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.
But those who do have committed the sin of blaspheming the god Economius.
It's the loss of cash flow that puts you out of business.
Any street vendor in Mumbai or Calcutta can tell you that one!
The other big problem is not being able to obtain stock. There are two reasons for that ~ 1) short supply, or, 2) no supply. In the Great Depression, as it began, folks were unable to differentiate between "short" and "no". Once they figured it out all they could do was "dump stock" at less than the price of current acquisition and hope to escape with something. The result of this practice on a wide scale throughout the economy was deflation. This, in turn, did not increase the availability of goods. Which, of course, takes us back to cash flow as a problem.
The rule is, it doesn't matter how low the prices are if you have no cash flow!
That Jefferson thing was not a question of the duties of government but rather the duties of the federal government versus the states, or other entities.
1) shortages
2) a feeling of smug satisfaction among halfwits who have no understanding of how markets work but only know that they resent the "big guys" taking advantage.
Evidently,2) above is sufficient moral justification to allow 1) above to exist....., at least in the minds of some posturing politicians and the airheads who listen to them.
It's always forgotten.
In other words, you agree that there are more answers to the conundrum, than gouging when predicted replacement costs go up. You assumed fixed volume of unit sales in your formula didn't you??? Admit it.
You have a very tunnelvisioned understanding of real world when you claim that.
I have no problems with state governments offering aid, morally or constitutionally.
Thank you for the correction.
Jefferson was so well regarded by the framers that his friend Madison wouldn't tell him he was Publius.
Madison kept the truth from Jefferson until the newspaper articles were sent to the press for publication in book form.
But there is another side to that coin. When everything settles down one would hope that people would have memories and by that I mean they should vote with their walletts by remembering those charging usury prices and those simply charging what the market will bear. There is a difference.
100% of what I said is based on my Great Grandmother's experience in going bankrupt in 1931.
nice!
Sorry, have to disagree. It is still there. It's headquarters are still in Rome, just goes by a different name.
Otherwise, there'd be no Mitsubishi, Krupp, Bayer, etc.
One thing that all the "It's not really gouging", folks seem to be missing here is that gas is not a Luxury, it's a necessity. If it were T-Shirts or some other item that people did not need in order to survive, I would have to agree with the market will take care of itself statement.
No, no, it's headquarters are in Athens ~ (as confusing as that might be).
"I just checked a map .
Can,t find any Roman Empire ?
Wonder why?"
So if only they would have sold gas at the price YOU wanted to pay, things would have turned out better?
Those people fit into category #2.
But would they have been greater had not many people had memories?
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.