Redstate

but bad policy.  There is a lot of this going around these days.

This bill would likely be sent to Bill Thomas' committee.  Despite some of his many flaws, he is a profoundly intelligent man.

He will send this bill straight to the circular file  and have housekeeping take care of it in the evening.

As Alan Simpson once said:

"In your country club, your church and business, about 15 percent of the people are screwballs, lightweights and boobs and you would not want those people unrepresented in Congress."

While I think that Congress is overrepresented in this category, at least we know where Ms. Wilson sits.

You know, my sister's house is the DC metro area has increased by about 50% in the past year.  She's thinking of selling it to take the profit.  Here I thought it was a shrewd dealing based upon the limited supply of land near a growing metro are on her part, but it turns out that she's price gouging.  Who knew?

If Wilson really wanted to make a difference in gas prices without resorting to price-fixing, she could reduce gasoline taxes or repeal various state laws whose purpose and effect is to allow franchised dealers to charge higher prices.  

For example, Virginia, where I live, has a partial "divorcement" statute. It prohibits a refiner from opening any refiner-operated stations within 1-1/2 miles of any service station operated by a franchised dealer -- including dealers franchised by other refiners.   Immediately after the hurricane, you could purchase gasoline from a refiner-operated station charging (1) 48 cents per gallon less than the dealer operated station closest to my home and (2) 29 cents per gallon less than a nearby (just beyond the 1-1/2 mile protected zone) dealer-operated station of the same brand from which I filled up.

Maryland has total divorcement, with the result that gasoline prices have for many years been demonstrably higher than in neighboring states.  In response to lobbying efforts by dealer advocates, Maryland recently prohibited sales of gasoline "below cost."  So if the market price were to fall, retailers in Maryland could not react to that change without fear of liability.

Stupid laws, and the lawmakers who make them.  Could be an Oprah episode.

I thought that once the Arctic National Wildlife Refuge has been opened for drilling the price of gasoline would fall to like $0.08 a gallon again?

What is this crazy woman thinking?

Wilson is either totally ignorant or assiduously demagogic. She doesn't understand basic economics, much less 'commoditization', or pretends she doesn't.  One of the many problems with democratic processes is the absence of screens to filter out folks like her. Allah, help us!!

TomTom

Hello,

How do you tell the difference between "profiteering" and "reasonable" margins of profit?  Is 1% margin of profit too much, thus called "profiteering"?

How do you measure price "gouging" or "profiteering"?  It seems to me, it's tough and impossible to measure.

Dan

Here in Georgia, Sonny Perdue(R), deployed our "anti-gouging measure, which sounds very similar to the one in NM.  Here are the basics:

"Although competition and demand drive prices in our free-market economy, during a declared state of emergency Georgia law prohibits businesses from taking advantage of the situation to engage in price gouging (O.C.G.A. Sections 10-1-393.4 and 10-1-438).

Under a state of emergency, state personnel and equipment may be used to help local governments, and the law's price-gouging provisions automatically go into effect. Businesses may not sell any goods or services necessary to protect the health, safety or property of the public at prices higher than the prices at which those same goods or services were offered before the declaration of a state of emergency. This can include food, lodging, gasoline, propane gas, lumber and other supplies."

http://uspolitics.about.com/gi/dynamic/offsite.htm?site=http://www.georgia.
gov/00/channel%5Ftitle/0%2C2094%2C5426814%5F39110281%2C00.html

For some reason, this type of legislation seems to be popular in supposedly business friendly southern red states.  In fairness to Governor Perdue, he also temporarily suspended a 15 cent-per-gallon gas tax for the duration of the "crisis", which is both good politics and good policy.

Ms. Wilson should have to pay a price for requiring the printing of her proposed bill, the time it will take to send it to the floor and have it referred to committee, etc.  Seriously, this is as bad as the filing of nuisance lawsuits.  I guarantee if there was an option to fine individuals for proposing legislation that 2/3 of congress (or some other more appropriate fraction) or 2/3 of the people felt was just plain stupid, we'd see less of this crap.  Plus that could make for some interesting ballot initiatives/questions at elections, e.g.

Do you feel that Representative Heather Wilson's (R - N.M. xth district) proposed legislation on gasoline price regulations (HR xxxx) is useful, or just plain stupid?  Make your selection to the right.

I can dream, can't I?

~Tom

Although many are poorly drafted, price gouging laws can play an important role in preventing greedy and despicable people from taking advantage of desperate victims of disaster.

You seem to forget that in times of disaster normal market mechanisms break down and in such circumstances it is appropriate for government to step in an impose temporary measures to control prices as well as supply and demand.  Price gouging laws are usually insufficient by themselves because they place no limits on demand and lead people to horde when supplies are available.  There should also be some mechanism to make sure that supplies are distributed fairly.

No matter how much of a hard nosed capitalist you are, you must admit that there is something morally repugnent about selling the necessities of life at an outrageous profit margin (say water that would normally cost $1 a bottle for $10 a bottle) to someone who is dying of thirst.  And that as a society we have the obligation to punish such behavior.

price gouging.

Property belongs to its owner, others don't have a right to it.

Even if they need it . . .

Need doesn't generate a right . . .

Price controls are not just bad economically, they are immoral.

inflammatory $10 for a bottle of water scenario that I don't think anyone really believes I think you need to look at it from the retailer's standpoint also.

1. The price can only radically increase when there is a shortage to the retailer. We should all be able to agree on that.
   
2. The retailer continues to pay for his lease regardless of his shortages and his business model is predicated on a certain cash flow.
   
3. So if the retailer is used to having an unlimited supply of something non-edible, like plywood sheets, and needs to sell 100 of them each month at $10 each to make his rent and suddenly he can only get 50 sheets of plywood because of a disaster, he has to sell them at $20 each to stay in business.

So I really don't believe price gouging can exist, it is merely charging what the market will bear. If I can't pay $20 for a sheet of plywood I can wait until the price comes down.

You seem to forget that in times of disaster normal market mechanisms break down . . .

No, high prices are an example of market mechanisms working.

Price gouging laws are usually insufficient by themselves because they place no limits on demand and lead people to horde when supplies are available.  

Price gouging laws break down the market mechanism, eliminating conservation and also eliminating the market signals that tell others what is needed in the disaster area.

There should also be some mechanism to make sure that supplies are distributed fairly.

 

The best mechanism is the market response--high prices.

If you break the market response with price controls, then you have to place restrictions on consumption--even odd gas days, or whatever. With price and consumption laws in place, how do you convince producers to sell more of the needed items in the devastated area? Point a gun at them? Throw .gov $$$ at them?

you must admit that there is something morally repugnent about selling the necessities of life at an outrageous profit margin (say water that would normally cost $1 a bottle for $10 a bottle) to someone who is dying of thirst.  

I think it is morally repugnent to force people to sell their property at a price YOU think is fair.

And that as a society we have the obligation to punish such behavior.

 

I'd rather leave that to the USSR, Cuba and North Korea. This has no part in a free society.

in the basic decency of human kind.  I don't think my example of the water vendor would have been beyond the realm of possibility in the convention center in New Orleans two weeks ago (provided the water vendor was well armed).  

Your example is perfectly reasonable and justifiable.  But I can just as easily imagine this scenario:

1. Retailer A has 100 sheets of plywood in stock.  His normal retail price is $10 and he normally sells 25 a week. (He has a normal month's supply on hand).
   
2.  A hurricane is approaching and will arrive in three days.  He supplier can resupply him immediately after the storm at the normal cost.  He knows he can sell out his current stock at $25 per sheet before the storm and take advantage of the temporary disruption of the market and other people's misfortune and desperation to make a quick buck.  (He is well insured against any business disruption the storm will cause.)
   
3.  You can wait for the price of the plywood to come back down and risk a bunch of broken windows and water damage.

You may call the retailer a savvy businessman and an entrepenaur.  I call him a scumbag.  If you were in my situation I bet you would call him a scumbag too.

that people who are cut off from potable water because of a storm should be allowed to die of thirst unless they can afford to pay for private relief efforts?  And I guess if they didn't have the foresight to bring to fund their own satellite phone network to call for help they are SOL.

Maybe we shouldn't fund the Coast Guard anymore.

The logic here is that if gas companies raise their prices too high ("gouge" their customers too badly), they won't have any customers and they'll go out of business. Gouging is self-destructive.

But what's to stop a gas company from charging higher prices in the short term, while consumers really don't have a choice (they've already bought their SUV, they're not just going to let it sit in the driveway), then lower them at the first sign of consumers switching to hybrids?

Please educate me (and that's not sarcasm).

with $10 for a bottle of water?

The high price ensures conservation (less likely to buy drinking water for Fido or to wash with, etc.), and as a consequence a more appropriate distribution of resources is made. Further, it tells vendors that it makes sense to get water into the area--fill their trucks with water, pay drivers overtime, maybe fill your pickup or SUV with water and haul it down.

The price can only radically increase when there is a shortage to the retailer. We should all be able to agree on that.

No-that's an artificial constraint.

Lets say the disaster hit and resupply is impacted. The retailer has paid for his goods at predisaster rates. But his cost for restocking is the post disaster rates, and furthemore the market is telling him to restock differently--more water, diapers, etc., and less of other types of items. The going price should be the market price as the market exists now, even though the retailer paid his pre-disaster price for the item.

the question from a different worldview.

The gas, while it is in the storage tank, belongs to the gas station. It doesn't belong to the government or to you. So "stopping them" from doing something isn't something I worry about a lot.

It really isn't the government's business how much the charge is and it is up to you to decide if you want the gas bad enough to pay the price, no one is making you buy it.

If you're taking your kid to the hospital then the answer may be one thing, if you're going to the movies then may be the answer is different.

Don't get me wrong, I don't begrudge a company for charging more than they have to, I might do the same thing and certainly no one expects them to charge the absolute minimum to turn a profit. It just seems...unfortunate that in a time of crisis, when people really need gas and some don't have the option of finding an alternative means of transport, gas companies would raise prices just because some people are willing to pay. So when I say "what's to stop them", I guess I just wish they would stop themselves. But like I said, I only took econ once.

Anyway, I don't really care personally. I walk.

because I'm a heartless conservative who doesn't believe price gouging exists. The plywood belongs to the merchant, he sets the price, it is up to you to decide if you want to buy it. You don't have a right to his property at the price you dictate.

It is fine for other people to help. I've sent $$ and goods to NO myself.

But, just because you have a need for something doesn't mean you have a right to it. You don't have a right to water, or anything provided by anyone else's labor.

You also don't have a right to Coast Guard protection. Perhaps the CG should help in such circumstances, but no individual citizen has a right to that help.

This argument can be taken to ridiculous extremes. A merchant has extensive supplies of water in a hurricane-ravaged city, and there are thousands of people who need water, have no other means of getting it, and if they don't get it they will die. He sets the price at $10,000 a bottle. Hey, it's his property, it's up to you to decide if you want to buy it.

So no one is selling water at $10,000 a bottle. But at what price does it become ridiculous to say, "Well, that's the price. It's up to you if you want to buy it." to a person dying of thirst?

[Please don't ban me.]

The merchant obtained that plywood by his own labor.

To claim a right to buy the plywood at a certain price is, in effect, to claim the merchant's labor. Slavery, in effect.

I'd love for gas retailers to raise their prices so high that nobody could buy SUVs. Hate those things--not for the environment, don't care about that, they're just annoying to drive with. Can't see around them, they bully you on the road, more likely to get hurt if you run into one...

But since everybody's already driving their SUV, and don't really have the money to buy a new car just because gas shot up by $2 a gallon, wouldn't it be nice if gas retailers cut them some slack? It's like you're assuming there's one set price at which he'll make a profit, and he won't go above that price unless he has to to make ends meet.

your posts have been dead on and have prevented me from doing a worse job at it.  Thanks!

Disasters shift the demand curve (and the supply curve).  The market doesnt break down, the short term intersection of supply and demand just move.

Are you one of those guys who thinks we shouldn't even pay taxes for national defense? Hope things aren't too nasty and brutish at your place...

when the gas station charges more, they have more $$ to spend to replace their supply. This tells the supplier to send gas to this station (or region) where the demand is higher. In fact, if the price gets high enough it might be a sign for me to fill up my truck with 5 gal gas cans and make $$ . . .

Furthermore, the higher prices tell consumers to conserve. If the price remains low, and I show up at the pumps before you do, I might top off all my tanks and there won't be any gas when you show up. If the price has gone up sufficiently I am more likely to buy only what I need, and you have a better change of getting some.

High prices work towards ending shortages by encouraging conservation and redistribution/resupply.

where he makes a profit, just as a matter of mathematics and accounting. But I don't see the implication that the retailer wouldn't make the maximum profit that he can.

The only product differentiation really available on a product like gasoline is price. So unless you are assuming a scenario that involves either a captive market or an organized cartel then competition will keep the price down.

that the disaster is actually impacting the price of the items leading to the increase in cost.  That is not the definition of price gouging so your little exercise in economics isn't even pertinent.

Price gouging is defined as raising the price of an item eventhough your cost has not risen simply because there has been a temporary market disruption that has caused a localized shortage that allows you to make a higher than normal profit.  So your example is not an example of price gouging it is an example of a disruption of normal supply and demand.  

Price gouging is when you buy something at your normal cost, incur no extraordinary expenses, and sell it at an inflated price because the buyer is desperate.  That is taking advantage of human misfortune and is capitalism at its crudeist form. I guess when it gets to its lowest form can literally mean stepping over dying people to sell your commodity to people who are merely uncomfortable (which may have literally happened in New Orleans as there were reports of hotel occupants being evacuated in privately contracted buses before critical hospital patients).

what the Supreme Court did in Town of Castle Rock, Colorado v. Gonzales, you don't have a right to protection from the government.

I believe in national defense--it is the primary reason for the federal government. However, our army and navy do not mean you have a right to defense. The defense is for our collective defense, not the defense of any individual. We all benifit from that defense (which is why we can be compelled to contribute to it), but it isn't an individual right all the same.

really understand your post. You can't use terms like "captive market" or "cartel" with me, I don't know what they mean.

But whatever you meant, isn't the market captive in a way? If I have an hour drive to work and can't realistically get to work any other way, I literally have to pay whatever they charge. It seems like the market is saying, you're out of luck. And I think that's unfortunate.

more on point than your post. In fact, I really doubt that your conditions for "price gouging" can be found outside a command economy or a desert island. If one person can find a supplier, so can two. It two suppliers exist, with in your scenario, an unconstrained supply of product themselves, it is hard to imagine price gouging being possible.

an hour to get to work I'd be willing to wager you pass at least 3 gas stations. Unless they are all under the same ownership I can guarantee you that one of them will be cheaper.

But why does your inconvenience give you the ability to dictate the price for another man's commodity?

If you can't afford the gas to get to work, economics would dictate that you change either your employment or residence.

You are assuming that the disaster is actually impacting the price of the items leading to the increase in cost.  That is not the definition of price gouging so your little exercise in economics isn't even pertinent.

Price gouging is defined as raising the price of an item eventhough your cost has not risen simply because there has been a temporary market disruption that has caused a localized shortage that allows you to make a higher than normal profit.  So your example is not an example of price gouging it is an example of a disruption of normal supply and demand.  

The disaster IS impacting the price, as your statement indicates:

. . . there has been a temporary market disruption that has caused a localized shortage that allows you to make a higher than normal profit.

Prices vary from both supply and demand. If local demand increases without an increase in supply, prices rise, and that's the way it should be. The fact that vendors are making larger profits is irrelevant--good for them, if that's the case.

If a storm bears down, and demand for plywood rises, it is reasonable that the price rises as well, even if the storm veers off and doesn't impact--the expcectation of the storm's impact caused a demand in the market, and the market responded as it should.

I don't know the case, so I won't comment on it. But that seems weird to me. I viewed police and national defense as goods provided by the government and paid for by our taxes, which says to me that if we don't get the good we paid for (police protection, national defense) we have a right to some kind of reparation. Give me a refund.

I guess I don't really get the individual vs. collective protection distinction. I can see where you're coming from--if my house is bombed during a war and I die, my family can't sue the government for failing to protect me. That would be stupid. But where do you draw the line between failure to protect an individual and failure to protect a collective (which is, after all, a group of individuals)?

I love learning. If you have time, please continue.

When it comes to economics using extremes of survival theory is flawed.

In your example of water, the state and local government do have some extraordinary police powers to step in and confiscate necessities to sustain life in times of declared emergency.  So the local and state government (if they get their act together) can take the water (with reasonable payment at some date) for the people.

Just saying.

captive market

cartel

didn't have much trouble. The ruled 7-2 in Castle Rock that you don't have an individual right to police protection.

My personal experience confirms what you're saying. When I was in Jackson, MS last week, there was widespread shortage of gas, but when you got to the pumps that still had gas, it was only $2.50 or so. I don't know if Mississippi put a price control on, but it's clear that if gas was $6 a gallon my dad and I would have thought twice about taking our jaunt to Vicksburg.

It just seems like there's a price companies choose that lies between the absolute price needed to turn a profit and the price where people literally can't afford to buy your product, and that price is higher than it has to be.

clearly the police can't prevent all crime. They would have to assign you your own personal body guard, and even then he might fail to protect you.

Once he failed, you would have a right to sue, since you had a right to protection.

Imagine if every victim could sue the .gov when the .gov failed to protect them? All our tax $$$ would have to go to paying victims off.

You simply can't have a right to protection. That said, we have to protect our nation, and we all benifit from that protection. Hence, we can all be expected to contribute to that defense in some way.

"If you can't afford the gas to get to work, economics would dictate that you change either your employment or residence."

But don't you understand that for some people, it's not practical or, indeed, possible to change their job or residence at a moment's notice because the price of gas increased so much they couldn't afford it? I'm trying to say, huge increases in price over a short time give people with no wiggle room very little time to adjust.

http://www.redstate.org/comments/2005/8/10/164037/271/158#158

standpoint, what the heck does and that price is higher than it has to be mean? Really. What you're doing is saying that some group of persons has the right to decide how much money a gas station owner is allowed to make. Whether he's entitled to make enough money to say, send his kid to an Ivy League school or take a vacation or buy a bass boat. It's sort of a reverse minimum wage law.

The irony is that most of the people who complain about "price gouging" turn around and blame Wal-Mart for "predatory pricing" which is best described as "we lose a little bit of money on each transaction but we make up for it in volume."

a strawman argument here.

between the price he has to charge and the price he can't charge. All I'm saying is, it'd be nice if he would cut people some slack in a time of need. I'm not saying he has to. Whether he's running out of product or not obviously plays a part, too. I guess I'm assuming constant supply.

there isn't a large number of people living in this country who can't afford to rapidly change their job or residence? If that's what you mean, I respectfully but vehemently disagree.

. . . you can't turn a profit, right?

The right answer for the company is to maximize profit--they ALWAYS set prices accordingly. But they have to play by the rules of the market, which is why we (at least in this country, 99% of the time) live in a world of plenty.

We get upset when they (vendors) seem to have the advantage, but we think it's great when we have the advantage (have you ever offered to pay more for an item on sale?).

a constant supply of product to the merchant then you have to assume away competition as a market force.

Personally, I won't pay $3 for a cup of coffee. Others will. That doesn't mean Starbucks needs to cut their prices to accomodate me and it doesn't mean they are bad guys for charging $3 a cup.

too often. Pretty much whenever I post here, I'm looking to learn. I understood what you wrote, you didn't have to repeat it. I just wanted some more info.

Castle Rock v. Gonzalez

And I didn't mistake you for a troll. It's 4:30 on Friday and I'm doing too many things halfway.

That's interesting. I never thought about it that way, although it never would have occurred to me to sue the government for failing to protect me either. I can sure see the woman's frustration in the Castle Rock case, though.

(To be honest, although I think paying for police is necessary and probably good...when I was being mugged, and we passed a group of police officers, he told me not to say anything, but I wouldn't have anyway. I trusted myself to protect me a lot more than I trusted them...I know some cops, and...yikes.)

It sounds like he's reading from the Ayn Rand talking points on economics and objectivism..

and by my calculations, that's only an hour till the weekend.

Enough to keep them in business at elevated prices. But others can't. That's my concern.

Someone robs you.  Were the police required to protect you?  No.  They cant protect everyone all the time.  Realistically, they catch criminals after the act much more than they prevent crime (except indirectly).  Do you have the right to have your robber convicted?  No.  Maybe the police cant identify him.  Maybe they cant find him.  Maybe the DA fails to convict him.

They have a responsibility to try.  But you have no recourse if they fail.

Same for FEMA.  They have a responsibility to manage federal emergencies.  Thats what they are paid to do.  No one has any right to be rescued by FEMA.

that first part, but don't bother explaining.

The comparison to coffee doesn't make sense in my head. I can go without coffee. I can't go without gas if I'm poor, need to drive to work, and have no flexibility to change my job or residence. I don't think that's a straw man. I think that's reality for a lot of people on tight budgets.

is when you, as a large national retailer, move into a market, deliberately price your products and sell them at a loss so you can drive local competitors out of business (knowing that as a much larger company you can withstand losses in one location by making up for them in others).  Then once you have driven your competitors from the market you are free to charge whatever you like in a market that has much less competetion than before.

Not only is such a practice unethical, it distorts the market and leads to monopolies.

but it isn't real unless you prevent other businesses from entering the market when you increase your prices. What it really leads to is bankruptcy.

Your strawman is not that people can't rapidly change their domicile or employment, it is that the  poor rely heavily on the consumption of gas to get to their place of employment.

I thought the talking point on NO was that the people left behind were so poor they always relied on public transportation to get everywhere and couldn't afford to buy gas for their non-existent cars.

The poor do not typically live hours away from their employment and use their personal automobiles to get to their jobs and thus are disproportionately impacted impacted by the high price of gas.  The poor typically live in the inner city and rely on various forms of public transportation.  See Washington, D.C., Atlanta, New Orleans, Houston, Chicago, etc. as examples.

Something I have always wondered.  Why does the demand for plywood shoot up before a hurricane?  I know it is to cover windows and etc. but I would like to think that if I owned a home in a hurricane zone I would keep plywood in my basement/shed/porch.     By it cheap during the off season.

If I buy it once, I'm not going to buy it again.

I guess I'm not talking about the folks so poor they can't afford a car at all. I'm talking about folks who work hard on a tight budget that includes a car and gas at a price they can afford.

Think of a guy in the rural Midwest who drives to the factory every day for his job. A $2/gallon increase in the price of gas would be a problem for him. Or the mom who works two jobs in two different places across town and has to get between them rapidly. Public transportation is just not an option for some people.

Your post does make me think of a funny joke about the acronym MARTA...though this is probably not the forum for it.

the local demand for plywood (so yes on a microeconomic level there is an impact), there is not a overall signinficant impact on the market price of plywood.  There is neither a national or even regional price increase in the short term cost of plywood.  And if you want to look at from a macroeconomic level allowing "what the market will bear" is probably detrimental.

Think of it this way.  The optimal price on plywood in the storm zone would be a price that would be a price that would result in no shortages (i.e. the retailer would still have some stock on hand so he would price his plywood so high that he would have some plywood left when he closed his doors).  

But since a storm is by definition an extraordinary event, many people who would have boarded their houses would not be able to afford exorbitent price of plywood pre-storm.  Since being good capitalists who couldn't care less about their neighbors, the retailers were charging the maximum possible for all necessary commodities including ice, fuel, generators, sandbags, non-perishable food, water, etc.   The storm hits, and people's houses are damaged and they are injured and killed because they could not afford board up their houses and they couldn't afford the fuel or inflated tickets and hotel rates to get out of town (forget charity and non-profit shelters--remember we are talking about the perfect capitalist society, no room for charity here).  Overall the cost of the storm is increased because the greedy retailers were looking for a few extra bucks and now the cost of the damages exceed the benefit of the increased profits.  

Sadly, the market has failed miserably.

My conditions are exactly on point.  I evacuated out of New Orleans to Baton Rouge.  Baton Rouge caught the west edge of Katrina.  Parts of Baton Rouge were without power for a week.  Ice or generators could have sold for twice, three, four times their normal price here.  There was no national or regional shortage of either commodity.  Any increase in price would have been pure profit for the local retailers.  To their credit they held the line on the price on both.

I will give Wal-Mart credit, I picked my generator up at Sam's club the Wednesday after the storm.  They delivered five truckloads to the Sam's in Baton Rouge and were selling them as fast as they could unload them at the regular price of $589.  Can you imagine what they could have charged?

Here in the hurricane zones we don't have basements and it is very humid.  The plywood rots and warps, so it is only good for a couple of years so you have buy new plywood.

will afford it, or else the merchant won't be turning a profit. Certainly, some people may not be able to afford it, and they will have to depend upon the goodness of others. But that doesn't mean we should screw up the market, in an attempt to make sure everyone can afford necessities . . . if we do we will make the economic situation worse.

you eventually become a monopoly and no longer have to worry about competetion.  It was and is very effective in capital intensive industries and how we ended up with our "natural monopolies".

this would actually happen once in a big state and whatch the havok when everyone runs out of gas at the same time. maybe then we could teach a little econ 101, the hard way.

They'll only think the answer is more government.

That's what happened in California a while back: price controls on electricity shortage, and the Democrats responded by bringing more government in.

make that "price controls on electricity brought a shortage"

There is neither a national or even regional price increase in the short term cost of plywood.

If the local demand is high enough, there will be a regional impact. In any case, markets vary with respect to both time and space, so this is normal. The market will work towards equalizing over space, price controls will work towards creating local shortages.

Think of it this way.  The optimal price on plywood in the storm zone would be a price that would be a price that would result in no shortages (i.e. the retailer would still have some stock on hand so he would price his plywood so high that he would have some plywood left when he closed his doors).  

The optimal price from the vendor's perspective is the price that results in selling 100% of his stock at the highest profit margin. If the vendor has remaining stock, he would want to lower his price at the end of the day.

Also consider, he would want to replenish his supply for the next day. The higher he sells his stock for, the more he is willing to spend restocking.

But since a storm is by definition an extraordinary event, many people who would have boarded their houses would not be able to afford exorbitent price of plywood pre-storm.  

Why does it matter that the storm is an extraordinary event? The market doesn't fail here anymore than it does in our normal daily lives, but the changing conditions result in conditions you don't like. Yet, it is a proven, economic fact that actions to counteract the market result in bad, even horrific consequences.

Since being good capitalists who couldn't care less about their neighbors, . . . (forget charity and non-profit shelters--remember we are talking about the perfect capitalist society, no room for charity here)

What garbage. Capitalism doesn't imply "no charity". It implies you have a right to your labor. You (and many others) want a right to other people's labor.

"they will have to depend upon the goodness of others"

Yeah...can I get a ride?

This thread has lasted 4 hours and generated 19 notes (incl. this one), and not cost much aside from everyone's time and minimal electricty/computing/related material.

Perhaps another way to view this, writ large, is to consider that the Soviet Union lasted 7 decades and change, cost quite a bit, and was really dedicated to the notion that "price" and "the market" should not be involved in the various actions and decisions discussed here.

There's a lot of political space on the spectrum between "a stop sign is an unwarranted intrusion on individual liberty" and "workers' soviets set output and prices", but anti-gouging legislation is an arrow clearly pointed in only one direction.

immoral, not illegal.

is quite effective in preventing your competitors from entering your markets.  This is quite common.  You carve up territories with your competitors where you agree not to compete allowing regional monopolies or the illusion of competition in others.  The airlines (the ones that are now going bankrupt) were quite good at this tactic.  They kept out or offered limited competition in eachother's hubs and ruthlessly cut prices on routes if a low cost carrier tried to compete with them.  All their fares changed in lockstep and they colluded on their fare structures. After the low cost carrier went under or left the market (remember People Express) prices went back up.  

They settled a huge price fixing class action law suit in the early nineties for just those practices.

And that's where government steps in.  The oil market is imperfect becuase over the short-term demand for oil is inelastic - it takes a lot of time after a price change for the supply/demand to reach an equilibrium (other energy suppliers step in to increase supply/preferences change to reduce demand).  In the meantime the market works imperfectly.  The imperfect mechinations of the market can hurt all of us.  What happens if all the poor farm workers are unable to get to their jobs becuase gas prices are too high and so we don't have food?

Now, I'm not suggesting that the correct tool for the government to use is price controls (and it most often isn't becuase of reasons that have been stated here), but the government does have some responsibility and ability to smooth over periods where markets are shocked.  

have a right to your labor--you are thinking of Marxism.  Capitalism implies you have a right to your capital, not your labor.  In fact the goal of capitalism is to use your capital to use the labor of others to turn your capital into a profit.  Labor in capitalism is just another commodity to be exploited and bought at the lowest possible cost.  That is why Marx hated capitalism so much.

In our plywood example, the guy who owned the plywood didn't do any extra work.  He didn't even supply any extra capital.  He just earned a windfall profit because he happened to possess some lumber when a storm was approaching.  Of course his gain (since no actual work was expended for his gain, no investment made or infrastructure built) means there must have been a loss somewhere.

The market failed because suppliers could not rush enough plywood in anticipation of the storm to sell at the regular price so he is just taking advantage of a slow response of the distribution system.

The concepts of freedom, its economic realization of free market capitalism and private property most certainly, as one of its main precepts, requires that one be entitled to keep the fruits of one's labor. Indeed, compensation for labor is private property. This was one of the main reasons we rebelled against Great Britain, taxation that confiscated the fruits of labor. Lincoln also emphasized this inalienable right in his intellectual epiphany agaist slavery.

Sadly, the market has failed miserably.

That happened to my brother once. We were watching Saturday Night Live, with or without the aid of illegal substances, when he was suddenly struck by the munchies.

Fortunately, there was a 7-11 on the corner, about a half-block away. So he ducked out during a commercial and came back about three minutes later with a Sara Lee German chocolate cake. "What a ripoff!" he exclaimed. "$3.50 for this stupid thing! These are like $2.29 at Safeway."

My reply to him is the same as to you. "There is a difference between German chocolate cake in a store that is two miles away and closed, and German chocolate cake that is a half-block away at midnight on Saturday."

That there is plywood available at all in this town when the storm approaches is a consequence of some poor schmuck tying up his capital in the form of plywood. He had to buy the plywood, pay to have it shipped to him, and he had to be storing it somewhere away from weather and thieves. Otherwise it wouldn't be there. All of that costs money. His money.

The service he provides is plywood here in your town by the sheet, as opposed to plywood at a plywood factory 600 miles away whose minimum order is 500 sheets.

Tying up capital in plywood is risky business, because plywood neither pays interest nor does it appreciate. If he buys and stores sufficient plywood to meet demand in the event of a horrible storm, he will most likely end the selling season for plywood with a whole bunch of plywood. Which pays no interest and does not appreciate, and will likely sit there until next Summer.

So he doesn't do that. Instead he orders about as much plywood as he sold last year. And then the storm comes, and he runs out of plywood.

I'm sure you will agree that there is no practical difference between the fellow who couldn't afford plywood, and the fellow who arrived at the store after the store ran out of plywood. Neither has plywood, and is going to ride out the storm in a house that isn't boarded up.

Compare those two with the guy who, several years ago, decided he was going to keep enough plywood in his garage to board up his house. He pays the normal price for plywood, and he has plywood available when the storm comes. He has that because he took on the role that the lumber yard took on: he tied up some of his own capital in an asset that doesn't earn money, and he provides a place to store it out of the weather and away from thieves. Note that this option was available to anyone who would need plywood to board up a house. One could choose to take on that role oneself, and thus be insulated from shortage-driven pricing. Or one can pay the lumber yard guy to do that, in which case you don't get to crab when you have to pay a premium price.

It was artificial manipulation of the energy markets by Enron that actually caused the shortages, not the price controls.

In capitalism, you have a right to your labor. If you create something, it's yours, and no one can take it from you based upon need. Having a right to one's labor means on has a right to property, including capital.

In practice, communism has always resulted in what are essentially slave states, but Marx envishioned a world where you work according to your ability and consume according to your needs. It can't possibly work, but if it could work it would require that some work for others without compensation. Communism may claim that you own your own labor, but then that's just another claim communism can't deliver.

In fact the goal of capitalism is to use your capital to use the labor of others to turn your capital into a profit.  

Capitalism doesn't have a goal. It wasn't invented, it comes about when one is free to engage in commerce.

Further, in capitalism, you have to pay others for their labor, at a rate they argee to. It is a volentary exchange, and both parties benifit.

In our plywood example, the guy who owned the plywood didn't do any extra work.  He didn't even supply any extra capital.  He just earned a windfall profit because he happened to possess some lumber when a storm was approaching.  

He provided a benifit by having a needed commodity.

Of course his gain (since no actual work was expended for his gain, no investment made or infrastructure built) means there must have been a loss somewhere.

It was a mutually benifit transaction. Or else it wouldn't have occured. The demand for plywood had increased, and he was suplying that demand.

The market failed because suppliers could not rush enough plywood in anticipation of the storm to sell at the regular price so he is just taking advantage of a slow response of the distribution system.

 

Why should they rush to sell at the "regular" price? As the price increases, you can justify overtime for truck drivers, diverting trucks from other routes, etc., to meet the local demand. As long as prices are artificially low (price controls), there is no market signal or motivation to increase shipments of plywood to the area.

The market responds correctly to the increased demand--prices rise. The market responds correctly to the increased prices--resources are allocated to increase profit. The market works fine, price controls do not.

evacuating from a hurricane zone.  You have been stuck in traffic,  there have been no gas stations open for 200 miles, your gas gauge is on empty and the first gas station you come across is charging $7.00 a gallon for gas.  Not because their costs have increased, but because they know they have the only gas available and their are a lot of desperate people who may not make it ten miles further down the road where gas may or may not be available for 2.79 a gallon.

And don't tell me this is a strawman or unrealistic.  This is exactly what happened two short weeks ago.  There was no gas available in southern Alabama, Mississippi and Southeastern Louisiana.  I talked to a woman who when she found a gas station with gas, her fancy little computer told her she was 13 miles to empty.

socialism has meant being a slave to the state.

the goal of capitalism is to use your capital to use the labor of others to turn your capital into a profit.

You are thinking of Marxism. One goal (not "the goal") of capitalism is to use your capital to increase the productivity of labor. To continue in motion, the system requires that any profit you extract be less than or equal to the value added by the increased productivity. If you attempt to take more than that, the system halts. This is why Marx was an idiot.

As proven by actual events, what typically happens is that the gains from the increased productivity are shared with labor, such that labor earns more in the presence of productivity-enhancing capital than it would otherwise. This despite the fact that the owner of the capital has also taken a slice as a return on his investment in the building, machinery, or whatever it was. This is a second reason why Marx was an idiot.

We thank you for illustrating two of the basic fallacies of Marxism.

That humans do not know how to make plywood appear instantly wherever we want is not a "failure of the market." It is a limitation of our technology. We do not yet have Star Trek transporters and replicators. If demand for plywood — or anything else — rises suddenly, the market's reaction is to anticipate shortage, and hence to drive whatever supply is available to its highest-valued uses. This is exactly the reaction we would want from any decision-making process we could imagine. So why gripe about it or call it a 'failure'?

In our plywood example, the guy who owned the plywood didn't do any extra work.  He didn't even supply any extra capital.  He just earned a windfall profit because he happened to possess some lumber when a storm was approaching.  Of course his gain (since no actual work was expended for his gain, no investment made or infrastructure built) means there must have been a loss somewhere.

More to the point; the guy who bought the plywood used capital to purchase the plywood, capital that represents his past labor. Once the plywood was his private property, he had a right to do with it as he saw fit, since it represents the fruits of his labor. If he demanded $1 million per sheet, he would have been well within his rights (although likely foolish economically).

The people who wish to tell him what he can sell the wood for are the people who want to deny him the full rights to his labor.

until the gouging  order is lifted.

The week of Katrina here in Atlanta, a gas station raised its price to over $5 a gal. And the stations across the street prosperred with lower prices.

I recognize the monopoly like situation you describe with lone stations in the "wilderness" but the cure is more harmful than the free market. Most folks want to sell their goods. And shortages and higher costs are a consequence of a disaster at times. Price serves to self ration.

We have no right to buy a product at a certain price.

But I will say that the GA gov's threat to enforce our mild gouging law may have scared stations into tempering their price hikes.

But what was best was the gov's gas tax suspension for a month!

the idea the free market capitalism and freedom are neccessarily equivalent.  Free market capitalism works perfectly fine with human slavery.  It works perfectly fine in fascist dictatorships (look at Singapore).  It even works in communist dictatorships (China).  I guess this is a discussion for another day but the idea that capitalism requires or even encourages democracy and freedom is not even close to reality.  

Corporate governance itself is about the least democratic form of governance there is.  Most corporations operate in a system that is more akin to the Soviet Politburo than anything that resembles democracy.

Envy and the desire of presumptous elitists to re-make man apart from God are the reasons for marx's hatred of capitalism. Our system accepts man as he is in his fallen condition and places him in an environment of freedom under God, as we were created, where the dynamic interchanges between human beings brings out our creative nature, which, coupled with the knowledge that we can keep the fruits of our labor, provides the incentives that have produced the American miracle.

Christians understand that man's nature can only be perfected thru a relationship with God.

marxists imagine they can re-make man thru a socialist levelling, which inevitably leads to tyrannical slaughter.

see 'witness" by whittaker chambers

the definition of FREEEEEEEEEE Market capitalism includes, gasp, the right of on to freely bargain on a price for one's labor.

Slavery, on the other hand in an aspect of another economic system, known as ....slavery.

which is the logical final phase of marxism. see gulags.

That's right, it was a big, bad Texas conspiracy.  How could I doubt Gray Davis?

So what?  Because you REALLY REALLY want gas to be cheap, therefore it should be illegal for it not to be cheap?

Bleeding heart liberalism is emotionally satisfying, but is no basis for a system of government.

notice "Free" modifies market, it doesn't say anything about the people working in the market.  I am not a Marxist (I simply couldn't figure out what the hell what he was talking about), but any economic system does not require or presuppose a particular form of government.

"It was artificial manipulation of the energy markets by Enron that actually caused the shortages, not the price controls." falls into the category of 'Known Facts'.

Price controls (limiting the cost/kwh to the consumer under California law) did in fact contribute to the energy shortages in California and saddled California taxpayers with a multi-billion dollar contractual obligation.

http://www.heritage.org/Research/EnergyandEnvironment/EM754.cfm

There was no real incentive for Californians to conserve electricity, because the substantial energy cost increases to the electrical utilities were not, by law, passed on to the consumer.  Demand remained steady and threatened to exceed available power generation, transmission grid capacity and California's ability to pay for future energy contracts.  Brown-outs and rolling black-outs were employed as last resorts to keep the whole system from crashing.

Gov. Davis tried, unsuccessfully, to pin California's energy problems on Enron, and the rest is history...

summa cum laude, phi beta kappa econ major alert!

The classic definition of a free market requires  buyers and sellers eith the right to buy and sell capital and labor as a matter of their free choice. There are other definitional rquirements as well, but for a "market" to be free, the players in the market must be free.

Slavery, by definition, is anathama to a truly free market. certain economic systems are not possible under certain forms of government and vice versa.

But no market can meet the pure definitional requirements due to the availability of knowledge, though the internet brings us closer.

Moreover, China is a long way down the road in a circumstance that approaches support for your assertion, but i expect china to have an upheaval as more and cmore citizens get used to economic freedom and desire political freedom.

In the face of shortage: use less of it.

I wonder if they would tell starving people to take smaller bites....

in food shortages as well. But of course, we feed the world and will do so, until the left has to save snail darters from cornfeilds.

Rationing works?  You really think so?  What has government done efficiently and well that makes you have such faith in it?

Keep in mind, even if it only makes one mistake in 100, that's 1 in 100 dead.

Food rationing is about the last thing I'd trust in government's hands.

excuse my vagueness!

I totally agree with you.

necessary and must be implemented.  In times of national emergency and true shortages rationing must be implemented to serve the greater good and divert goods to critical needs (e.g., World War II).  In such cases it also has a positive psychological effect because it gives the people on the home front the feeling that they are making a sacrifice and are part of the effort.  The market can simply not deal with the strains placed on the system by such a huge effort.

Would you have really wanted the government in World War II to compete on the open market for the right to build planes and tanks and buy oil against consumer demands for cars or maybe even Nazi Germany's orders for planes and tanks (since it would have been wrong for the government to distort the market to prevent Ford from selling to the Germans)?

and real supply shortages of necessities andwar can require such extreme measures. agreed

Strangely enough government never gouges,never.  The nation had a tax increase in 1991,followed by another in 1993,no gouging.  In late '93 the Clinton administration was considering a value added tax,no talk of gouging there either.  Only private enterprise engages in the unsavory practice of gouging due naturally to greed.  Did anybody suggest  a moratorium on the federal gasoline tax?  A comment on rationing; apart from the fact that the price of gasoline is already coming down,and a thank you to the enviros for blocking addtn'l refineries,I'm not sure what a hurricane has to do with a four year world war that coct 250,000 lives.

That