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In Defense of Price Gouging
American Enterprise Institute | John Lott

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.


TOPICS: Business/Economy; Crime/Corruption; Culture/Society; Government; News/Current Events
KEYWORDS: aei; gasprices; johnlott; pricegouging; sonyajones
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To: flashbunny

Cast an aspersion, get a response. Cast no aspersion, get no response.


281 posted on 09/01/2005 7:53:59 AM PDT by HiTech RedNeck (No wonder the Southern Baptist Church threw Greer out: Only one god per church! [Ann Coulter])
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To: HiTech RedNeck
Thanks for making it clear that this Economius of yours cannot tolerate laws against adultery. Hey, the Market is all.

Recognizing that there are certain economic realities such as the Laws of Supply and Demand, and that markets are efficient (if not always socially optimal) does not constitute a worship of your imaginary idol "Economius". Or do you also think that Sir Isaac Newton was secretly the High Priest of the god "Gravitas"?

282 posted on 09/01/2005 7:54:13 AM PDT by VRWCmember
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To: chronic_loser

For the real deal, check out my friend Walter Block's 'Defending The Undefendable'.

http://www.amazon.com/exec/obidos/tg/detail/-/0930073053/102-7523371-6069759?v=glance

A review:

Just how far can the principles of individual liberty be pushed? Walter Block pushes them just as far as he can in defense of the activities of scallywags, rogues, rascals, and scoundrels. From the premise that activities involving force and fraud are outlawed, Block defends all of those "capitalist acts between consenting adults" that horrify right-thinking Americans by showing that they are actually beneficial.
"An outrageously funny yet ruthlessly logical book... If libertarians can't speak out forthrightly for individual freedom in unpopular areas, we haven't the courage of our alleged convictions. This book ought to be the cutting edge of the libertarian movement for years to come." -- D.T. Armentano

"Walter Block argues that some of the most socially offensive members of society--including prostitutes, libelers and moneylenders--are 'scapegoats' whose actual social and economic value is not being appreciated. Startling and illuminating! Block's lucid defenses often convince; sometimes they lead us to sharpen our attack. In either case, the reader cannot fail to be instructed and challenged by this mind-stretching, provocative, and occasionally infuriating book." -- Robert Nozick

"This witty and wonderful book is a veritable manual of the 'joy of freedom.' If we were only half as interested in liberty as in lust, we would not have half the problems we have." -- Dr. Thomas Szasz

"It is a magnificent book, a trailblazer. I would call it 'Drano for Clogged Minds,' except that Drano is neither amusing nor stimulating, and this book is both. Buy two copies--one for yourself and one for the person you want most to catch up with you." -- Roger Lea MacBride

"There are things that I strongly agree with and things that I strongly disagree with, but the book throughout is amusingly and sharply reasoned, courageous and always provocative." -- Henry Hazlitt

"Defending the Undefendable made me feel that I was once more exposed to the shock therapy by which, more than fifty years ago, the late Ludwig von Mises converted me to a consistent free-market position. Some may find it too strong a medicine, but it will still do them good even if they hate it." -- F.A. Hayek

"Until Prof. Block's book, no economist had the courage to tackle the moral and economic status of the dozens of reviled and misunderstood occupations in our society." -- Murray Rothbard

Professor Block clearly shows how ruthlessly raising prices in these circumstances is not only ethical, but is the optimal ethical action, since it encourages substitution, and therefore produces a better overall outcome.


283 posted on 09/01/2005 7:55:25 AM PDT by headsonpikes (The Liberal Party of Canada are not b*stards - b*stards have mothers!)
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To: HiTech RedNeck
Then the society that Jesus spoke of bringing is Satanic.

OR you radically misrepresent the society Jesus spoke of....

284 posted on 09/01/2005 7:55:42 AM PDT by chronic_loser
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To: VRWCmember

Welllllll. This is the second time I've seen a reference to a Gravity god.

The existence of Gravity does not mean we are obligated to all lie upon the ground for our entire lives!


285 posted on 09/01/2005 7:56:33 AM PDT by HiTech RedNeck (No wonder the Southern Baptist Church threw Greer out: Only one god per church! [Ann Coulter])
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To: chronic_loser

No, it has elements that are very socialistic.


286 posted on 09/01/2005 7:56:55 AM PDT by HiTech RedNeck (No wonder the Southern Baptist Church threw Greer out: Only one god per church! [Ann Coulter])
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To: flashbunny
Not a good example, so the argument is not a good one.

But go ahed, lets hear it for pimping.

287 posted on 09/01/2005 7:58:35 AM PDT by KC_Conspirator (This space outsourced to India)
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To: HiTech RedNeck
Well there could have been a limited quantity sales policy too.

Yes, and Joe would bring his wife, their kids, their neighbors' kids, their dog, and their cat, and each one would buy the limit at $1.50 and still load up his truck. All this does is create more middlemen like Joe. Still, I run out of inventory and many people have no bottled water available to them unless they are willing to bid up the price at which these new middlemen are willing to sell.

288 posted on 09/01/2005 7:58:53 AM PDT by VRWCmember
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To: HiTech RedNeck
Well if you provided the slightest hint that prostitution should not be allowed despite the "law of gravity" market that is the Law of All, I should take back my statement as mistaken.

I already answered KC's question, but this deserved its own reply. I support laws against prostitution, but I realize that it's my religious view overcoming my general pro-freedom attitude. So lets turn the question back on you: do you support laws mandating that a boy marries a girl if he sleeps with her? My religious views also make me inclined to outlaw adultery and fornication. Would you like it if you were banned, by law, from sleeping with your girlfriend? Or forced to marry her because you did? Before you slap someone in the face with morally-based laws like prohibition of the "sex trades", you should consider that that knife cuts two ways.

I honestly see the legalization of prostitution as neither better nor worse than the legalization of fornication. I'd like to see both banned. But I realize that it's a bit of a contradiction of my libertarian bent. And if you insist on legalizing one, I'd say I mostly have to yawn over the question of legalizing both. I'm surrounded by fornicators, so who cares if some of them are, in particular, paid fornicators? It's yucky either way.

289 posted on 09/01/2005 7:59:09 AM PDT by Shalom Israel (Pray for the peace of Jerusalem.)
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To: JustAnAmerican
There really is nothing to prove, my post was in reference to your post, which unless I missed something was hypothetical. Unless of course you want to go back to the source of your article and have them post a Proven, factual statement. Until then, please stop with the "Sound Bites".

I just went up to the corner gas station for a look see.Yesterday all the stations were packed.Gas was between 279-2.99. Today at 3.29 there were two people getting gas.

So I don't know if the difference today is the price or everyone is full and doesn't need gas.

290 posted on 09/01/2005 8:00:43 AM PDT by SeeRushToldU_So (It is hotter than two rats screwing in a wool sock in GA.)
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To: xzins
I mentioned Thomas Sowell's "Basic Economics".

A price is an INDICATOR. He then gives an analogy involving body temperature (fever).

Would somebody who has the book close at hand please look it up and post the pertinent comment?

291 posted on 09/01/2005 8:02:14 AM PDT by George Smiley (This tagline deliberately targeted journalists.)
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To: KC_Conspirator

Yes, it is a good one.

There are all sorts of legal jobs that many people would consider degrading or unpleasant, and pay very little. What is in common is that no one is putting a gun to their head and forcing them take those jobs.

Free will. God's gift to us all...and it comes with consequences.


292 posted on 09/01/2005 8:03:12 AM PDT by flashbunny (Defending the free market on FREE republic is like having to defend the flag at a VFW convention.)
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To: HiTech RedNeck
No, it has elements that are very socialistic.

On the contrary! First-century believers adopted a communal lifestyle, but that wasn't at all socialistic, because it was strictly voluntary. Read Acts 5:1-5, noting particularly verse 4. "While you owned [the house], wasn't it your own? And after it was sold, wasn't the money still yours? So why lie about it?"

293 posted on 09/01/2005 8:03:43 AM PDT by Shalom Israel (Pray for the peace of Jerusalem.)
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To: amosmoses
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?

Markets and the price mechanism ration much better than governments do. Who is the "little guy" in your question? The owner of the local convenience store? You want him to sacrifice by forgoing the increased profits of selling at the market price so that other people can buy up his stock and make those profits themselves?

294 posted on 09/01/2005 8:04:34 AM PDT by VRWCmember
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To: George Smiley

I don't have the book.


295 posted on 09/01/2005 8:06:44 AM PDT by xzins (Retired Army Chaplain and Proud of It!)
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To: flashbunny

Price gouging is illegal. Plain and simple. As is pimping. Please don't donate any time or money to the relief effort. You'll pollute the effort by just touching anything.


296 posted on 09/01/2005 8:07:37 AM PDT by KC_Conspirator (This space outsourced to India)
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To: KC_Conspirator

Luckily for you ignorance is still legal.


297 posted on 09/01/2005 8:09:02 AM PDT by flashbunny (Defending the free market on FREE republic is like having to defend the flag at a VFW convention.)
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To: soxfan
Just file away this article away for when Texas politicians and special interests, etc., start cry-babying and lobbying again for federal government intervention to bail out their stagnant local economies after they overreach - just like they did in the 1980s after the price-gouging during the 70s.

But doncha think them rusty rigs up and runnin again, pumping good ole Texas crude out of the ground, won't look perty?

Bet there'll be plenty of once too expensive extraction methods suddenly able to turn a profit . . .

While the steep prices are hurting motorists at the pumps, it's a boon for oil producers in West Texas.

The gambling spirit is thriving again in the West Texas oil fields. In the Midland/Odessa area, oil field consultant John Bell is trying to bring two oil wells back to life for his boss.

"If I can fix it, then I can start making him another 50 to 100 barrels a day, then he'll be happy!" Bell said.

These wells haven't pumped oil in more than five years. But high oil prices have inspired oil producers to upgrade equipment and get old pumps running again.

Bell has spent $200,000 on his wells in the last three weeks.

"With low prices I wouldn't be on this project. We wouldn't be out here. We wouldn't be talking about this," he said.

The true sign of a booming oil industry is how many drilling rigs are running. In West Texas, more than 60 rigs have started spinning into the earth in the last 18 months.

Don Sparks is drilling two wells a month, spending more than $1 million. But it's getting tougher to get the equipment he needs. He had to buy steel casings from a vendor in Eastern Europe.

[. . .]

There's an old saying in the West Texas oil patch, that life in the oil business means you're either eating chicken or feathers.

1 September 2005

298 posted on 09/01/2005 8:09:15 AM PDT by Racehorse (Where your treasure is, there will your heart be also.)
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To: KC_Conspirator
Price gouging is illegal. Plain and simple. As is pimping.

Yup. As is owning an "assault weapon". As is self-defense, in may locales. As is farming your land, if it happens to have ducks or snail-darters on it. As is living in your house, if your house happens to be in New London, Ct. Lots of things are illegal. Many of those things are also immoral, but not all.

Were you a virgin when you married? If unmarried, are you a virgin now? When I'm king, markets will be free, but fornication will be illegal. Better buy lots of soap for your cold showers...

299 posted on 09/01/2005 8:10:39 AM PDT by Shalom Israel (Pray for the peace of Jerusalem.)
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To: flashbunny

Right. Alberto Gonzalez, Attorney General, just got warned by Bush to prosecute "price gouging". In fact Bush, made a public statement on this. Make sure you let them both know this.


300 posted on 09/01/2005 8:11:21 AM PDT by KC_Conspirator (This space outsourced to India)
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