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.
Can you give me a good (meaning one that can be used for determining and prosecuting offenders) definition of price gouging?
--Tell me what a "Christian" is, if you are such an expert.--
Why, do you wish to take the thread even further away from the point?
Tired of people revealing your lack of knowledge you pretend to have?
Either back up your insinuation that you know what a Christian is, or else back out of it.
There are two kinds of green activists and both of them are merely tools being utilized to affect policy.
They are not the true problem. The tax-exempt foundations and oil companies who fund them are.
This is a well organized, well funded pincer move against regular American citizens. On the lower level we have groups such as ALF, ELF, PETA, Earth First! and Greenpeace.
On the higher plane are groups such as (but not limited to) the Sierra Club, World Wildlife Fund, Natural Resources Defense Council and the Nature Conservancy. These organizations interface with the EPA, Dept. of Energy, Dept. of the Interior, various UN projects, other governmental agencies (both US and foreign), multinational corporations and grant providing tax-exempt foundations .
These are the groups which lobby for and litigate against changes in policy.
Both prongs of the pincer ultimately serve the same masters whose goal is to control the means of producing wealth. Our natural resources.
But if everybody keeps filling their tank every time the needle drops down to 3/4 the situation will take much, much longer to correct itself that would otherwise be the case.
"I'm simply asking if part of the high prices are simply for profit above and beyond the expense of the supplies ."
Yes.
It's called capitalism.
They tried it the other way in the soviet union.
It didn't work.
Designed for the non-student, and nary a chart or graph between its covers.
Uh, no.
Talk to my shadow. I'm done with you. Get a hobby.
Involve Government in the oil industry at an intimate level and what you will get is FUBAR.
How can the government assist? By getting the Hell out of the way.
"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. "
Not this year. It'll be forgotten (politically) by 2006 elections. (In my humble opinion, as well!)
That, you have to admit, at least, is understandable, because oil, and specifically gasoline, is more-or-less the blood of our modern economy.
To the extent that scarcity causes and imbalance or disequilibrium between supply and demand, you first statement is correct. The second statement, however, is incorrect. Demand does not change in response to a change in price. Quantity Demanded will change. (Demand is the relationship between price and quantity demanded, i.e. it is the whole line on the graph.) When price increases, quantity demanded decreases. But this does not affect scarcity. The only thing that will affect scarcity is a change in supply. This is why even after the price of oil dropped, and the wholesale price of gasoline dropped, the quantities available have not immediately increased, so the supply has not increased. And since demand has not changed, the retail prices of gas have not dropped back down in response to the reduction in input costs over the last day or so.
How much does it cost to refit a refinery that's been seriously damaged?
Those are the oil companies' equivalents to what we've described as the retailers' purchases of their next tanker trucks full of gasoline.
And, if we're going to look longer into the future, we need to consider the general increase in demand from China and India and the effect that is having on crude oil prices.
Bet you don't need to travel to watch tornadoes, though. Or, blizzards. brrrrrrrrr. :-)
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.
Spent a few weeks during the Summer 2001 driving around your part of the country. You're absolutely right.
In this modern day, you can't do without gasoline. For one thing, there's a scarcity of horses and horse-drawn wagons. :-)
The original is a classic however.
Now let me ask you, could someone also write an article titled "In the Defense of Pimping"? All they are doing is finding "market" prices for certain a commodity. Sure, they are preying upong desperate women who need money, but thats the "free" market, right?
Exactly.
Damn freedom.
This will give the "smart growth/sustainable development" advocates more ammunition to push their camouflaged central planning.
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.
It's people like you wot cause unrest. (Sorry, couldn't resist quoting Monty Python as this thread has gotten Pythonesque.)
What exactly are you talking about "paying for the whims of the masses"?
Yes, it is.
Is the person who employs a "desperate woman who needs money" scrubbing toilets and working with human waste for minimum wage "preying" upon them?
How quickly people abandon the concept of free will to suit their own agenda.
This means not even a strategic petroleum reserve.
But the ubiquity of Net connection should make the importance of "where" less important than it is for a whole lot of folks.
I avoided a 35 mile drive to work today by dialing in.
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