When you hear the words "price gouging" uttered by somebody .. even if that somebody is the governor of a state .. you know that you are listening to someone who (a) has a limited understanding of the basics of free-market economics; or, (b) is a politician more interested in pandering to ignorance than in leading.
That describes Atlanta yesterday.
Yesterday afternoon I drove to the WSB studios to participate in a joint AM 750 WSB / Channel 2 fund raising venture. On the way I saw that cars were lined up on the streets waiting to get into gas stations. The panic was on. 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.
There has never in the history of the world been a better way to allocate scarce resources than to simply allow the law of supply and demand to take its course. Whenever government steps in to interfere, shortages occur and chaos often reigns.
The way to handle the gas panic in Atlanta yesterday was to RAISE PRICES! It's not price gouging. It's the law of supply and demand at work. Today there will be people in Atlanta who might not be able to drive their own cars to work, to doctors appointments or to buy groceries who would otherwise be driving if gas stations throughout Atlanta had raised their prices in response to the increased demand and limited supply.
Let me explain:
As the panic spread, and the demand increased, the prices at the pumps were pretty much unchanged ... for a while. As a result people decided to top off every vehicle they owned .. .no matter how much gas remained in the tank. The predictable result was that stations soon ran out of fuel. The word spread, and more people hit the streets to fill more cars. Today people in Atlanta will find that many gas stations still have their pumps shut down. Throughout the night tanker trucks were busy trying to replenish the stations, but there simply aren't enough trucks to meet this demand. Another supply problem.
So .. what was the solution? For the politician the solution may have been to pander to the electorate by talking about imposing fines on gas station operators who "overcharge", whatever that means, consumers. The real solution, though, was to increase prices in response to the increased demand and limited supply. This is what the uninformed and the political class call "price gouging."
Let's take a look at what would have happened 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.
The truth is that when Georgia's Governor Sonny Perdue signed an executive order late yesterday afternoon threatening heavy fines on gasoline retailers who, as he said "overcharge" customers, he became a part of the problem and not a part of the solution. His statements were a signal to the people that there was a crisis in gasoline supplies, and to get out there and fill up everything they could while he held the prices down. Today Atlanta drivers will experience the results of the governor's actions.
This whole price gouging nonsense was also front and center last year when four hurricanes ripped through Florida. Entrepreneurs abandoned plans to rush needed supplies and commodities to South Florida when politicians started pandering to voters with dire threats of fines and even jail time for evil price gougers. The marketplace simply wasn't allowed to respond properly to increased demand .. and shortages resulted.
Here's an example I used yesterday. Hotel and motel rooms. In the aftermath of the hurricane -- especially Hurricane Charley -- there was a huge demand for rooms for displaced hurricane victims. So, here come the politicians with their laws restricting what motel owners could charge for rooms. The result was that fewer families could find a place to stay. Here's why: A family of four arrives seeks shelter at a hotel where rooms rates are being held down by anti-price gouging laws. They decide to get two rooms when one would do. One room for mom and dad, the adjoining room for the children. Along comes the second family of four, only to find that there are no more rooms. Sorry, out of luck. Now, if prices had been allowed to rise with the demand that first family might have decided to make do with one room instead of two. That would have left a room available for the next family to arrive.
This is a problem borne of economic ignorance. Our hideous government schools do a pathetic job of teaching the very basics of free market economics. The ignorance of the public is then exploited by politicians for votes and support.
Posted 2005-09-01 4:48 PM (#29894 - in reply to #29741) Subject: RE: Hold onto your wallets/checkbooks
Veteran
Posts: 127 Location: Fort Worth, Texas
Perhaps your definition of "Price Gouging" and mine are different explaining why you do not consider what is going on to be price gouging. Perhaps I find it more unethical than anything else. I am basing my opinion on the fact that COG have NOT increased but retailers have inflated prices because the demand due to a natural disaster forces people to pay it. The example you gave about the hotel prices, what difference does it make if 1 family gets 2 rooms instead of 1? The hotel makes the same amount of money whether it's 1 party renting 2 rooms or 2 parties renting 2 rooms. The only difference is that they are using the demand as the result of a hurricane to jack the price up so they make more money......nothing more. And because people are desperate to find a place to stay, they are forced to pay the inflated prices. Yes, demand is a principal of economics but I find the fact that they are using demand as a result of a natural diseaster completely unethical and fits MY definition of price gouging or unethical pricing (if you find that term more acceptable). Do you think the panic over gas in Atlanta was a result of people's panic or people's panic was a result of the prices rising?
I have no problems with any business owner making a living and making profit on the goods and services they sell. However, in the wake of the disaster of Katrina, I find it nauseating many of them choose to take advantage of the situation for their own personal gain, and you cannot honestly tell me there aren't plenty of them doing exactly that. Those are the ones I have the problem with. I applaud the businesses who are showing humanitarianism and attempting to help the victims and their families, not the ones who choose to prosper from their tragedies.
Posted 2005-09-01 6:53 PM (#29897 - in reply to #29741) Subject: RE: Hold onto your wallets/checkbooks
Expert
Posts: 1723 Location: michigan
Ok champ- lets take your example and piece it out.
there are 10 rooms in the hotel and 10 families needing space. Under your scenario- ( one family taking two rooms rather than one) only 5 families will enjoy a hotel room, the other 5 are out of luck. (I suppose THATS the humaniatrian thing to do). But no, the owner of the hotel prices the rooms in such a manner each family could afford one room, thus all 10 families are in a room,dry and warm. Did they pay more? yes they, did but in the end they all got a room.
In the same way, when gas is being comsumed in far greater quanity, the only way to ration it out is to make it more expensive. Then ,instead of being a greedy hog and filling your tank when half a tank would do( or renting two rooms when one would do), other people have a chance to buy some gas. Not to mention, once the fuel tanks are empty, the owner of the gas station will likey have a hard time finding more product to fill the tanks- then they are losing alot of money.
I know there are likely thousands of good,decent people handing out whatever they can to help whoever they can. Its not a dog eat dog world out there however, when the ecomonics of supply and demand take hold, people end up being helped, not hurt, by it.
Posted 2005-09-01 10:46 PM (#29907 - in reply to #29893) Subject: RE: Hold onto your wallets/checkbooks
Expert
Posts: 2958 Location: North Carolina
Originally written by santelikk on 2005-09-01 3:16 PM
That is best explanation of economics that I have heard since my 4 econ class in college. Great job!
I thought so too. I'd like to reiterate... This "explanation of economics" was written by Neal Boortz at the web site linked at the top of his article.
Posted 2005-09-01 10:56 PM (#29908 - in reply to #29741) Subject: RE: Hold onto your wallets/checkbooks
Veteran
Posts: 143 Location: southeast U.S.A.
Lets see if I have this right, If I pay an additional $.50 cents per gallon for my fuel and buy less because of the higher price then my neighbor that tries to support his familly on $9.50 per hour total familly income finds that the gas station still has gas because I didn't fill my tank due to higher prices then the problem is solved or better in any way because there still is gas at the pumps that he can't afford enough to get to work the rest of the week. But with this same sinario the gas station owner still gained $.50 cents per gallon on the gas that he sold at inflated prices and can allways sell the remainder of the gas at the normal selling price if the demand goes down. Seems to me that either way (normal pricing or inflated) that there still exists problems.Don't know what the answer is,just saying that the real winner in that sinario seems to be the gas station owner. As you can amagine the same princaple would apply to the motel. as stated I don't know the answer but don't really think that gas stations nor motels are raising there prices so as me or you will find an empty room or gas to put in our tanks. just my opinion. Ardly
Posted 2005-09-01 11:10 PM (#29909 - in reply to #29741) Subject: RE: Hold onto your wallets/checkbooks
Veteran
Posts: 143 Location: southeast U.S.A.
just another thought on this,
the people that had to evacuate their homes where surely of a mixed income where the one with plenty of money would most likely still purchase an additional room for the kids if needed even at the inflated prices. The less fortunate (poor person) that just lost everything feels alittle used at this time cause he and his family can no longer afford a room at all due to the motels inflating their prices all in the name of keeping folks from hoarding up all the rooms. Call this what you like but gouging seems to be an appropriate term to me.
Posted 2005-09-02 8:50 AM (#29916 - in reply to #29741) Subject: RE: Hold onto your wallets/checkbooks
Expert
Posts: 1723 Location: michigan
"This is a problem borne of economic ignorance. Our hideous government schools do a pathetic job of teaching the very basics of free market economics. The ignorance of the public is then exploited by politicians for votes and support."
Posted 2005-09-03 3:31 PM (#29942 - in reply to #29741) Subject: RE: Hold onto your wallets/checkbooks
Expert
Posts: 2828 Location: Southern New Mexico
I think it is price gouging. There is a simple way to limit the hotel and gas problems that you have been talking about. Limit the purchase. One hotel room per family unless they are going to be over the legal occupancy. That way both families of 4 have their rooms and no one is left sleeping in the street. It is selfish to take more than you need during an emergency. Limit the amount of gas purchased to, oh lets say 10 gallons each purchase. No reason to raise prices and make what supplies are left unaffordable.
Gas prices I can understand rising because of the refinery/ oil rig damage. But when gas stations not 50 miles from here are over $3 per gallon, and the local gas stations are still selling gas for $2.60 then it looks like someone is taking advantage of the situation and that is wrong. There is a difference between supply and demand and taking advantage of a disaster. My neighbour is making al list of those that are jacking up the prices (way above others) and plans on not buying from them even when the prices go back down.
Posted 2005-09-04 5:41 PM (#29956 - in reply to #29897) Subject: RE: Hold onto your wallets/checkbooks
Extreme Veteran
Posts: 455 Location: Ontario - east of TO
Originally written by farmbabe on 2005-09-01 7:53 PM
Ok champ- lets take your example and piece it out.
there are 10 rooms in the hotel and 10 families needing space. Under your scenario- ( one family taking two rooms rather than one) only 5 families will enjoy a hotel room, the other 5 are out of luck. (I suppose THATS the humaniatrian thing to do). But no, the owner of the hotel prices the rooms in such a manner each family could afford one room, thus all 10 families are in a room,dry and warm. Did they pay more? yes they, did but in the end they all got a room.
I think in the situation the "humanitarian" thing to do would be impose a limit - not a price increase.
Posted 2005-09-06 3:52 PM (#29987 - in reply to #29741) Subject: RE: Hold onto your wallets/checkbooks
Member
Posts: 32 Location: Brazil, IN
I am a sophomore at Indiana State University, and I personally think that the econ profs there do a GOOD job explaining free market economics. For those of you who don't understand it, maybe you should have woke up and gone to class, it does wonders.
As for the increased gas prices, if the media would shut up and leave it alone, people wouldn't get nearly as worked up. Just be glad you have what you have. If going in town costs a little bit more than it used to, only make one trip instead of 5. Just be glad you have a home left to go back to. Those people down south have nothing left, so suck it up and get over it.
Posted 2005-09-09 7:07 PM (#30140 - in reply to #29987) Subject: RE: Hold onto your wallets/checkbooks
Expert
Posts: 2828 Location: Southern New Mexico
If you think that people wouldn't get worked up over gas prices jumping up $.75 in less than a week (with out the media)then you need to get out of class for a few minutes. Not everyone can afford to pay extra for the gas. I know for a fact that a neighbour of mine was just getting her bills paid and is now not buying her allergy meds to make up the difference.
Your a sophomore so... what 19-20? Wait until your having to work and on a budget. Then you'll understand why people are up set.
Posted 2005-09-11 8:24 AM (#30172 - in reply to #29987) Subject: RE: Hold onto your wallets/checkbooks
Extreme Veteran
Posts: 455 Location: Ontario - east of TO
Hummmm didn't take econ in University... guess I'm not so bright huh?????
Many of us understand econ - we just don't agree with this. It is nothing but companies feeding off a disaster to pad their own pockets.
Those folks in the south are also having to pay the extra gas prices - some did get out with their vehicles - so are those people any less important?
I have no problem paying more if there is a valid reason, an actual oil shortage, gas company giving extra for aid down there (like that will ever happen!).... but I'm not a big fan of padding the pockets of the Oil companies.
I'm in Canada - we send oil to the US - we don't get oil from the gulf... so why the he!! did our gas go up???? And no - some of the gas companies do not work both sides of the boarder - but yet those Canadian company's prices are some of the highest???? What gives? I see no other explanation other than money grapping!
Posted 2005-09-11 8:41 AM (#30173 - in reply to #30172) Subject: RE: Hold onto your wallets/checkbooks
Expert
Posts: 2958 Location: North Carolina
I've read several comments that bash oil companies or the president. Nothing specific, just words and opinons bashing... I doubt anything could change the minds of those writers. logic or fact doesn't seem to matter.
so ... I'll just vent too ...
"...There has never in the history of the world been a better way to allocate scarce resources than to simply allow the law of supply and demand to take its course. Whenever government steps in to interfere, shortages occur and chaos often reigns..."
PS ...MBRA518 .. The europeans are seeing price increases for their gasoline. The global economy is simply allocating a scare resource. I'd bet the far east is also seeing ripples of price.
Posted 2005-09-11 10:46 AM (#30175 - in reply to #29741) Subject: RE: Hold onto your wallets/checkbooks
Regular
Posts: 57
Not long ago a client who drills for oil and is a geologist from the South told me we have about 20 years left of oil, period. He told me not to worry because humans would have other means of energy by then. There are many people in the Biz who know this and are getting their portion of the pie before the whole *#@! burns down. So I will drive my big F-250 with this big trailer until the fuel runs out, it is the American way. But will offer rides to those would like to split the gas tank.
We are all consumers and eventually we will consume all the natural fuel supply on the planet. The pricing may slow it down but don't think so. Don't see any reason to have fuel at $3-5 dollars a gallon. People are not going to stop driving so what is the point. My kids struggle as young college students to live in this day and age. No end in sight....
Posted 2005-09-11 4:25 PM (#30180 - in reply to #29987) Subject: RE: Hold onto your wallets/checkbooks
Extreme Veteran
Posts: 335 Location: Decatur, Texas
I took ec in college over 40 yrs ago, Erin, and I've seen more practical applications in real life than you'll ever understand in some classroom setting. Too damned bad that all of life's problems can't hit you now while you're still in college and know the answer to everything. You need to "suck up" and face the challenges that this country is facing in the near future instead of sitting on your ass in class and castigating those that have been around the block in a real life situation. Volunteer some of your free time to help the needy and understand why prices affect them so greatly. You still have a LOT to learn!!!!!!!!!!!!!
Posted 2005-09-11 6:27 PM (#30184 - in reply to #30180) Subject: RE: Hold onto your wallets/checkbooks
Expert
Posts: 2958 Location: North Carolina
Originally written by Longrider on 2005-09-11 3:25 PM
I took ec in college over 40 yrs ago, Erin, and I've seen more practical applications in real life than you'll ever understand in some classroom setting. Too damned bad that all of life's problems can't hit you now while you're still in college and know the answer to everything. You need to "suck up" and face the challenges that this country is facing in the near future instead of sitting on your ass in class and castigating those that have been around the block in a real life situation. Volunteer some of your free time to help the needy and understand why prices affect them so greatly. You still have a LOT to learn!!!!!!!!!!!!!
Longrider ... a personal insult to Erin doesn't add to this exchange. Remember, the young folks of today will run the country & support the 60 Yr olds like yourself tommorrow.
Add bad life choices to unfortunate circumstances and we will always have the needy with us. And NEEDY is relative. The neediest of our society with a car to gripe about high fuel prices, is a rich in other parts of the world.
Posted 2005-09-11 8:06 PM (#30191 - in reply to #30184) Subject: RE: Hold onto your wallets/checkbooks
Extreme Veteran
Posts: 455 Location: Ontario - east of TO
Originally written by hosspuller on 2005-09-11 7:27 PM
And NEEDY is relative. The neediest of our society with a car to gripe about high fuel prices, is a rich in other parts of the world.
You don't have to have a car to grip about gas prices - with almost everything we buy being shipped - the price of gas affects the price of everything.
Posted 2005-09-12 7:02 AM (#30207 - in reply to #30184) Subject: RE: Hold onto your wallets/checkbooks
Extreme Veteran
Posts: 335 Location: Decatur, Texas
Yeah puller, you're right. These young people ARE the ones who will run the country in the future. And with things like they are today, I see why my parents were so concerned with my age group running the country. But supporting me? This generation of GIVE IT TO ME NOW I don't want to work for it? Come on, give me a break!
Posted 2005-09-12 8:47 AM (#30210 - in reply to #29741) Subject: RE: Hold onto your wallets/checkbooks
Extreme Veteran
Posts: 346
The generation is definately "Give it to me now". The young people that I have tried to hire have been really hard to find. The majority that I interviewed and talked with dont give a damn and want to start off working at $20 an hour. Others dont have any ambition in life, or dont know how to work because they havent had too. I havent figured this out yet. Its been tougher to hire lately than ever before and its not due to economy or anything else. I am not old either so I am just ahead of these guys at 30. But I have been on hourly paydays since the age of 14. Before that I worked at home or whatever else my slave driving parents thought I needed to do. These guys today would crap a brick if they had to do what we have done or do.
Economics or not call it what you want the price of gas has been climbing to ridiculous highs without cause. The price of diesel cannot be explained it is cheaper to refine.
I live in an area that does get affected by hurricanes and we see it each time. The price of gas, water, building products, etc go up right near landfall and continue until several months after. Its gouging in one since for sure. Its the store owner wanting more profits plain and simple and there is no way supply and demand has anything to do with it. The gas in the ground did not go up in price the next load may but not the one that was delivered last week. I also saw where someone stated that they had to pay for it at delivery. What a load of crap. They are on 30 day terms like the rest of the world (for most anyway). We work for several large convenience chain stores and I asked this question to their CFO. Its getting maximum profit for your product is exactly what he stated.
Posted 2005-09-12 11:21 AM (#30217 - in reply to #29741) Subject: RE: Hold onto your wallets/checkbooks
Veteran
Posts: 127 Location: Fort Worth, Texas
Thanks Freeman for admitting the gas stations are basically "taking advantage of a situation" to make extra profits. Us "seasoned" people understand that but many want to hide this fact under "the laws of econimics" as if it were helping the country out. the majority of Americans are on a budget and live from paycheck to paycheck. If the amount of money they spend on gas each month increases $50, then that $50 comes out of their entertainment (no movies), eating out (no going to restaurants), clothing (no trips to the mall), or perhaps something critical like medication funds. Call me an idiot, but I don't see how this is "helping" the country. If the gas stations and companies make more money but the clothing retailers, restaurants, and movie theaters lose money, how are we making things better?
Posted 2005-09-12 12:09 PM (#30220 - in reply to #30217) Subject: RE: Hold onto your wallets/checkbooks
Expert
Posts: 2958 Location: North Carolina
Originally written by Champhorse on 2005-09-12 10:21 AM
Call me an idiot, but I don't see how this is "helping" the country. If the gas stations and companies make more money but the clothing retailers, restaurants, and movie theaters lose money, how are we making things better?
We won't see the benefits for years. The value of higher energy prices is much more energy conservation. We will learn to do more with less. It's not easy or simple. But it is one area we have an advantage over the rest of the world. Our product cycle is shorter than most. We have to compete with the world. Energy is one product that is globally priced. It is the same for the low wage countries as it is for us. Running a 6000 pound SUV ten miles to get a qt of milk is wasteful. Using a 2000 compact car is still wasteful, but more conservative.
Now... pulling a horse trailer with my dually is painfull in the wallet, but a luxury I choose to afford. I'm on a budget too... Donald Trump rich I an not.
Hold onto your wallets/checkbooks
Great job! 
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