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Old 10-31-2008, 04:36 AM   #1
Drives: 2008 Yaris
Join Date: Oct 2008
Location: Pennsylvania
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Economics of Price Gouging and Gas shortages

Kind of germane to Yaris owners and to those living in the Southern US.

The thesis of the article is that "price gouging" laws encourage suppliers to favor gasoline vendors who pay more and who are not penalized for selling at market prices.

Q: So what's our problem?

A: The shortage is due to the disruption of the free market by the state.

Q: You mean such as the EPA's mandates that distributors can bring only a certain type of gasoline to some of those areas, or the government's regulations that prevent oil companies from building new refineries?

A: Both of these decrees reduce available supplies of gas. But they are insufficient by themselves to cause a shortage.

Q: Doesn't reduced supply scarcity create shortages?

A: No. In a free market, shortages are impossible; there is only a price. Rubies and Picassos are scarce, but there's never a shortage of them. You can buy all you want any day of the week. Just pay the price.

Q: So how is the state causing a shortage?

A: The overriding cause of the shortage in the Southeast is state legislatures' mandates that anyone selling gasoline at market prices will be labeled a "gouger" and fined $10,000 to $25,000.

Q: That's it? That's the reason?

A: That's all there is to it. Only government can create shortages. If the price for gasoline had been allowed to fluctuate freely and rise to $5 a gallon locally, it would have provided plenty of incentive for truckers to siphon gas from other states and haul it to Georgia, Tennessee, North Carolina and Alabama. But as it stands, every one of these states has an "anti-gouging" law, and every one of their governors stood up to announce that he would vigorously enforce it. They may as well have said, "I demand a gas shortage."

Q: What should they have said instead?

A: It depends. If the governors want votes, they should threaten retailers, just as they've been doing. But if they want plenty of available gas, they should encourage retailers to sell gas at the highest price they can get.

Q: Would that help the supply and demand pictures?

A: Yes, both. On the demand side, high prices for goods and services curb consumption in an orderly way. If gas were more expensive, some people would postpone that trip to the country club for dinner. People who really needed gas to get to work or close a $50 million real-estate deal in Atlanta would pay the price. A higher price would also help supply. People wouldn't be burning gas waiting a half hour in line to buy it. And no one would be "topping off." On the contrary, people would hoard as little as possible and wait for the price to come back down.

Q: Would the price come down?

A: Of course. As wholesalers realized they could make an extra dollar a gallon in Georgia, they would burn rubber hauling gasoline there. Pretty soon, there would be lots of gas, and the price would drift back down. Other areas, from which the gas came, would experience a slight rise in the price. Prices would equalize across states, and there would be no shortage and no outsized high prices.

Q: How long would it take to get ample supplies to the stations?

A: With a sufficient profit incentive, probably about 48 hours. Certainly no more than a week.

Q: But don't some other states with anti-gouging laws have plenty of gas?

A: Sure. Suppose you're a wholesaler stationed in Texas. You're not allowed to get any more for your limited supply of gasoline in north Georgia than you can in the Florida panhandle. Where are you going to ship it? To the easiest, closest destination. Under price controls, gasoline gets allocated not by price but by other market factors whatever reduces the cost of delivery so the sellers can maximize profits. In the severest cases, price controls create a black market.

Q: It seems that gasoline isn't the only shortage.

A: Oh, no. There's health care, another area where the state caps prices. Sometimes the state creates surpluses, such as in housing, where government programs encourage massive mortgage indebtedness. Either way, it ends up a mess.

Incidentally, one of the "solutions" proposed for ending "topping off" is to limit gas purchases to above ten gallons. Besides making life for small car owners hellish such a law would make owning a motorcycle very tough.

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Old 10-31-2008, 04:20 PM   #2
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Drives: '08 Hatch
Join Date: Oct 2008
Location: Central PA
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I think the idea of limiting gas purchases to greater than ten gallons is very telling as to the psychology going on with energy. It seems that a lot of people think you are SUPPOSED to be sucking up a huge amount of energy. That it is somehow vital to living in the modern, American world. If you aren't there must be something wrong with you.

Example: I pay about $15/ month for electricity. I do NOT live in squalor, (granted, I have no television service of any kind, so I am not running one of those energy suckers and heating here is included because of the law office down stairs being on the same heater) I simply do not consume more energy than is necessary. If i am not using it, I unplug it, avoiding phantom current. Whenever possible I use the laptop computer, eschewing the desktop's greater performance unless I want to do some photo editing or a little gaming.

When I tell people how little we pay for electricity, the first thing I usually hear is "what do you do, live in the dark?" No, I just turn my lights out when not using them and do not use 100 watt bulbs when a 25-60 will do. If we all applied this to our vehicles, the above articles would not be necessary as most people would be driving small commuter cars, and the trucks, suv's et cetera would driven by the people for whom they had true utility, and then only when they were needed. Somewhere, though we decided as a society that if you COULD afford to do it, you should not worry about economizing. Silly, and self destructive, it seems.
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