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.
Which happened several decades after the Church came into being.
Not even ONCE did God call for Christians to do this. You are the one with the simplistic view.
The same God that just did this to the Gulf Coast? That God? Or maybe you're thinking of some other God?
Oh, the irony.
There is another thought here that this is just the kind of situation that our "Conservative" brethren in Washington have been waiting for.
They have already proved beyond a shadow of a doubt that they are NOT in favor of smaller less intrusive government.
Yes, the dollar amounts for gas are terrible, but interferring with it via price controls is assinine. Unless of course you are looking for a reason to step in and control something.
Um, yes, exactly as Christ predicted in Matthew 24. And again, not coincidentally, those "several decades" are exactly the time period during which the gospel was preached throughout the empire. In other words, until the message reached every locale that Jews were found, the temple was left standing for their benefit. Once the word was properly spread, the grace period ended, and the "times of the gentiles" began. They started ending in 1948, because Christ's coming is near.
But I'm done answering you; it's amazingly boring to have to explain the ABCs over and over and over...
Best I can tell, they were visited by a Prior, received gift of widsom from the Book of Origins, pledged eternal love and devotion to the Ori, and the whole thread was spirited away in a blinding flash of glorious light.
Some claim to have ascended.
I think they're faking it.
Then they need to rethink their priorities
True. Perception is all.
It didn't last since there were stations selling for $5.50 less close by.
QT near me $3.25/gal reg this morning
Fine I was trying to be succinct.
I suppose they could offer their firstborn in barter. But there is no way to shove it into the cash register.
Or they could drive less or they could give up beer, lotto tickets, and cigarettes or they could give up eating out or they could stop going to the movies or they could look for a higher paying job or they could try working overtime or they could eat less high off the hog or they could demand to pay lower taxes or they could wear cheaper clothes or they could give up cable TV or ...
In a disaster area, where it's not possible to get at cash at all, your suggestion is ludicrous.
Does anybody remember the number of the last on-topic post?
There is a topic here?
Hell, I started the thread and can't remmeber the topic.
Prices are simply the messengers bearing the news about current supply and demand in a market. They're the result of natural, immutable economic laws at work.
Just as you don't declare a jihad against gravity when you drop something on your foot, high prices should not elicit hatred of the fundamental laws of economics.
I know - emergency response facilities and capabilities really are local. I used to live on a farm where the insurance rate was contingent on the pond being available at a certain level for fire fighters to use in case of fire.
However, I think volunteer fire departments do a bang-up job of serving the community, and the ones in my community, at least, get tax money as part of their funding because they serve the local governments as well.
That's fine, unless in being succinct you lose the meaning. There is a distinct and important difference between "demand" and "quanity demanded". The factors that cause a shift in demand are such non-price things as: (1) Number of Buyers in the market, (2) Marginal incomes of Buyers in the market, (3) Price and Availability of substitute or related goods, (4) Changes in Demographics, (5) Changes in Miscellaneous factors such as taxation, weather, styles and tastes, etc.
Many forget that the federal government has been regulating business in many ways including the Federal Reserve, Big business bailouts, Taft-Hartley, Various subsidies, Stock market controls, Anti-trust laws, Anti-dumping laws, etc. The Federal Energy Regulatory Commission already controls prices on interstate pipelines and electricity transmission. Haven't heard any gnashing of teeth over that.
With respect to energy companies, the federal government has bailed them out continually including tax credits and tremendous economic incentives to drill on federal land (which supplies a large part of our domestic oil).
Folks mentioned the oil price controls of the '70s, but apparently don't know too much about them. There were two shortages in the 1970s, the first in 1973 which produced the first gas lines. That was due to a Middle East cutoff, and had little to do with the wage and price controls at the time. After 1973, the Federal Energy Office enacted price and allocation controls on all energy prices. These lasted until 1981 when Reagan terminated them. Throughout the 1970s with full controls in effect, there were no gas lines...until 1979. Those gas lines were produced for about a month when the seven sisters got together to initiate a contrived shortage. It worked for a while and when the price jumped above one dollar, the supply was almost immediately resumed.
During this time, you saw the worst in people. There were stations selling and renting space in the gas lines. There were station operators selling gas for sex. There was violence, threats and several times approached anarchy in areas.
During the downturn of the 1980s, as I mentioned, there were many government incentives to save the industry. Many here would not agree with that, but it happened.
Only a few folks here seem to recognize that what most see as a perfect market is anything but. Oil is the cornerstone of our economy and our security. At best, oil is an oligopoly, which means that it can easily bypass the usual laws of supply and demand. It is so critical to the country that to compare it to bottled water or DVDs as some have is ludicrous.
If the market is as good as some here would believe, why bother with food and water rescue? When the price goes high enough, the food and water will magically appear through the perfect market.
I do find the argument that "price gouging is morally responsible" to be a rather strange view of morality. Why not deregulate utilities? Let your local utility company charge whatever it wants for electricity, gas, water, to see how well the perfect market works.
Most here are forgetting the concept of price elasticity. Completely inelastic products do not work well in the perfect market, since there are no alternatives. Such products (oil) can and do produce social problems when either price or supply dramatically change. Rational markets (as discussed by many here) do not create anarchy. The government clearly has some responsibility to prevent chaos and anarchy. If that includes some involvement in an already highly regulated market, then so be it.
The fact that the fed has intruded itself and disrupted markets is NOT an argument for them to do it more. That is like justifying shooting my kids because I already killed my wife! No one I know of is arguing that this is a temporary failure of a free market. Rather, it is the result of 15 years of artificially tamping down supply (no new refineries, refusing to permit drilling, no new nuke plants, boutique blends of gas for different sections of the country) and expecting the price to remain constant. That is lunacy. this statement : With respect to energy companies, the federal government has bailed them out continually including tax credits and tremendous economic incentives to drill on federal land (which supplies a large part of our domestic oil). can only be considered even partially true if you start with the position that a portion of a business revenue stream "belongs" to the fed and they "subsidize" you by graciously allowing you to keep it.
Again, NO ONE here thinks oil is the "perfect free market." I have no idea where you came up with that. What we are aguing for is LESS of what made the patient sich in the first place. Proponents of gov. regulation are saying "maybe a little MORE poison will work!"
Your arguments re: public utilities is silly. These never claimed to be market participants. If you want to fight a straw man, maybe someone else will pick up the challenge. I don't have time for silly stuff like that. Nor do I have time for someone who doesn't see the difference between the 2000+ suppliers of crude I saw in Tulsa OK alone, feeding into the different refineries, purchased by the big oil guys or the independent stations, and a municipal water supplier. I will just have to let you figure that out on your own, or continue to attack a straw man. Your choice.
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