CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Monday, September 15, 2008
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
Previous Posts
- Census Data Show Significant Income Mobility
- Economic Conditions: Not Even Close to The Great D...
- Change You Can Believe In, As Long As You're Using...
- ECON 101: You Can't Have It Both Ways
- Is High Home Ownership Rate Hurting Michigan?
- Heavy Regulation, Dysfunctional Governance
- Markets In Everything: Bald Head Advertising
- Cartoon of the Day
- Rent Control Is the Real New York Scandal
- Consumer Confidence Rebounds
49 Comments:
The do cause supply disruptions, though.
Statewide, gas prices are reported to have risen 20% in Alabama.
http://www.al.com/news/press-register/index.ssf?/base/news/1221383864230220.xml&coll=3
Where are the controls?
Where are the shortages?
One thing I don't understand is gasoline futures are down BIG TIME. How on earth are retail prices not reflecting that??
20% just isn't unconscionable enough, I guess.
The shortages won't come in until the demand increases to the point at which gas stations are not able to raise the prices without being prosecuted.
Where are the controls? Implicit in the term "price gouging laws" is the concept of controls...
Where are the shortages? They are the necessary outcome of controls.
Boy, as soon as you guys are called on your outlandish statements you sure change what you are claiming very fast.
...what are you talking about?
"Where are the controls?
Where are the shortages?"...
Gee! Where is the work done by the socialist Bear to answer those questions?...
What the heck is price gouging?
Is that some excuse for people who don't understand the law of supply & demand?
they DO cause price gouging though.
$4 a gallon from lexington kentucky to Ann Arbor up I75, save for two gas stations which were discount cheapo places. This has never happened before in all my time of driving, for every single station to have the same price. So price controls DO help.
How do you all feel about this: some people were caught selling cheap Chinese generators in Houston for $1,400 that retail for normally about $250-300. Fair or gouging?
I love how the wingnuts that post here think they are teaching the rest of us some great economic lesson that we are all unaware of.
You mean when the supply of something goes down and the demand for it goes up prices will want to rise? Gee, brilliant analysis.
Here is the thing, wingnuts. We understand the law of supply and demand. We also understand that we live in a society and would rather deal with lines than with price gouging.
Yes, oh brilliant econ masters, there is another way we can deal with shortages. It's called rationing and it means that my rich ass will have to wait in line for gas with the less fortunate. I guess that's what separates liberals from the wingnuts...I can live with that.
Great speculative comments from people who don't even have anecdotal evidence to support their ridiculous and inane contributions.
I live in Pensacola, Florida. I pass five gas stations on my way to campus. Today, three stations were completely out of any grade of fuel. One was out of midgrade (!) and one had a supply of all grades.
Listening to the local AM radio earlier, the status of the barren three is the norm. I have hope that 2-3 days' passage will replenish widespread supply.
Also, there were no lines at the two stations that were still dispensing regular unleaded. You can interpret that many ways, but since I pass those outlets almost daily I can tell you that a sheetload of supply is currently being stored in red plastic 1-, 2-, 3-, and 5-gallon gasoline cans and vehicle gas tanks.
The linked article is too doctrinaire. If we assumed that all prices should rise and fall with demand and supply, then prices would be highest in the morning when people are traveling to work and in the evenings when people are returning home. Because menu costs are low, pricing changes would be trivial. However, there are many choices in the market space (normally) and a station that engages in this uncertain behavior would be disadvantaged by it.
Also, the stations that do have a stock of regular unleaded are selling it for ~$3.69.
skh.pcola
Mish has a post that perfectly describes the Kudlow types: Keynsians in drag
> How do you all feel about this: some people were caught selling cheap Chinese generators in Houston for $1,400 that retail for normally about $250-300. Fair or gouging?
I feel just fine.
It's THEIR PROPERTY. They can ask ANY price for it that THEY want to.
Just as I can walk away from the purchase if *I* want to.
If I'm NOT going to buy the generator back in May when it's "normally priced", thus betting that I won't want one, then suddenly "OH! OH! OH! GOTTA HAVE IT GIMME GIMME GIMME!!!" when it looks like I actually want one after all, then I lost my bet.
My responsibility, not the generator makers's.
And the way that works is that someone out there might need one... say they have a sick relative, injured in the hurricane, coming home who needs power 24/7. So at that price, it'll be available for the use of the sick person because fewer people will buy them at that price if it's a matter of mere convenience... but they'll think twice NEXT May about buying one AHEAD of the need.
And it also makes it worth the trouble to ship some of them into town from somewhere else, where, at the original price, it would have sat there unsold (but not been worth the extra shipping cost). So it encourages supply to go up.
It's called ANTICIPATION of needs. It's a major part of maturity and responsibility.
Why does this need to be detailed out for you? Are you really that stupid?
> I love how the wingnuts that post here think they are teaching the rest of us some great economic lesson that we are all unaware of.
No, we don't think we're teaching YOU anything.
We all know you're stuck on stupid.
It's bleeding obvious to anyone with half a brain, which is somewhat more than you'll ever display.
It's the silent readers who realize they might not know enough to contribute anything, but who might be afraid to ask a question for fear of sounding stupid who we offer information to.
(If you realize, unlike anonydipshit, that you don't have enough understanding to have an opinion worth expressing, then, trust us, you aren't stupid. Unlike some people too stupid and unimaginitive to even manage to come up with and enter a name).
That's one of the reasons I bother with your idiotic assertions, because someone reading might not understand enough to be able to see for themselves where your blatherings are wrong. If they keep reading, that'll change. For them, anyway, though not you.
> If we assumed that all prices should rise and fall with demand and supply, then prices would be highest in the morning when people are traveling to work and in the evenings when people are returning home. Because menu costs are low, pricing changes would be trivial.
1) That WOULD be possible, but it ignores the fact that anytime you change the price, you run a risk of an error. So constantly changing the price increases risk for what I'm willing to bet is an inadequate return.
2) Most stations are staffed by people for whom computers are a second language (That's why they've ventured into the high-paying field of gas station clerking). They're lucky if they can change the price right a couple times a week. See "1" above.
3) It would generally annoy the local populace if the price changed that much. This sorta ties into one of your blatherings, I'll grant.
4) I would almost certainly say that the goal of a gas station is to get an desired average ROA for the owner. If this can be attained without constant tweaking of prices, then it probably makes the owner's life one hell of a lot easier, at the cost of a few tenths of a percentage point on the ROA. My guess is that they are willing to live with the sacrifice
5) I dunno about Pensacola, but most of the gas stations around here (also Florida) have non-electronic price signs. Constantly changing prices means someone else has to go out and change those signs. See "2" above. Also grasp that, any error, probably means that you can get sued for false advertising if your pumps prices don't match (or at least are lower). So an error can REALLY screw you until you fix it. See "2" above.
So, in short, and with a mere few minutes time thinking (more spent typing, in fact) I've blown your idiotic assertion out of the water.
Try thinking.
It works for most people.
Why not YOU?
.
Terrific job, obloodyhell.
obloodyhell,
As for point 5, I'll note that when I worked at a gas station during college, we always changed the pumps first when decreasing price and changed the sign first when increasing. This all but eliminates the risk of a false advertising lawsuit. Sometimes people are quite pleased that they pull in to find it's a few pennies less or see the sign changing and rush in to beat the change at the pumps. Believe me when I say it gives them quite the thrill.
obloody,
You left out #6. If the price was lowered during down hours, the down hours would no longer be down hours. People would rush out on their lunch break to fill up. As these former down hours are now the peak hours, the gas station would have to increase prices during these hours. Now, the lunch hours are the highs, so people would resume buying in the morning and evening; that is, of course, until these became the peak hours, and the owners had to revert the prices again.
You know what would be easier? Just leaving the price the same all day.
All, please forgive my anonymity.
"> How do you all feel about this: some people were caught selling cheap Chinese generators in Houston for $1,400 that retail for normally about $250-300. Fair or gouging?
OBH: I feel just fine."
Yup, that's called "being a dick." The problem with uber-capitalists like you is that you throw out all morality for profit.
If I'm NOT going to buy the generator back in May when it's "normally priced", thus betting that I won't want one, then suddenly "OH! OH! OH! GOTTA HAVE IT GIMME GIMME GIMME!!!" when it looks like I actually want one after all, then I lost my bet....It's called ANTICIPATION of needs. It's a major part of maturity and responsibility.
Obloody,
Awesome response! Where in the hell did personal responsibility go, anyway? My dad always called it common sense, but I am beginning to learn just how uncommon that really is. It would seem the liberals would remove any penalty for stupidity or poor management of one's personal affairs from the individual, and place it on the rest of society. No thanks, I'll suffer for my own stupidity when it comes down to it and not expect it to burden my fellow man. I'd like the same benefit in return.
The problem with uber-capitalists like you is that you throw out all morality for profit.
And the problem with you anti-capitalists is that you throw out logic, empirical evidence, and personal responsibility in favor of how you feeeeeeeeeeeeeeeeeel.
"And the problem with you anti-capitalists is that you throw out logic, empirical evidence, and personal responsibility in favor of how you feeeeeeeeeeeeeeeeeel."
Ahh yes, the "bleeding heart" argument. I have nothing against market dynamics *except* in unusual situations like this. Is it not true that Wall Street will suspend trading in certain stocks or on the whole exchange in panic situations?
The argument on Carpe Diem goes that Everything should be market-based, and that a system run like that will work. Yet there are some things that every person should be able to have or afford, and this is a basic measure of decency (insert your bleeding heart argument here).
The city runs out of water, is it right to sell a case of water for say $100? Its water; you're dead without it. What I'm trying to say is, why do you want to *inflate* your profits off misfortune? Oh I forgot (I'm obviously too stupid to understand this), because supply and demand trump everything.
The mayor of Houston called on residents to provide water to first-responders who did not have enough in their staging area. People responded. But under Carpe Diem rules, they clearly should have said "Pay up."
And the first responders should have said like-wise before pulling anyone off a roof-top. "Give me the cash first to pay for your rescue, otherwise you can stay. You know, personal responsibility..."
The mayor of Houston called on residents to provide water to first-responders who did not have enough in their staging area. People responded. But under Carpe Diem rules, they clearly should have said "Pay up."
And the first responders should have said like-wise before pulling anyone off a roof-top. "Give me the cash first to pay for your rescue, otherwise you can stay. You know, personal responsibility..."
Those who responded to the mayor's call for giving out water were not forced by law to do so. In some sense this was also a transaction b/c those folks received something intangible but valuable in return.
I find that the anti-capitalists like to paint all "free-markets" folks as being cold, greedy, and uncaring. That's simply not true. I am a free - markets person and I spend as much time volunteering at downtown shelters via my church as much as the next person regardless of views on capitalism. I do it because I want to and not because the government forces me to do it by law.
As for the first responders, aside from volunteers, I believe they are being paid by public tax dollars to provide that service. I served in Iraq and received more $$ for combat/hazardous duty pay than I did in garrisson. If the state wants to make that contractual arrangement ahead of time with rescue workers then they are certainly entitled. But it would be unreasonable to change the terms of the agreement otherwise.
If those who want to purchase generators want to negotiate contracts with Home Depot to provide them with generators at a fixed price before the hurricane hits, then they could certainly attempt to do so. I'm not sure why you wouldn't just purchase one outright instead, but what do I know? Having lived most of my life on the Gulf Coast and "survived" several hurricanes myself, I think most ppl should have the foresight to make the investment in storm-preparedness and accept it as the cost of living in the region, IMHO.
Anon,
Aren't you arguing moral equivalency? Water and life rescue services are necessities of life. A generator is not (except for hospital or critical care patients - hospitals have generators; critical care patients usually have a generator permanently wired into their electrical panel to ensure power at all times).
It seems to me that you are arguing in favor of a medieval concept, the just price. The just price does not harm either the seller or the buyer. The free market exponents argue that the transaction is voluntary so that the transaction does not take place if the price is harmful.
To prove your argument, you would have to demonstrate not merely a high price but coersion. Can you demonstrate that the buyer is in a position where he cannot live without a generator?
Those who cannot live without a generator are at risk whether there is a hurricane or a routine blackout. It is highly unlikely that a person in this position would wait until a major hurricane to take care of a critical care issue that could mean the difference between life and death. Rational people simply do not leave such issues to chance.
I agree that the price you have cited does seem inordinately high although you have not provided any link to substantiate this claim.
You have offered this example of capitalism in action of a few "individuals" notably not "businesses". Most of us know that there are always individuals who take advantage of emergencies who steal generators and sell them or loot homes.
One also should consider the response to Hurricane Katrina by the business community as alternative example of capitalism in action. These activities represent not a mere handful of individuals but many companies comprising thousands of employees and executives.
The vast majority of people try to help during a natural disaster.
"The vast majority of people try to help during a natural disaster."
I agree, and in fact some businesses have done that as well *without* dramatically increasing their prices. This is that intangible 'good will' or 'help' or what-have-you. I could argue that milk or ice are not necessities of life either, yet HEB did not decide to charge $40 for those, even those the supply is extremely scarce.
As far as personal responsibility, the vast majority of people took what they considered as reasonable preparations, which is 72 hours worth of supplies. No one expected that 90% of the metro area would lose power, nor that 70% would still be without power.
I am not an anti-capitalist, nor do I lack econ101 despite the accusations when I'm not 100% in lockstep w/ the OBH/MP/CD mentality.
The central argument going on in this post is that there is basically no such thing as 'gouging'; and that right now gasoline, water, ice, and everything else that is scarce in Houston should be 'gouged' in price, and that that market-mechanism will somehow make the recovery faster. Really???
The argument goes the people who really NEED it will pay for it, but that's not the reality. The people who have the purchasing power will get it. And in the Carpe Diem world, the 50% of working Americans who make less than $51k are generally ignored or written off as ignoramuses. So day-trader Joe will have no trouble filling up his Hummer with $50 gasoline, but Jose can't fill up his beater pickup with to get him and his 7 friends to the construction site to work.
Let's apply the market dynamics to the power grid restoration: day-trader Joe can just go out and 'bribe'...I mean transact with Centerpoint linesman to get his power up and running, to the detriment of say 1000 Jose's who's combined purchasing power doesn't equal day-trader Joe's.
Should Joe be able to bribe/transact to get his power on before service is restored to hospitals and police stations?
The idea that the market solves Everything breaks down (IMHO) in these situations. As I've said before, in the Carpe Diem world, the first responders would all be private right? You'd have to subscribe to get police/fire/medical emergency services, and if you don't subscribe, well that's your own fault. Personal responsibility....even if you can't afford it. (insert bleeding heart counter-argument)
The premise here is that price gouging is Good, because it curbs demand. My argument is not for the *just* price (that argument ends in a market price), but for a price that reflects a market that is not impacted by a disaster. I understand in the CD world, its a fundamental right to charge whatever you want for a good or service, and a right to walk away from that transaction. But what we're talking about here are price changes that do not reflect wholesale price changes, but simply profit opportunities on the back of a disaster.
I have no problem with rational market prices and mark-up. I do have problems with 400% mark-ups. I'm sorry I don't have a link to this, but it was reported on the radio, and the generators were being sold off a truck, not from a retailer.
The article below quotes gas station owners and local consumers on the gas shortage problem in Pensacola.
http://www.pnj.com/apps/pbcs.dll/article?AID=/20080916/NEWS01/809160321&referrer=FRONTPAGECAROUSEL
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This comment has been removed by the author.
I have no problem with rational market prices and mark-up. I do have problems with 400% mark-ups.
Anon,
The buy on jewelry, furniture, and clothing (to name a few) is regularly marked up 400% or more over cost....hurricane or not. So the problem is, who gets to decide on which circumstances and on which products a 400% markup is acceptable? Do you (or I, or the govt. or anyone else) get to tell anyone that he/she can not sell any good that he/she owns at any price that any other person is willing to pay? Who gets to determine how much that good is worth to the person selling it? To the person buying it?
Again, I understand that some things have that size profit margin built in. What we're talking about here is a change in margin overnight of a dramatic proportion. I'm not arguing the *just* price; the *just* price IMHO is the market price, but with one qualifier; that's in a market without a major calamity.
Transacting in a disaster area is not the same as transacting in normal market circumstances.
"sold off a truck"
That is precisely my point. These are not reputable business people but fly by nighters. What happens when the "product" does not work? Where do you return it or where do you take it for servicing? Carpet baggers are symptomatic of the upheaval surrounding a disaster rather than capitalism.
I agree that posts disparaging your intelligence for having a different opinion are inappropriate. By the just price, I did not necessarily imply the market price. In medieval England, this price was often determined by a legal hearing.
Transacting in a disaster area is not the same as transacting in normal market circumstances.
This is the whole point! An disaster affected area is not a normal market circumstance! Why should the relatively stable price during normal market operations apply during times of severe supply disruptions and abnormally high demand?
Yes, I was referring to Thomas Aquinas' concept of the Just Price, and his ultimate conclusion that basically the Just Price = Market Price, but qualified with some certain market conditions (ie. not in a disaster area).
But yes, the people selling these generators were likely not a business. Still, its transactions none the less, and there are numerous reports of 'gouging' throughout Galveston; to what extent and to what products I cannot say.
"Carpet baggers are symptomatic of the upheaval surrounding a disaster rather than capitalism."
Really? What about the Gold Rush and similar type activities (say real estate over the last several years maybe...)? I'm not anti-capitalism, far from it, but certainly market mechanisms can encourage some types of irrational behavior that takes time to be 'guided' by the 'invisible hand' during which time there is much volatility.
But ultimately the point of MP's post is that Gouging is Good. I think that logic is wrong, just my very humble opinion.
"The problem with uber-capitalists like you is that you throw out all morality for profit."
There are several types of "morality" at play here. You are saying that I have a moral responsibility to sell my now rare generator for a price much lower than the market can bare. But that also cuts the other way - you are now saying that I can't do what I want with my own property. That is also a moral issue - it is my generator, and maybe I have a use for it, but maybe I will only let it go for more money than YOU think is fair. Morally speaking, who gets to decide what the good I bought are worth? You, or the owner?
Maybe we should look at the morality of the system, not just what YOU think should be done. Is a system that takes my property (that I worked for and paid for) away from me and gives it to others a moral system? Doesn't sound moral to me.
Do you think Oprah is charging too much for her labor, or is Phelps charging too much for his endorsements, because both of them are in short supply? Are they gouging the market? Shouldn't they work for free for causes YOU think are important?
Honestly, I don't think you have really thought this through.
Anon.
You have suggested that CD posits that "gouging is good". A suggestion that I do not find anywhere in the post. It might be useful if you clarified the definition of "gouging" (without hopefully using the word, morality...this word tends to muddy any discussion)
"But yes, the people selling these generators were likely not a business. Still, its transactions none the less, and there are numerous reports of 'gouging' throughout Galveston; to what extent and to what products I cannot say."
If you wish to make such claims, you must substantiate them. ie. provide some kind of evidence of price gouging by reputable business rather than the "off the back of a truck" fly-by-nighters.
Businesses rely not on one sale but on repeat business. An ongoing business must serve the needs of the customer to be successful. When you gouge a customer, they ain't coming back. That's the end of the relationship. "Off the back end of a truck" describes the lowest form of pond life in any society not an ongoing business.
You describe yourself as not being anti-capitalist yet you present anti-business rhetoric without any substantiation. How can anyone interpret such posts as anything by biased since no evidence whatever is presented to substantiate the claim.
I am prepared to consider gouging to be a possibility but I am not prepared to swallow a load of walley without a shred of credible evidence to support it.
Show me the beef and make me a believer. So far, what you offer is words, words, words...what Shakespeare would describe as "sound and fury signifying nothing"
Is it so difficult for you to actually present evidence in support of your assertions? Is the concept of proof in argumentation ie. presenting evidence in support of the premise such an entirely foreign concept to your sensibilities?
If you wish to demonstrate that businesses gouge customers given half a chance, by all means do so. Where are your links? Where are the studies by the Congressional Budget Office or other credible sources to prove this assertion?
"Nothing will come of nothing" King Lear
The UPS Foundation is helping people impacted by the recent hurricanes with grants totaling over $1 million to the American Red Cross, Aidmatrix, and CARE International . In addition to funding, UPS continues to work closely with each of these organizations to provide logistics expertise and transportation services to the relief efforts.
Another example of those nasty capitalists exploiting the disadvantaged victims of the most recent hurricane.
What also is not talked about here is that large areas of Texas have lost power. As a result, many gas stations and grocery stores are closed.
It takes electricity to run a gas station. The price of gas also reflects these additional cost which are much higher than the cost of electricity supplied by the grid.
"You have suggested that CD posits that "gouging is good". A suggestion that I do not find anywhere in the post."
The article linked to says that the price gouging law is bad; that it is slowing the recovery from the hurricane, and that it has more negative consequences than positive. The article argues that price controls activated in an emergency are essentially assine.
The conclusion I draw is that from the article's author: 1) there should be no emergency price controls, 2) there should be no laws that enforce these controls, and 3) that these controls are bad for everyone. Therefore the merchant should be able to sell at whatever price he wants with impunity in a disaster (aka 'gouge'). As I've said, in the CD world, there really is no such thing as 'gouging'.
Look, I understand the argument that CD-world thinks market dynamics always gets the answer right; I just don't agree in this case.
And yes, two particular businesses in Houston have earned my customer loyalty for their actions, and in particular, their *fair* pricing, even though supply is indeed low and demand is exceptionally high. They took a long-term view on how to price things, and it worked on me.
The conclusion I draw is that from the article's author: 1) there should be no emergency price controls, 2) there should be no laws that enforce these controls, and 3) that these controls are bad for everyone.
Anon:
No offense, but your conclusion is a classic Logic 101 error. The article does not condemn or condone "price gouging". It simply opposes the law which attempts to counter the actions of a few citizens (whose ethics may or may not questionable - based on who's moral standard?) by imposing on those citizen's rights of ownership.
Remember, we aren't really talking about regulation of legitimate businesses which will continue to operate in the community long after the crisis is past. The market regulates these businesses because it places pressure on them to behave in a way that ensures their continued, long-term success in the community. However, price controls apply to everyone and sometimes there are legitimate reasons for businesses to have to raise their prices significantly in response to extreme market conditions.
The problem has many elements:
1. The "price-gougers" are citizens selling their private property to other citizens under no coercion by either party- a transaction that should in no way involve govt. intervention and/or regulation.
2. Price gouging laws can not be levied against some individuals and not others, so now businesses which may legitimately need to raise prices in response to market conditions are now hampered from doing so. All to counter the actions of a very, very small number of individuals.
3. Rather than sell a product at a loss, a given business won't sell product at all. Hence shortages.
4. Who gets to decide on what precisely constitutes price gouging? How should it be measured and enforced?
"The article does not condemn or condone "price gouging". It simply opposes the law which attempts to counter the actions of a few citizens (whose ethics may or may not questionable - based on who's moral standard?) by imposing on those citizen's rights of ownership."
Right, its an article against the anti-gouging law. You believe that the seller has the right to sell at any price he wants, right? By that very notion, there can be no such thing as gouging.
Now you are trying to say that gouging is only carried out by individuals, not businesses, but that is not true (see below).
Finally, TX law says in § 418.106.
"Each local and iinterjurisdictional agency
shall prepare and keep current an emergency management plan for its
area providing for disaster mitigation, preparedness, response,
and recovery. The plan must provide for:(1) wage, price, and rent controls and other economic
stabilization methods in the event of a disaster;"
And that's in a bright Red state... Certainly politicians curry favor, but it was enough of a problem to get through that legislature.
"Remember, we aren't really talking about regulation of legitimate businesses which will continue to operate in the community long after the crisis is past."
Nope. And if you think legit businesses don't do this, think again.
(2005)The Attorney General's Office has received complaints, including allegations of rental car companies charging up to $137 per day for mid-size cars and grocers charging $35 for a 12-pack of bottled water. These complaints are under investigation.
But again, we differ because you don't believe there IS such a thing as gouging, and that's fine; believe me, I UNDERSTAND. You and the author think the market mechanisms always work perfectly and that consumers do not need any protection in disaster circumstances, and in fact, such protection is actually hurting the consumer and the recovery efforts. I respectfully disagree.
nice job anon
You and I disagree, but you do a good job of staying dispassionate
anon 2:21PM
The article was about shortages. Please see element 3 of the post previous to your response. Rather than sell a product at a loss, a given business won't sell product at all. Hence shortages.
"The article was about shortages. Please see element 3 of the post previous to your response. Rather than sell a product at a loss, a given business won't sell product at all. Hence shortages."
Again, I understand the supply-demand dynamic and what both you and the article are trying to say. But lets go back to that post-Katrina $35-for-a-12-pack-of-water case.
People need water, simple fact. Personal responsibility in Houston for most would dictate that you read the hurricane prep. guides and follow them. So if you did that, you had probably 3-4 days of water stockpiled (and based on the hours of radio calls I listened to, during which they asked almost everyone what supplies they had, virtually everyone had enough food, and virtually everyone was doing ok on drinking water for the first 2-3 days).
So..lets say that that $35 price represents what it does indeed take to sell water at break-even. There are going to be people who can't afford that, can we accept that? (remember, some parts of the city still do not have potable water). So we've got a city of people who don't have water, and the non-loss price is out of reach for some people on what is an essential commodity for life.
The CD world makes this out like its some massive criminal injustice against businesses. But take a look at what the AG is saying:
Sustained high gasoline prices have prompted price gouging complaints. A number of factors contribute to the current high cost of gasoline. The cost of crude oil is the primary one. The price at the pump also includes how much it costs to deliver the oil the refineries, the refining cost, distribution cost, taxes, and the retail station's operating cost. When storms like Hurricane Katrina and Rita damage the Gulf Coast's refining capacity, prices can rise even higher.
In most cases the current price at the pump is not due to price gouging. However we are prepared to act quickly if gas prices in a Governor declared disaster area spike beyond what the normal market forces set.
If you feel that you are being unfairly charged for goods or services such as drinking water, food, batteries, generators gasoline or towing, raise the issue of price gouging with the provider. Speak to them respectfully but be frank. If you are unable to resolve the matter, file a complaint with our office.
So its not that owners can't reasonably recover their costs. But lets go back to the water example; if indeed in that case there was a really true shortage that priced water at that price, there a social benefit to selling the water at a temporary loss (and this may mean having to compensate businesses for doing so). That social benefit comes though maintaining order, etc in the aftermath, because you can imagine a lot more people will be looting if water was priced that way, out of sheer desperation.
BTW, this fundamental notion that hurricanes don't cause shortages; its BS. If you take refinery capacity offline, you have less supply to meet normal demand. Gasoline is an essential commodity in society. Yes you can curb that normal demand through spiking the price; but that in no way means there isn't a shortage of the normal production.
> So we've got a city of people who don't have water, and the non-loss price is out of reach for some people on what is an essential commodity for life.
This is the job of the NATIONAL GUARD. It is their purpose to come to the aid of people if the situation is that dire.
P.S. I also recommend that, if you have any money (as in make more than minimum wage) -- particularly if you have a family to care for!! -- and do live in any kind of widespread catastrophe zone (such as an earthquake zone, a flood zone, or a hurricane zone, where potable water may be unavailable for many days) that you go out and spend the $50 or $100 on a gravity filter (check for them on the internet, but here's one source: Filters).
They are capable of providing potable, filtered water for a household indefinitely.
*THIS* would be the end result of making responsible choices. Grasping that you should not be unnecessarily dependent on external forces for self-help you are perfectly capable of providing by rational advance consideration.
You should also consider checking into a small supply of MREs, which are publicly available, and, depending on your storage, can remain edible for as much as six years, IIRC. I gather they're much improved over WWII K-Rations. Two weeks for the household would probably cover most reasonable emergencies without power short of the end of the world. Go for a month if you want to be really safe.
> Sustained high gasoline prices have prompted price gouging complaints.
They ALWAYS claim this, then six months later, it turns out that they might have two convictions for the "crime".
First off, note the operative word: "complaints". Does it not occur to you that a complaint does not mean that anyone has actually committed the crime? That someone just got annoyed that the price had spiked and whined about it openly to the DA's office or whoever?
Second off, what makes you sure that the AG isn't flat-out pandering to the crowds?
Again, come back here in six or nine months and tell me how many convictions for price-gouging resulted, pref. with a breakdown of anecdotal descriptions of what was going on, for each case, if you can.
My bet is, 2 or 3 convictions, tops.
Anon,
BTW, this fundamental notion that hurricanes don't cause shortages; its BS.
It's not. Shortage has a specific economic definition: the disparity between amount demanded and amount supplied at a given price. What hurricanes do cause are supply disruptions.
> BTW, this fundamental notion that hurricanes don't cause shortages; its BS.
In the purest sense, yes. But the fact is, if the price is jacked up by the shortage, as it should be, then other sources will step in, which is the main point.
Other refineries will operate longer to pick up the slack
Other existing supplies will be tapped in order to meet the needs.
Extra truckers will transport targetted quantities into the higher-priced area for their own benefit of getting extra wages that were made possible by the higher prices.
The areas all around with no shortage will be a teensy bit shorter as some of their supplies get funnelled out of their area to the area with greater need. And the "pain" of the losses gets distributed over a wider area.
Meanwhile, people in those areas are strongly encouraged to economize as much as possible, driving nowhere they don't have to, combining trips and carpooling with neighbors, etc., even if they normally don't do that.
In short, the price mechanism works, and works well. It doesn't need idiot DAs and AGs looking to score election creds trying to pander to the dissatisfaction of the mewling masses for more free stuff that they don't have to pay the price for.
These people aren't lowing cows, they are human beings. They are and should be resourceful on their own. They don't need constant help from the gummint to survive, and should not be led to expect it.
The reality
Does it not occur to you that a complaint does not mean that anyone has actually committed the crime?
Just to add to that...investigating and enforcing these complaints isn't a cost-free endeavor. For every complainant, there has to be an investigation which cost the tax payers $$. It might be cheaper for the tax payer in the long run to just pay for the omplainant's gas, generator, etc. Maybe the proponents of "anti-gouging" would like to be in the front of the queue for having their tax dollars earmarked for this purpose.
OBH said: "Other refineries will operate longer to pick up the slack"
OBH, you are showing your ignorance of the energy industry here. You do realize that roughly 1/5th of the refinery capacity in the US is down, right? There are very very few alternative sources for refined products that can meet 'normal' demand.
Now I know you think I'm an idiot, but do you think that of Reuter's as well (hint: pay close attention to the last word in paragraph 1)?
Now lots of people have proposed strategies to get by (although the ceramic water filter does not work on chemicals, which can leech into the water system when pressure drops). That's all well and good, and I'm sure some people are doing that, and I could go farther and suggest that Grandma go out in her backyard, dig a hole, piss in it, cover it with a trap with a cup in it, and and have herself a solar still. But that's a bit extreme. Lets face it, in a big city not everyone is going to do all of these things. Let social darwinism take over? I know some on here would seem to love to see that happen.
I'll give an interesting example from today, driving back from Austin. In Austin, I believe premium was running around 3.79. About 40 mi north of the outskirts of Houston, premium gas was 3.99 at valero and Exxon. Then 10 mi north of Houston outskirts, premium gas at Shell was $4.26. Then actually back inside of outer Houston, premium at Exxon was 3.89. Shell: $4.40. I'm not saying that this is necessarily gouging, but its certainly exceptionally confusing for the consumer. (now I understand, maybe they already had gas in the tanks versus getting a new load, etc, but for joe-blow he's going to get the impression Shell has it out for him. And maybe they do.)
The argument continues to go, "price it right and the demand will match supply." Uh...ok, to *some* extent, but gasoline demand is not exactly Stretch Armstrong. Everyone, including the despised-in-CD-world lower-income dregs have to get to work, and in Houston, mass transit is not usually an option. Yes, you'll curb demand on discretionary driving, but how much of that has been moderated already, as we've seen from month after month of Mastercard reports?
You guys assume there is magic extra gasoline that can be brought to market, and that's not the case. There's not a lot more finished product imports to be had in addition to what we get now, AFAIK. Take a look at EIA's Petrol Navigator if you don't buy it. Now we do have some idle domestic refineries, but there's questions on how fast those can be supplied and brought online. So from all practical senses of the word, there is a shortage of capacity right now, and we'll see how that affects the supply in the next few months.
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