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WSJ: In Praise of 'Gouging' - It helps cope with supply shocks and prevents shortages.
Wall Street Journal ^ | September 7, 2005 | Editorial

Posted on 09/07/2005 6:21:41 AM PDT by OESY

...Some 20 states... already have anti-price-gouging laws on their books-- and many governors have declared emergencies to invoke them. These de facto price controls typically place ceilings of between 10% and 25% on how much companies can raise prices in the wake of a natural disaster. In almost all cases such laws are wrong-headed, because they exacerbate supply problems by short-circuiting the price system that matches supply with demand.

...If governments will not allow the price system to ration the demand for gas, a new "price" system will emerge called gas lines....

Let's explain why prices have been rising. Katrina has knocked out about 90% of Gulf crude oil production and about 80% of natural gas output. That translates into about two million barrels a day that are not available to consumers, an 11% decrease in supply. This means that in the near term Americans are going to have to consume two million fewer barrels of gas every day, at least until the refineries are brought back on line and increased output and supplies from other nations arrive. The way the market achieves this reduction in consumption is through a higher price.

The argument is also made that energy companies are reaping windfall profits.... That is in one sense true -- the oil they've already extracted and refined is more valuable now, and we would be pleased to see some of these extra profits donated to the relief effort. But artificially holding down the price of gas makes a bad situation worse.

This is also why many of the nation's governors are misguided, even if well-intentioned, in their attempts to suspend state gas taxes....

[T]he... government has undermined U.S. energy security and raised production costs. These include reformulated gas mandates, prohibitions on offshore and Alaska oil drilling, and environmental regulations....

(Excerpt) Read more at online.wsj.com ...


TOPICS: Business/Economy; Culture/Society; Editorial; News/Current Events; Politics/Elections; US: Georgia; US: Illinois; US: Kentucky; US: Missouri
KEYWORDS: blagojevich; economy; erniefletcher; gasprices; gouging; katrina; mattblunt; oil; praise; pricecontrols; pricegouging; profiteering; sonnyperdue
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When oil was $10/barrel, domestic wells were capped. At $70, there is incentive to reopen old wells and to invest in more refining capacity.
1 posted on 09/07/2005 6:21:43 AM PDT by OESY
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To: OESY

In a competitive market, any "gouging" will take care of itself.


2 posted on 09/07/2005 6:25:20 AM PDT by frankjr
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To: OESY
When oil was $10/barrel, domestic wells were capped. At $70, there is incentive to reopen old wells and to invest in more refining capacity.

Not unless there is some assurance that there won't be a near-term price collapse sooner than the amount of time it takes to reopen old wells and build new refining capacity. Otherwise the hundreds of millions of dollars invested will have been squandered.

3 posted on 09/07/2005 6:33:09 AM PDT by mvpel (Michael Pelletier)
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To: OESY

As my economics professor told us, "Price is the great allocator!"

Let the market set the price.


4 posted on 09/07/2005 6:34:18 AM PDT by Archidamus (We are wise because we are not so highly educated as to look down on our laws and customs)
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To: frankjr

I agree and I do not want to return to Carter days of gas capping (ie long lines and shortages).


5 posted on 09/07/2005 6:35:09 AM PDT by ThisLittleLightofMine
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To: OESY
When Reagan ended Carter's price controls on gas, the lines disappeared immediately and the price of gas gradually went down.

Basic economics should be mandatory teaching in our schools.

6 posted on 09/07/2005 6:36:49 AM PDT by Extremely Extreme Extremist
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To: OESY

"the oil they've already extracted and refined is more valuable now"

Many of the same people who bitch about the high price of gas and the fact that oil companies make money when the market price goes up, are happy to sell their old house for much more than they paid for it when the market price for their home goes up.

Supply and demand. The invisible hand of the market. Much better at allocating goods and services than any other system.


7 posted on 09/07/2005 6:37:48 AM PDT by Archidamus (We are wise because we are not so highly educated as to look down on our laws and customs)
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To: OESY

This is why the price doubled for gas already in the tanks??

Profit taking at the expense of consumers.

Should your local market be allowed to jack up the price of Milk and bread every time there is a weather report a snow storm is coming??

If this is capitalism how come only gas companies can get away with it?

The gas stations in my area changed the prices 3 times in one day trying to keep up with the raises of the oher stations.

OK you want to slow down gas usage when there is a crisis by raising the price?? Fine , lets lower it and make up the difference after the crisis is past instead of putting that money in your pocket. Gas went up $1.00 the first week of the storm , it will takle 6 months to get it back down.If it ever goes down. As prices go up the change is immediate, when prices go down it doesnt take effect for months. Gas companies raked in Billions in profits at the expense of the consumer and this Wall Street article wants to tell us they did us a favor. BS.


8 posted on 09/07/2005 6:40:21 AM PDT by sgtbono2002
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To: sgtbono2002

"Should your local market be allowed to jack up the price of Milk and bread every time there is a weather report a snow storm is coming?? "

Your local market should be allowed to charge whatever it wants for milk and bread, whenever it wants. Period.


9 posted on 09/07/2005 6:44:22 AM PDT by Pessimist
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To: sgtbono2002

A gas station here in New Hampshire bought 10,000 gallons at $3.39 a gallon, and set the price to $3.45 a gallon, but the price dropped over the weekend and now they're selling at a loss at $3.29 a gallon.

Nobody was buying gasoline at $3.45 a gallon, as it turned out.

Poor business sense, on the part of that gas station owner - he's learning a hard lesson as he watches his money drive away in his customer's gas tanks.

The Mobil station in Merrimack simply didn't refill their 93-octane tank over the hurricane week, so you could only buy 87 octane there.


10 posted on 09/07/2005 6:48:01 AM PDT by mvpel (Michael Pelletier)
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To: sgtbono2002
Should your local market be allowed to jack up the price of Milk and bread every time there is a weather report a snow storm is coming??

Only a commie thinks that there is a legitimate question of "allowing" someone to set the price of their own property.

11 posted on 09/07/2005 6:49:09 AM PDT by Sloth (Archaeologists test for intelligent design all the time.)
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To: Sloth

12 posted on 09/07/2005 6:50:26 AM PDT by mvpel (Michael Pelletier)
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To: sgtbono2002
In attempting to isolate yourself from what you might call "looters" taking money from poor consumers, you place yourself in far meaner and more dangerous hands. Politicians and bureaucrats. Combined those two lunchroom thugs -- politico and bureacrat -- will take a dollar in taxes from you year after year to give you a fifty cent gas price break in those brief times of distressed supply or market panic.

Please do not ignore the high and hidden cost of government to set and enforce such price fixing -- on top of the burdens of the aggregate costs of regulation borne by the oil companies, and passed along in higher wholesale and retail prices.

In summary price controls raise taxes, raise costs and cause greater supply disruptions and unavailibility.

13 posted on 09/07/2005 6:55:53 AM PDT by bvw
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To: frankjr
In a competitive market, any "gouging" will take care of itself.

Total agreement. But, is there a role for the government to ensure the market is competitive?

14 posted on 09/07/2005 6:58:06 AM PDT by FarmerW
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To: mvpel

Would the state attorney general be enforcing the anti-gouging laws against the customers then? After all, they are gouging the poor station owner by forcing him to lower his price below his cost. To be "fair and balanced" given that we have this idiotic "price gouging" laws on the books we should FORCE CUSTOMERS TO BUY FROM HIM AT A HIGHER PRICE.


15 posted on 09/07/2005 6:58:48 AM PDT by bvw
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To: sgtbono2002
This is why the price doubled for gas already in the tanks??

The price at the pump is not based on what the station paid for the gas. The price is based on the cost of resupply. Since suppliers have upped their prices, gas stations have to raise their prices at the pump in order to keep their tanks filled.

16 posted on 09/07/2005 7:05:36 AM PDT by PMCarey
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To: PMCarey
Oh one further note. Gas stations OWN the gas they sell. What right does anyone have to tell them what they can charge to sell their property?
17 posted on 09/07/2005 7:07:51 AM PDT by PMCarey
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To: FarmerW

"But, is there a role for the government to ensure the market is competitive?"

For the most part, as long are reasonable economic profits to be made, the market will make sure there is competition. There are certain cases where the government itself had created monopolies where regulation may be needed because of it (e.g. local telcos, utilities). But even in these cases the market is trying to bring competition.


18 posted on 09/07/2005 7:08:42 AM PDT by frankjr
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To: sgtbono2002
This is why the price doubled for gas already in the tanks??

Replacement coste based on quotes from suppliers based on futures markets.

19 posted on 09/07/2005 7:18:19 AM PDT by George Smiley (This tagline deliberately targeted journalists.)
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To: George Smiley

The when they replace it the price should go up. Meanwhile we should pay what it cost. Not what it is projected to cost.


20 posted on 09/07/2005 7:21:20 AM PDT by sgtbono2002
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