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.
This statement alone pretty well ruined any "Logical" statement he/she/it was trying to make. How about the poor slob who, since this is close to the end of the week, has maybe $5-$10.00 in their pockets?
Guess it's really sad now that the "Elite" folks can't buy gas because they loaded up, but poo-poo to the poor slob who can't buy the gas needed to to go work because some friggin shyster raised "it's" prices to $5.00+ per gallon.
We can only hope Top.
There is no DOUBT profiteering and Gouging is going on... watch my local gas stations go from 245 to 2.69 to 2.99 same gas station over just a few hours.... No way they were taking new higher priced shipments in between the increases....
I feel for folks actually trying to survive down in the actual devestated zone, if they are willing to gouge wantonly thousands of miles away, lord knows how bad its got to be in the gulf coast area.
I want to know the name of EVERY company, franchise etc that gouges these people... So I can make it a point NEVER EVER EVER to spend a dime at those companies or subsidiaries again.
There's more than one way of controlling prices. Nixon's way was stupid-- anyone who raises the asked-for price goes to jail. The better way is to get the word out on who's selling what and where. The definition of 'pure capitalism' is a situation where sales are made where no one seller and no one buyer can affect the price. We need that restored before we need electricity.
"This same market that these companies paid lobbyists on Capitol Hill to shut out all competetors."
Politics distorts free markets. That lobbyists are paid at all is proof of this.
"Go to hell you bum."
Anger is often the first step to learning. Welcome to economics 101.
No argument from me.
The subject, however, is whether or not gouging is something which should be defended as a good and natural thing.
I doubt even Adam Smith would defend pirates.
Politicians can either leave it alone, or create shortages. That's it. Most of them will opt for the former, while pretending to take action to magically reduce prices and increase availability.
Again, no argument from me.
Even during World War II, when the need for intervention was obvious to most people, wage, price controls and an extensive rationing system gave birth to black markets and profiteering. But the controls were required to distribute goods where they needed to go and still provide the folks at home with some sense of fairness.
There's a reason Adam Smith is known as the first political economist. Economics is not a science and neither is the operation of markets.
But again the problem is self limiting. Once all the empty tanks are filled, nothing else remains to fill.
They are training the public not to be like foolish children. Not to panic like ninnies on rumours.
Hugo Chavez comes to mind, sad to say. :-)
Prove it.
In fact, the ancient Hebrews didn't do so to one another, and somehow they got along.
Lott should stick to writing about guns.
For those who are railing against "price gouging" ask them this simple question: "Would you rather be able to buy all the gasoline you want (need) at $6 a gallon or NOT be able to buy any gasoline at $3 a gallon?"
And those that ignore the laws of economics in the name of populism are doomed to reap the disasters of their misguided policies.
What's better: Buying gas at $3.50 a gallon, or no gas at $2.50 a gallon?
The free market is the ultimate rationing system. In times of crisis, it forces people to make the hard choices between 'needs' and 'wants', conserving scarce resources for the people who actually need them.
The sheeple learn nothing.
There are other laws, such as the law of memory.
Another economist, Walter Williams or Thomas Sowell has also written about why "price gouging" is good:
The increase in price caused by demand exceeding supply results in an increase in the rate at which additional supplies of the commodity in question will arrive in the area with the shortage.
The increase in price also helps to discourage hoarding.
How about articles by a doctor of economics that conclude the same thing?
Or maybe the economist should stick to talking about economics...or something.
nice platitude.
It, however, is useless when there is an actual event that constricts the available supply of a commodity.
But, by all means, keep coming up with them. Maybe you can fill up your gas tank with them.
John Lott is the author. I checked, wondering if it might be Walter E. Williams.It takes courage and principle to resist the left-wing pressure of "objective" journalists and the politicians like Hillary who sail down the resulting propaganda wind. Anyone with that sort of courage and conviction will be called a right wing extremist by Hillary and the "objective" journalists who promoted the fraudulent 60 Minutes hit piece on Bush which was designed as the Democrats' 2004 October Surprise. Same people who tried to spike the SBVT at the same time.
Claiming objectivity only proves that you are not objective.
"O’Sullivan’s First Law" states that"All organizations that are not actually right-wing will over time become left-wing."
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