No gouging, just supply and demand

Denver Post ^ | 09.08.05 | David Harsanyi

[aynrandy]

Gouging - even the word sounds frightening.

These days, there's been a near-unanimous call for the public to be outraged over price-gouging at gas pumps around Denver.

Well, I'm not outraged, and you shouldn't be either.

Here in Colorado, as elsewhere in the nation, high gas prices have generated hysterical, populist rhetoric from those who've forgotten the fundamental principles of supply and demand.

"Gas-price gouging is not illegal under Colorado law, and we think it should be," Colorado Speaker of the House Andrew Romanoff recently claimed.

I'm not sure what Romanoff meant by "we" - I would like to be excluded - but anyone who believes gouging is a concern will really have something to complain about if shortsighted price controls are implemented.

This week, Romanoff promised to pressure the state attorney general and the Public Utilities Commission to "investigate" the problem and "combat" gouging.

It's going to be difficult to "combat" the irrefutable fact that fuel supply is down and demand is up. And really there is nothing to investigate, unless you believe in conspiracy theories.

Hurricane Katrina destroyed 12 percent of the nation's refining capacity. This fact, coupled with rising demand from nations such as India and China, has put a tremendous demand on oil - a fungible global commodity.

Price controls bring lower fuel prices and increase demand. But when demand is outstripping supply, we can all look forward to shortages and lines.

Fact is, gouging is a myth. It's called making a profit.

"For many Americans outside of the Gulf Coast, the immediate impact of Hurricane Katrina isn't looting in the streets, it's looting at the pumps," says "Looting at the Pumps," a release by CoPIRG, a public-interest advocacy group.

I spoke to Rex Wilmouth, state director of CoPIRG.

So, was there gouging in Denver?

"We were seeing the prices go up in four or five days from 60 to 70 cents," Wilmouth explains. "Our take on it is this: We looked at how much money the oil industry was making and how much they were posting as profit; we were astounded that they felt the need to increase the price of gasoline in the time of a natural disaster."

Wilmouth, no doubt, is well-intentioned. He will apparently do anything to save us from the evils of Big

Oil - except actually learn about the oil business. "Last week, the stock prices of major U.S. oil producers ExxonMobil, ChevronTexaco and Conoco-Phillips have surged," he tells me as part of a long harangue about the success of Big Oil.

It took me a few minutes to comprehend that this was supposed to be bad news. Millions of Americans own oil stock - shouldn't we be happy for them?

I mean, higher gas prices mean increased stinginess on the part of the consumers at a time of low supply, right?

Isn't that positive?

Don't Americans have alternatives? A consumer can decide to travel less, take public transportation, or buy a fuel-efficient car or drive to a cheaper station.

Hybrids, Wilmouth understands. As you can imagine, he is very excited about hybrids.

Now, Romanoff and Wilmouth are entitled to espouse that government should have the authority to dictate the price of products in the free market.

But then, why stop at oil?

Today, for instance, a quick calculation revealed I had shelled out around 8 bucks a gallon for my bottled spring water.

But that's nothing. Last time I went to see a movie, I paid approximately $200,000 a gallon for soda - I'd need an infinity sign to calculate the per-pound price of popcorn.

Or how about this?

Why don't Colorado and the federal government cut or suspend the 40-50 cents we pay in taxes on each gallon, depending on where you live?

Funny, with all the concern for consumers, no one's proposed something that would actually help them.

David Harsanyi's column appears Monday and Thursday. Reach him at 303-820-1255 or dharsanyi@denverpost.com.

[SoothingDave]

The overall demand did not increase significantly. We had people topping off their tanks, but not increasing their total consumption. Net = no increase in demand.

Maybe you didn't see the lines in Atlanta as people panicked and topped off all their tanks.

That is demand. Period.

(Unless you are arguing that there are similar lines and panics every day.)

You may be correct that in the long term demand did not/will not rise. But on that day, in the short term, there was a panicked flurry of demand. That's what the market reacted to.

SD

[Protagoras]

Hmm, I wonder if the author of this article feels that Congress should get rid of our federal anti-monopoly laws?

Apples and oranges.

[Protagoras]

Maybe you didn't see the lines in Atlanta as people panicked and topped off all their tanks.

Remember the station there that was supposedly charging $6 per gal?

Were there lines at that station?

[the OlLine Rebel]

ZING! (Exactly what I'd be asking....)

[savedbygrace]

Dave,

In one of my posts on this thread, I agreed that there were localized areas of shortages. To be clear, I think the various periods of increased demand in certain areas fall into that same category, in that they look very much like a shortage, and in some cases, they WERE real shortages. I agree that happened - more in the southeast than in other areas, from what I've read.

So, I covered that.

[SoothingDave]

Remember the station there that was supposedly charging $6 per gal? Were there lines at that station?

Shorter lines than at stations charging less.

SD

[paul51]

We've had enough warning that the supply of fuel for our country is too fragile. We can debate who is responsible for that and whether the oil companies have what amounts to a monopoly (call it cartel or whatever you care to). They control the production, the refining, the the distribution and to some extent the demand by controlling the supply (price). Every time there is any disruption, which can be a disturbingly small occurrence, the oil markets go haywire and the companies realize large profits. Something is seriously wrong wit this picture. The consumers are getting hosed but even more frightening, the security of the country is dependent on an oil supply that is too fragile and unless something is done to correct this, a very bad day is coming and we have had plenty of warning.
As far as environmentalists fighting refineries,etc. there is no doubt about that, however, the oil industry has also found this to be too convenient of an excuse for their lack of action and our government that is responsible for the security of the country has allowed it.

[SoothingDave]

To be clear, I think the various periods of increased demand in certain areas fall into that same category, in that they look very much like a shortage, and in some cases, they WERE real shortages. I agree that happened - more in the southeast than in other areas, from what I've read.

OK then.

SD

[fooman]

this market has an HHI 704.

[Rodney King]

Thanks for calculating it, I was too lazy.

[Protagoras]

Shorter lines than at stations charging less.

Significantly, in fact, nonexistent. There's a lesson there somewhere.

[aynrandy]

http://en.wikipedia.org/wiki/Scarcity

It is a simple matter of supply and demand. Except that supply and demand isn't as simple when a commodity is traded.

[fooman]

the facts are the facts.

[Realism]

Would there be any more available seats, and any less traffic in gridlock, if the tickets were $5 instead of $50,000? Or would the end result still be the same number of people evacuated via airplane?

Nope. The end result would be 1st come 1st serve. A method commonly considered to be proper.

[bvw]

Look you, we, have a choice. The collusion and conspiracy on prices will always occur. It is the way of men, not perfect -- and business. Even perfect, moral, business. A business has a duty to legally maximize profits. It is the duty of the Law (legislation, case law, common law) to make sure that "legally" means morally, for the all but a few cases. Not all, nearly all. No law can reach all cases because amoral men after profit -- lust for wealth is like lust for power or pleasure -- are shrewd and will beat any regulation or law by that shrewdness.

Yet we have a choice. The collusion and conspiracy on prices will always occur. The choice is where it occurs. Where.

The choice is where the collusion and corruption occur: in business or in government. If it occurs in government, it is a cancer, a high-growth corruption. If it occurs in business it is a much lesser condition, a disease like shingles or herpes -- not perfectly curable, but well treatable most times. On some few occassions, for brief periods, it can flair up.

In government it is deadly, in private business it is bearable.

Why the difference?

Because men in government are protected by all sorts of law and tradition from prosecution, they are indemnified from bad action -- instead we bear the costs. And also -- because government is far more expansionary than business. Business must gain market share, must gain revenue or recourse to borrowings in order to grow. Government has no such limits. They can take all we have and more.

[bvw]

And price controls, price gouging regulation -- those are the means, the areas, the playground upon which government becomes the corrupted, the colluder.

[fooman]

post of the day

[Realism]

don't park that Silverado for too long!

I still need it for hauling and pulling, but it's no longer going to be the everyday to and from work / go to town vehicle. Kinda stinks, I really enjoy driving it.

[savedbygrace]

First, Wikipedia isn't an authoritative source for anything, simply because they accept their definitions from just about anybody.

But I read the entry for scarcity, and I didn't see the part that talked about increased prices being a determining factor of scarcity, which is what you claimed. Where was that?

There is one factor WRT to gasoline that is a vital factor, but that hasn't been mentioned yet. There is, I theorize, a base level of required gasoline consumption/demand. IOW, most people HAVE to use a certain minimum amount of gasoline to do all the activities they absolutely HAVE to do. That doesn't include driving the kids to baseball practice, but does include driving to/from work for many people today. Also, there is a minimum amount of fuel required for trucking, etc.

Above that minimum is the area where the discussion it taking place now. But if the true supply were less than this theorized minimum required amount, then you might even see consumer bidding wars going on, spiking the price. THEN you'd see REAL supply and demand in action.

[wolfcreek]

I guess OPEC is smoking the same thing ya'll are (Crack)