NationStates Jolt Archive


What's Wrong with Price-Gouging?

Myrmidonisia
02-09-2005, 01:45
Only that ugly and inaccurate description of supply and demand and natural market forces.

The gas 'crisis' in Atlanta yesterday made me think about what prices really do for us. Word had spread throughout the metro area that there was going to be a fuel shortage. Everyone, it seems, was filling up everything they had that could hold gasoline.

The panic, of course, created that shortage that previously was only a rumor. Even when there is no shortage of gasoline, there is simply no possible way to keep the underground tanks at every service station full if everyone is going to try to fill up their car at the same time. There simply aren't enough tanker trucks on the road to do the job. When rumors create a panic and creates a demand that the marketplace can't meet, it's time for the mechanisms of the free market to take control.

Never, in the history of the world, have price controls solved a scarcity in supply situation. If the prices were allowed to float with demand, there would have been plenty of gas to go around. Only the ignorant or those inclined to demagoguery will use the words 'price gouging' to describe an naturally reacting market.

Unfortunately, this includes the governor of Georgia. Mr Perdue signed an order that would fine gas station operators that were guilty of 'overcharging'. This sealed the fate of the supply and guaranteed that gas stations would run out of gas. Way to go Governor. Don't you know that it's best to do NOTHING once in a while?
Celtlund
02-09-2005, 01:48
Price gouging is raising prices to take advantage of making a huge profit from human misery and suffering. It has absolutely nothing to do with economics.
CSW
02-09-2005, 01:48
Ignoring the fact that the price of gasoline has lost any basis in reality in the first place...


The price gouging took place quite a bit earlier, seeing as how gasoline isn't bought without a lead time (eg, gas prices should have moved slowly up, not leap 1.00$+ a day), and that's what set off the buying spree. If the orders against unreasonable inflation of gasoline prices had been set into place a lot earlier (we've only lost 20% of capacity, refinery-wise (which is really all that matters at the moment, oil price disruptions are off in the future a bit, that's why they're called futures), which shouldn't set into motion a 50-100% jump in prices), there would be no panic, no need for this crap.
Vetalia
02-09-2005, 01:50
There is "price gouging" when prices rise much more than the retail price for gasoline; however, a lot of gas stations were suffering a loss on their gasoline sales and were actually trying to help rather than profit.

Price controls and rationing lead to stealing, shortages, and corruption. The worst thing we could do is enact controls. We need new refineries and a safer, less vulnerable oil infrastructure. New "SPRs" should be created to stockpile gasoline, distillates, and any other necessary fuels in addition to the crude reserve. We've got the oil, but we can't refine it, and until we get more capacity, we'll be very vulnerable to these kinds of shocks.

Still, I feel that oil trading should have been halted on the day after the hurricane struck to prevent panicking.
CSW
02-09-2005, 01:54
There is "price gouging" when prices rise much more than the retail price for gasoline; however, a lot of gas stations were suffering a loss on their gasoline sales and were actually trying to help rather than profit.

Price controls and rationing lead to stealing, shortages, and corruption. The worst thing we could do is enact controls. We need new refineries and a safer, less vulnerable oil infrastructure. New "SPRs" should be created to stockpile gasoline, distillates, and any other necessary fuels in addition to the crude reserve. We've got the oil, but we can't refine it, and until we get more capacity, we'll be very vulnerable to these kinds of shocks.

Still, I feel that oil trading should have been halted on the day after the hurricane struck to prevent panicking.
Let oil float, they should have stopped trading on gasoline the first day after the hurricane struck, especially after it hit 25% stop-trade barriers and was allowed to keep rising.

Quite frankly, this only shows how poor of an energy source oil is. No one wants refineries in their back yard (I live near (relatively) a few, and the most notorious of them spews out pollution daily and has killed quite a few people, including one incident where an entire tank of sulfuric acid collapsed...).
Vetalia
02-09-2005, 01:58
Let oil float, they should have stopped trading on gasoline the first day after the hurricane struck, especially after it hit 25% stop-trade barriers and was allowed to keep rising.

Quite frankly, this only shows how poor of an energy source oil is. No one wants refineries in their back yard (I live near (relatively) a few, and the most notorious of them spews out pollution daily and has killed quite a few people, including one incident where an entire tank of sulfuric acid collapsed...).

That was a huge failiure. After every other disaster where there would be an irrational upward or downward move in prices of stocks/commodities (9/11 most notably), trading was halted. It wasn't on the Nymex; it's my feeling that speculators ran up oil prices with the intention of creating a panic that would give them more room to run with the prices without provoking a correction.

It seems that the SPR release and the loosening of laws has kept it from getting out of control, and so I think the worst is over.

Oil refineries suck, but there are places for them. Military bases come to mind, and with the new technology their emissions would be much less. Plus, it would be a boon to the communities hurt by the base closures, and create high-paying jobs.
CSW
02-09-2005, 02:01
That was a huge failiure. After every other disaster where there would be an irrational upward or downward move in prices of stocks/commodities (9/11 most notably), trading was halted. It wasn't on the Nymex; it's my feeling that speculators ran up oil prices with the intention of creating a panic that would give them more room to run with the prices without provoking a correction.

It seems that the SPR release and the loosening of laws has kept it from getting out of control, and so I think the worst is over.

Oil refineries suck, but there are places for them. Military bases come to mind, and with the new technology their emissions would be much less. Plus, it would be a boon to the communities hurt by the base closures, and create high-paying jobs.
Oh god yes. I never want to hear the words "panic buying" being used to describe the floor of a stock exchange.

Good luck with doing that, it is a good plan, but the problem with good plans is people rarely listen to them, most unfortunally.
Vetalia
02-09-2005, 02:03
Oh god yes. I never want to hear the words "panic buying" being used to describe the floor of a stock exchange.

What comes up, must come down, and fast...dot-com investors could tell you that. [/shudder]

Good luck with doing that, it is a good plan, but the problem with good plans is people rarely listen to them, most unfortunally.

Special interests would kill it before it got off the ground. Unfortunately, there isn't any competition in the oil market anymore to get that plan in to action. It's an oligopoly, and they have little incentive to increase production other than falling demand.
Lotus Puppy
02-09-2005, 02:09
The only real price gouging is when a supplier in a disaster zone jacks rates to actually take advantage of a situatioin, and not just supply and demand. Atlanta is not a disaster zone. Price gouging there is, if you ask me, nonexistent.
Nikitas
02-09-2005, 02:09
The morality of price-gouging? I don't know, it's not a simple topic to discuss.

I do want to pick on this little nit here:

If the prices were allowed to float with demand, there would have been plenty of gas to go around.

Eh... no not quite.

You see, with a supply shock, you have less of whatever going around, hence the high price. That you seemed to get.

But what you don't seem to understand is that we have a higher price and less total gas than before. That there may be "plenty of gas to go around" is a purely relative statement which would be made by those who could afford whatever price.

Basically, with price controls there is a general shortage where anyone can come up empty, but with a floating price those that can't afford it come up short and those that can get all they want.

Of course there is also a possibility of a black market under price controls so that the end result is, again, those that can afford it get all they want.
Myrmidonisia
02-09-2005, 02:16
The morality of price-gouging? I don't know, it's not a simple topic to discuss.

I do want to pick on this little nit here:



Eh... no not quite.

You see, with a supply shock, you have less of whatever going around, hence the high price. That you seemed to get.

But what you don't seem to understand is that we have a higher price and less total gas than before. That there may be "plenty of gas to go around" is a purely relative statement which would be made by those who could afford whatever price.

Basically, with price controls there is a general shortage where anyone can come up empty, but with a floating price those that can't afford it come up short and those that can get all they want.

Of course there is also a possibility of a black market under price controls so that the end result is, again, those that can afford it get all they want.

We didn't allow the prices to rise far enough to have an effect on consumption. If the free market had been allowed to do what it has always done so well -- when left alone -- and that is to allocate scarce resources. If gas prices had risen strongly yesterday (as they in fact did at some stations) then people would have given a second thought to filling every car they own.

If the prices were, say, $5 a gallon, consumers would have purchased what they thought they might need to get through the next few days, and would have started making plans for conservation., Certainly few people would have been shuttling back and forth filling up every car they owned. As a result, the gas that one consumer didn't pump into his second or third car because the price was so high would have been gas available for someone to put into the car they actually needed to get to work. Keeping the prices artificially low encouraged over-consumption and hoarding.

Today, the stations that have gas are the ones that charged $5 a gallon. The ones that are out of gas are the ones that stuck to the $3 a gallon range. I think that's evidence enough that the market should always be allowed to ration scarcity, not the Governor.
CSW
02-09-2005, 02:17
We didn't allow the prices to rise far enough to have an effect on consumption. If the free market had been allowed to do what it has always done so well -- when left alone -- and that is to allocate scarce resources. If gas prices had risen strongly yesterday (as they in fact did at some stations) then people would have given a second thought to filling every car they own.

If the prices were, say, $5 a gallon, consumers would have purchased what they thought they might need to get through the next few days, and would have started making plans for conservation., Certainly few people would have been shuttling back and forth filling up every car they owned. As a result, the gas that one consumer didn't pump into his second or third car because the price was so high would have been gas available for someone to put into the car they actually needed to get to work. Keeping the prices artificially low encouraged over-consumption and hoarding.

Today, the stations that have gas are the ones that charged $5 a gallon. The ones that are out of gas are the ones that stuck to the $3 a gallon range. I think that's evidence enough that the market should always be allowed to ration scarcity, not the Governor.
Letting the rich horde up on gas while fucking over the people who actually need it to get around is a brilliant idea. Most of this has very little to do with supply/demand and more to do with outright panic. Let everyone cool down for a bit and it will all go away.
Nikitas
02-09-2005, 02:24
We didn't allow the prices to rise far enough to have an effect on consumption.

Ok.

If the free market had been allowed to do what it has always done so well -- when left alone -- and that is to allocate scarce resources. If gas prices had risen strongly yesterday (as they in fact did at some stations) then people would have given a second thought to filling every car they own.

Yes. That was, in fact, my point.

think that's evidence enough that the market should always be allowed to ration scarcity, not the Governor.

No. That's evidence of mainstream macroeconomics. If you want to talk about who is the rightful arbiter of resource distribution then that is a different debate entirely.
Free Soviets
02-09-2005, 02:34
If the prices were allowed to float with demand, there would have been plenty of gas to go around...
to those who could afford it. which many could not.

as to your actual question, it depends on whether you think capitalism roxorz or not. those that do have no coherent argument against gas stations charging whatever the hell they want. of course, this doesn't stop people who normally proclaim the greatness of capitalism from turning into raging hypocrites when faced with situations that actually affect them.

my gf's co-workers listen to right wing talk radio and today the hosts were ranting against price gouging, and it got her co-workers going on it too. she was tempted to draw them a graph of supply and demand for gas. and perhaps the outline of some sort of invisible hand.
Free Soviets
02-09-2005, 02:38
Most of this has very little to do with supply/demand and more to do with outright panic.

which technically falls solidly in the 'demand' column. and panics do cause decreases in immediate supply, as stuff is bought much more rapidly than was originally planned for and therefore not replaced at a stable rate.
CSW
02-09-2005, 02:39
which technically falls solidly in the 'demand' column. and panics do cause decreases in immediate supply, as stuff is bought much more rapidly than was originally planned for and therefore not replaced at a stable rate.
Pardon, any supply/demand based in reality. Price controls may lead to a slight shortage, at least for a few days, but once people begin to calm down and realize there is no gas crisis, it can be safely lifted. As opposed to now, where the cat is out of the crate and all hell is breaking loose, panic feeding upon panic, creating a shortage which doesn't exist.