Posted on 09/08/2005 11:08:53 AM PDT by 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.
You don't have a clue what you are talking about. Our oil industry is highly competitive and operating perfectly within the bounds of our free market system.
If we had it your way, last week the gas stations in Atlanta all would have run out of gas, and then the gas stations would not have been able to afford filling up their tanks.
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Oh really? And how would have charging a fair price for gas made the situation any different? Nice try.
In economic terms, what you are describing is called the price elasticity of demand. Different products have a different price elasticity of demand. You are correct, food has a low price elasticity of demand. That is, demand doesn't change much as price changes. Gasoline has a low short-term price elasticity of demand, although a reasonably high long-term price elasticity of demand.
Still, in absolute terms, it is there. Demand went down this week, people drove less.
As for price gouging, why did the evil gas companies wait until now to raise prices? Why did they ever let prices get as low as $1 in 1995 or so? Were they just stupid giving up all those profits in 1995 when they could have been charging more?
In listening to Mr. O'Reilly, he does advocate using less fuel not just asking Big Oil to take a small cut in otherwise huge profits (35 Billion last quarter alone). Points about soda and popcorn do not apply to this case because they are not part of interstate commerce. If 18 wheelers ran on soda you bet the price would be down to $2 a gallon.
"For example, it doesn't matter how high the price for food goes because of short supplies, the demand for food will not drop below a certain minimum level, because it is an essential commodity. At this point, supply and demand laws break down."
False.
need to lift the government regs to build refineries and drill!
I also say, institute a Nimby tax on gas for states like cali and fla. This money would provide tax credit build refineries in other states.
Yes, tax INCREASE that foo likes!
What is a fair price? People were lined up at gas stations trying to buy every gallon they could. That is called an increase in demand. If the price didn't go up, the stations would have run out. I don't know anything about biology, and therefore don't comment on it. It always amazes me that people who know nothing about basic economics never hesitate to comment on it.
The supply is huge, the demand is minimal, I guess the price is low? :^}
Excellent post. Right on the money. You actually understand economics, unlike most people on this board.
Ridiculous post. The stations jacked up the price in some cases overnight to $5 $6 a gallon. If thats not price gouging I will pee in my gas tank. There has been a spate of mergers in restraint of trade. in big oil Exom-Mobil being the most egregious. The Bush administration has turned a blind eye to the obvious anti trust violations. They just posted record gross profits of 134.49B on revenues of 295.70B... What loon can conclude there is no price gouging with profits ringing up that high?
lines
No, the demand is high. The gimme gimme gimme crowd wants to blame somebody else for the high price of gasoline, hence the demand for the evil profiteering posters.
What a wonderful example.
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I know, it makes too much sense. Try that line of response on DU -- fits better there.
they were planning for replacement costs. competition should lower prices now.
Rare common sense from the Denver Post, the Front Range mouthpiece of the loony left.
"If thats not price gouging I will pee in my gas tank."
Don't forget to shake when you're done.
you are so right. I expect this talk on lib sites but not here.
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