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.
And, if laissez-faire economics is the all saving god, why did there have to be rationing during WWII?? Oooooops, there is this little thing of an army and a navy to feed. Or else there won't BE a nation to worship Economius any more.
Some items are strategic enough to the survival of a nation to be worth the government "meddling" in their economics.
exactly.
However, some people will tell those economists, who hold doctorates and chaired economics departments, that they don't know what they're talking about.
Some guy with a computer, an internet connection, and an empty gas tank obviously knows more.
Barbarians who were uneducated in the basics of economics.
Actually, Israel was only forbidden to charge interest to other Israelites. There was no moral opporbrium attached to charging foreigners interest. There was also no immoral fed creating fiat paper money on a fractional reserve system, thus inflating prices to the point that less than 4% interest on a loan is actually losing money.
Biblical economics is not his strong suit.
That merely means that gas is a relatively 'inelastic commodity', like water. People may conserve, but they will still end up buying some regardless of cost. But that *doesn't* somehow cancel out the market forces that set price. There is still competition, for example.
Since you don't think that "the market will take care of itself", what do you propose doing?
Well guess what, you do not have a mind beam to control the mind of a population as much as you would dearly wish to. So vendors do have to deal with the law of memory, if they expect to continue to do well after the disaster is gone. There is an unwritten law of disasters in civilized societies, that nobody may exempt themselves from suffering from the burden of helping the whole during same. Those who disregard the same, will pay.
Platitudes, yes; TRUE platitudes. Unlike your worship of Economius as the Chief God.
"The subject, however, is whether or not gouging is something which should be defended as a good and natural thing."
Fair point. I would answer that "gouging" (merchants setting the price for the goods they sell at any level they wish) is neither good nor bad. It just is.
In a free society, absent any other force, it is impossible to gauge a persons "need" for a gallon of gas in any other way but price. The objective of the market is to provide every consumer with their "need". Some people "need" gas at more than $6.00 a gallon in Atlanta (at least last night)..... sounds crazy, but if that station sold at $2.00 a gallon, there would be no gas - because consumers are every bit as "greedy" as the merchant and would have bought the gas even though they didn't "need" it.
Prices will go as high as people are willing to pay. We'd all be surprised just how hight that price actually is for a gallon of gas.
There didn't have to be rationing. Or price caps. Roosevelt wasn't exactly the greatest president ever. The market would have adjusted, probably in more efficient ways without it.
Unless you now want to cite the policies of a president who started the welfare state as shining examples of how to run the country?
You know not what you speak of. This has been covered many times in the past, and the free market side has examples to back up the theories. All the "they're gouging us" side has to show is anger and rhetoric- and a complete abandonment of facts and logic.
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".
"Price gauging" is simply hoarding which is done by the stores instead of by the public.Price gouging is refusing to sell something at the usual price when the customer would like to hoard it.
In this sense you are like a socialist, arguing to fix the problem with the thing that created the underlying problem in the first place. Real bright.
Indeed so, and from that arose the caricature of the Jewish moneylender. What they gained in gold they lost in image.
zdravzvoitze comrad. I'm with you! Let's have price controls and Soviet style lines and shortages. I'd much rather have no gas at all priced at $2.60/gal than plenty of gas to $4.00/gal. < /sarcasm>
The gas stations are entitled to whatever the market will bear and as far as your looters they should be shot on sight.
Oh, no, there would automagically be enough supplies to allocate to the military. Economius will do so. His prophert Flashbunny told us so.
A transparent smear-by-association.
An interesting sidenote - link to listing of the 20 largest oil producing nations as of 2002
http://www.gravmag.com/oil.html#producers
Good question, I am not for Caps or the like because I don't believe they would work, I do believe that if the government wants to do something they could just put out a public list of who the biggest gas shysters are. That and press charges against the most idiotic cases out there. For example, $5.00-$8.99 a gallon prices.
Personally I would be willing to bet that the Oil companies had a hand in starting this shortage rumor.
Shouldn't that be tovarich?
Or in his case gospadin?
You either trust "Economius" or some diluted version of Marx. Adam Smith (who was a presbyterian theologian, by the way), argued that there was an "invisible hand" directing market economies for the good of the markets. Like I said before, your references to "usury" show that biblical economics is not your strong suit.
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