the SUV and the price went up 4 fold.
I don't even remember hearing people carp about the price of bottled water at $7.00 per gallon (Evian, convenience store prices, by the liter). Amazing, simply amazing.
: ^ )
At least you didn't quip that if all the economists in the world were laid end to end they still wouldn't reach a conclusion, or that you can know where a quantum physicist is, or which way he's travelling, but not both.
The law of gravity and the law of supply and demand are both logical constructs which were developed to explain certain observable and reproducible phenomena.
Having said that, I find that the Austrian economists have created conceptual models which reflect reality far better than any of the other schools.
And my quip about dizziness was meant to comment upon what appears to be a common phenomenon:
the loss of critical thinking skills induced by the viewing of the numbers displayed upon a gasoline pump.
Not just that-
The belief that scarcity exists will also increase price.
Seriously.
You make bogus economic arguments based on emotion, jealousy, and anger, instead of repeatedly proven facts.
When called on them, you raise side issues as a distraction.
When called on them, you abandon the side issues.
Then you somehow find a way to cite God or the bible, as if He / It is endorsing your misguided views like a celebrity endorses pepsi or coke.
Then you just get snippy and start attacking, like the true "christian" you are.
well said!!! I like it.
Looting and price gouging= taking advantage of a bad situation.
Helping the supply chain can be part of that formula, but if governmental resources (read people's taxes) go into that, we jolly well have the right to expect a quid pro quo from the business being helped.
This I agree with.
$8.99 is a bit over the top, imho.
BTW, I am from North Dakota, If we want to see a hurricane here we either have to travel or watch TV.
Increasing price here will do little to decrease demand. There are no public transportation systems, and everything is pretty far apart. You still have to get to the places you have to get to.
Tell me what a "Christian" is, if you are such an expert.
Document any jealousy that I expressed.
I dont think the service stations are getting rich .I'm asking abou tthe oil companies themselves ..the big shots...I'm simply asking if part of the high prices are simply for profit above and beyond the expense of the supplies . It seems to me that some here are saying that the high prices are simply to cover expenses and that the big oil companies are simply covering expenses these days and not pocketing even more money because of the situation.
By the way I'm up north and I'm just imagining my heating bill for this coming winter.
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