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.
I try to be first in line to apologize if I say something that is incorrect. However, the arguments for government intervention are, in fact, Satanic. That doesn't mean that I expect to have to dodge your projectile vomiting or watch your head spin around. It just means that good people buy into BAD arguments and BAD prescriptions on the basis of emotional arguments, or misplaced emphases about personal priorities and wanting "government" to legislate away basic principles of human behavior. If I am wrong, I will try to be the first to say so.
Therefore, if you were here personally, I would tell you with a big smile and a great deal of personal warmth that your argument is Satanic. By that I mean that it is bad, it won't work, and it brings misery in the name of justice. Nothing personal, just a damn bad argument.
You have a lot more than that statement to take back.
But anyway, enough with you. I've had my fill of holier-than-thou 'pretend' christians for the day.
That is a rather ignorant statement, as is your statement making looting and "price gouging" moral equivalents. You obviously object to the fact that circumstances that lead to a disruption in supply and a simultaneous spike in demand result in increased profits for some sellers. There is an imbalance that will cause prices to shift. Would you prefer that some people benefit by buying all they want at yesterday's prices until all the supply is gone, so others have to do without unless they pay the higher price to the new middleman that bought up all the supply at yesterday's price and can now earn those excess profits himself. Is that better because at least the evil oil company that you hate so much didn't get the excess profits?
There has NEVER been an utterly non-socialist society. Somehow people are painting Capitalism as Jehovah and Socialism as Satan, and never can we see elements of both in service to a society.
He has his detractors on FR, but this disaster has made a very important point.
Even if Landrieu and the assorted idiots in LA were pro life, the fate of the people would have been the same.
The second oldest profession. Are we wrong to outlaw it?
I apologize for my knee jerk reaction. For some people in country its a lousy time to defend 75$ per barrell oil prices.
If I could give gold stars, you'd get one for your most excellenet example.
Also, if you're selling at $15, your cousin is gonna be real happy to load his pickup truck full of $1.50 bottled water from two states over and bring it to you at $7.50 per.
In other words, the net effect of the increase in price will be to increase the supply of bottled water that comes in from elsewhere.
Which will, in and of itself, cause prices to go back down because of an increase in the supply.
That's what we've been trying to say on this thread.
Show us that you believe the whole bible, not just use a snippet out of context, and we will give credence to your aspersions.
A little sacrifice is sometimes in order. Or is that just something "little guy" is suppose to do? What about rationing in WW2? Was that wrong?
Yes, and of course including the freedom to undermine national security.
Oh man, they will tell you 10 ways from Sunday that was wrong. Get ready for the onslaught.
And we're not trying to defend what's going on, just explain it rationally in terms of markets.
If you read the thread, you can see which posters are coming from a rational basis and which ones are coming from an emotional one.
And remember-- this, too shall pass.
Ditto on that. A great introduction to free market theory. Extremely well-written.
Socialism is not capable of standing alone. It is a parasite that can only exist as long as there is saved capital to parasitize or entrepeneurs upon which to prey. Socialism is Satan. And whenever people want to use the power of the state to live at the expense of others, there is eventually going to be blood in the streets.
For the last time, I'm done with you. Have a nice day.
I'd rather take my chances with higher prices. That way the true coffee addicts can have as much as they want, while I switch to Postum. (I actually like Postum. I was a nurses' aide, and my WWII-era patients learned to drink it because of coffee rationing. When they die, I expect it will disappear from the shelves.)
1. Price is not based on fairness. Price is based on what the market will bear.
2. Price is the mechanism that determines distribution; i.e., those who can pay the price receive the good being distributed.
However, someone someplace debates "what the market will bear." They must take many things into account. There are actual costs of purchase, transportation, refining, and distribution of oil/gas. Actual costs would include maintaining the entire infrastructure of a company.
In a crisis it is possible not to have actual costs change at all. Due to the crisis, however, one can run up the price 2,3,4,10 fold over what it previously had been. This might be necessary because of a lower quantity being sold. To maintain the entire company infrastructure, a higher price would have to be charged on the lower quantity sold.
However, there are other issues involved in what the market will bear. There are social and political issues that a wise company would bear in mind. In other words, if it is possible to cover total company expenses and bring in a profit acceptable to the company's accountants by selling at $3 a gallon, yet it is known that one could probably charge as high as $7 a gallon and actually get it because of the anxiety that generally accompanies a crisis, then the company would have to pay attention to the social and political repercussions of that action.
Price-gouging is in the eye of the beholder. I'm sure that's true. But, if the beholder has political power, then the pricer should beware.
Then the society that Jesus spoke of bringing is Satanic. ***DISCONNECTED***
Although I think your question is a red herring, I will answer the "real" question, if you don't mind, which is "are there morally prohibited/proscribed areas of commerce." That answer is "yes." I am not Ayn Rand and not a logical positivist. I believe that the empirical capitalist stands on the platform of morality provided him by historical Christianity, while hacking away at the ground under his feet. I really don't feel like going there, as you already knew my answer, and I would prefer you to argue the point at issue, which is the morality of government intervention in legal markets.
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