New Op-ed up at Fox News: Defending Price Gougers
The newest Fox News piece begins this way:
Understanding economics has never been a requirement to be a reporter or a politician. With gas prices moving back towards $4 a gallon over the weekend, "price-gouging" seems to again be everyone’s favorite phrase these days. With price of gasoline already being American’s greatest concern, more so than the economy or taxes, it is a message that many people will be primed to hear. Presumably that is why a majority of Americans want higher taxes on oil companies.
Yet, if political threats of price controls and price-gouging lawsuits prevent prices from rising now, it is the consumers nationwide who will suffer in the long run. In the coming weeks, as people living in the disaster area try to get everything from fallen trees removed to food, the outcry against higher prices will only get worse.
posted by John Lott at 12:46 PM
30 Comments:
I used to think politicians had forgotten the first rule of business economics. I now believe that they count on it: businesses don't pay taxes, consumers do. Tax the oil companies and they just pass that cost on to the consumer as higher gas prices.
There is much political capital to be had in demonizing the free market and promising the impossible.
John does a great job explaining why price gouging is NOT happening and why we should allow free markets to work. Keep it up, John. It will require dedication and endless repetition to get the truth heard over the chorus of misinformation. I hope John keeps writing, and I hope everyone who reads and understands will repeat these lessons.
So Mr. Lott, can you tell me why Oil is less than $100 a barrel and my gas is only $.10 a gallon less than at its highest point? The problem will not be solved with Windfall profits which do drive up the costs but we need regulation to break the oligopoly.
Are you kidding me? Friday morning gas is $3.45. By lunch, $3.65 and friday night it's $3.99 yet the price of oil kept dropping. Gouging is not acceptable. Explain to me what other business right now can freely adjust cost to maximize profits on an hourly basis. Last quarter Exxon reported record profits. Normal businesses would use these profits to offset future losses. Not Exxon. Their only question is - How much profit will we get this quarter.
Grocery stores run out of product in many emergency situations but they don't increase price minute by minute!
Please, someone rescue this guy from his ivory tower. It is absolutely immoral to raise prices by almost 90% like you suggested happened at this hotel during a national emergency. So, I suppose suggestig it is o.k. means you may need to do a moral inventory of yourself
What kind of blogger vetoes discussion. This is from the individual telling you to come down from the tower and smell the flowers.
If I by concert tickets for $50 and sell them for $150 to a desperate person it's called scalping and I could get fined and jailed.
If a business rise a price to make a buck when people are desperate it's called supply and demand, and the free market.
Right is right and wrong is wrong!
You don't kick people when there down.
It's part of whats wrong with every one in this country right now.
Oil companies raise prices so that less demand will be on the gasoline needed by those who need it the most. It also encourages "sharing" of those in need instead of just purchasing individual gasoline for personal consumption.
In other words, more people can purchase gas in "pools" rather than only a small amount who take up ALL the gasoline.
Think of it as a hotel room needed for shelter. The hotel raises the price of the room so that a family of 6 would then only rent perhaps 3rooms instead of 5 or 6, thus leaving rooms for others who are stranded to rent and find shelter.
If gas were too inexpensive then too many people would want the commodity thus once the supply, limited because of access to the areas of delivery, are gone, the NO ONE would get gas.
Come on folks, get a clue.
It is supposed to be a "free enterprise economy". If I have something to sell I set the price. If you do not want to buy that is your choice. Likewise if you have something to sell then I pay your price or can choose not to buy. Price gouging is the way of business. If you think it is too high do not buy it. Don't blame the man setting the prices because he wants a profit. Remember it is a "free enterprise economy"
Prices were set by the state in the USSR and as you all know that country had chronic shortages of everything until the country folded.
Cheerily
IJK
If gas prices go up as a hurricane or other disaster approaches, fewer people will fill up their cars. Instead, they're more likely to carpool or try to get on a bus or train. This, in turn, eases congestion on the highways leading out of the city, because there are fewer cars on the highway, and makes evacuations easier.
With regards to price controls to prevent gouging, well, it's amazing that I am still able to remember the Soviet Union, which did a very good job fixing prices on goods and insured that there wasn't anything to buy under normal circumstances, much less during emergencies. Amazing how most of our politicians can't seem to remember that.
I'm a business owner. If I buy a product to re-sell, it doesn't cost me any extra to have it in stock.
Use gas prices as an analogy for family water bills and find out how fast the laws change. If your water bill spiked because the city's pumping station stopped working for 2 days, you would have new city officials in office come next elections. The oil companies are a monoply.
John,
I think you are brilliant and I agree with you about most of this article, however, your idea that gas companies are raising prices to discourage over-buying in the wake of Ike doesn't quite make sense to me. I guess if gas was normally $1.50 a gallon, it would make sense that they are raising prices for this purpose but raising an already ridiculous price even higher is greed. People could only afford what they absolutely needed before the storm hit- raising the prices did not change that. I think the gas companies see the writing on the wall that oil prices are going to continue to drop (without government interference) and want to cash in on it as much as they can. People have no choice but to pay the higher prices because in the areas affected by Ike there are limited in places to buy it. Remember that a free market society should include competition but in this case does not. Having said that, I do respect the right to set your own price and do not think the government should have any say at all in it- it would only make things worse.
Let's define gouging - locally a station had their regular gas priced at $3.59.9 on Thursday night. Friday morning the station increased the price to $4.77.9.
Other gas stations in the area currently remain at $3.65.9 to $3.79.9 (right across the street, no less).
The station in question claims that their new deliveries caused the price increase while the other local stations have also received deliveries since Thursday and maintained their prices.
Aside from attempted gouging (already report to the MS Atty Gen'l) this station just killed its local customer base.
i drove from NC to MD over the weekend, here's what i saw.
NC prices ranging from 3.89 to 4.50
VA prices ranging from 3.70 to 4.50
MD prices ranging from 3.60 to 3.85
and you want me to believe that in NC and VA price gouging was not happening at some stations?? nearly a dollar difference if you drive half a mile down the road.
Of course I also blame the idiots buying gas at 4.50 when they are in site of a station selling it for 3.90.
Furthermore now that we see minimal damage from Ike, have the prices spiked down?
John,
Supply and Demand. I get it. In Texas short supply price goes up. Somebody explain to me why gas jumped $.20 a gallon overnight Friday in the middle of Kansas in a town with a refinery, and gas on the market is down roughly $.30 the last two days?
The USSR did have its own version of price gouging:
Those able to offer "services" (political favours or other goods) as well as pay the "fixed price" got the goods before the plebs who were only able to pay the "fixed price", and who spent all day stood in ques.
Which system is fairer?
Brent
I read this article and said to myself "what a monumental case of Deja MOO !" I've heard this bull before. Obviously Mr. Lott you are one of those who can easily afford these outrageous price increses. Here's a thought for you Mr. Lott. Where does our Constitution guarantee a God-given right to profit by theses Oil companies?
This is one of the more stupid pieces I have read, and considering that it is posted on a Fox web site, that's saying a great deal. Talk about out of touch with reality! The University of Maryland should cringe if this passes for what is "taught" in their economics department.
THE PERSON WHO SAID GOUGING WAS OK BECAUSE IT ALLOWS SHARING WITH THOSE WHO NEED IT. ILLINOIS GAS STATIONS WILL NOT PUMP OUT ANY OF THEIR EXTRA GAS TO SHIP TO THOSE IN NEED AND I DON'T THINK ANY OTHER S WILL ALSO. THAT IS WHY WE HAVE A FEDERAL RESERVE IN TIME OF NATIONAL EMERGENCY. IT'S PRICE GOUGING ANY WAY YOU LOOK AT IT. THEIR TIME WILL COME.
This is for the guy who asked where the Constitution says the oil companies can profit, where does the Constitution say you are garaunteed cheap fuel. All you liberals think you are garaunteed fairness, cheap food, high paying jobs and a good retirement. If you read the Constitution you would realize that you are only garaunteed the right to pursue these goals without interference from the government. Life isn't fair and it is what you make of it. In a down economy I started a construction business 3 years ago and have increased gross and net by 20% each year. If you work hard, aren't lazy and are smart with your money you wouldn't be complaining about the gov't.
The signs of a supply and demand price increase (for those who forgot):
1. ITS INDUSTRY-WIDE
2. NOBODY PROFITS FROM IT
3. THERE ARE REAL TANGIBLE SHORTAGES (the "sorry no gas" signs)
Signs of criminal price gouging (a fat cat scam)
1. IT'S NOT NECESSARILY INDUSTRY-WIDE
2. THE FAT CAT(S) PROFIT FROM IT
3. THERE ARE NO TANGIBLE SHORTAGES
Compare this to the price increase that began just before Katrina and is thankfully plateauing, due to a FCTC crackdown on oil speculation, and threats by some in Congress to crackdown on oil companies.
It's industry-wide, score one for supply and demand
Oil Company profits are rising in proportion to the price at the pump, so somebody is profiting from this.
So far I haven't seen any stations running out of gas.
This is obviously a fat cat scam, and the American people are the source of the money for the cat's pockets. Since the FCTC has already cracked down on speculation -- hence the drop from $4.00/gal to $3.80/gal -- it's obvious who the fat cats, keeping the price over the supply and demand $70/barrel $2.00/gal price range, are.
That's why we need a confiscatory windfall profits tax. The IRS calculates that each company would make a certain amount if the prices were held to the aforementioned supply and demand levels. If a company's affiliated stations are showing more than that, every last penny the company makes in excess of the IRS calculated figure goes straight to Uncle Sam and then is redistributed back to the consumers based on gas tax receipts. Sooner or later, one of the oil companies is going to realize the only way out of this is lower prices, and will set their profit bottom line at 0. Then, they will reduce their price to the lowest they can get and keep their profits in the black. Soon their making ten times what they used to and are keeping every last penny of it as everyone is coming to their stations.
When I see a disaster coming, I don't try to profit off of someone who's getting hit, I stick it to those with too much to help those in need. In other words, the greedy hotelier sticks it to hurricane refugees who board in hotels in the region, the generous one offers them for next to nothing while increasing the price West of the Rockies to cover it. The Greedy oil company raises gas prices across the board, the generous oil company raises prices in non-vulnerable areas, so that the gas in the gulf region can be sold cheaper.
That is the solution we need.
And if the Oil Companies try to pay the trump card, and shut off the oil flow, Uncle Sam retaliating is not unprecedented. Circa 1903, coal miners went on strike in Pennsylvania demanding 10 hr work days and living wages. The coal company insisted on 14 hr days and pennies per day. When the two sides couldn't reach agreement the company decided to wait it out since it was August, and counted on the ensuing coal shortage to turn public opinion against the miners. President Theodore Roosevelt got wind of this somehow. Less than 3 weeks into the strike a posse of US Marshals and a battalion of US Infantry, armed with mining equipment, came to the town. The soldiers, re-opened and operated the mines preventing the coal shortage, and the Marshals arrested the managers and owners on charges of scheme to defraud, and treason.
So if the oil companies try something similar. The Corp. of Engineers and supporting CBs will reactivate the refineries, and the dreaded G-men will arrest the oil company's board of Directors and then the company's profits will be 0.
From a person who actually was living on the Gulf Coast when Katrina, Gustav, and Ike hit, it is very discouraging to see gas stations raising their prices when people are in dire need of fuel for either immediate evacuation or sustenance afterwards. And for those saying that people should carpool or take the train out of the hurricane path, it is obvious that they have never lived in a hurricane stricken area. Those who left their vehicles behind came home to a car that had taken a saltwater bath...not good. Free market is important, but more important is "goodwill to mankind." With immenent disaster, oil companies should foresee the extra need and should help people with more supplies rather than trying to make the most profit they can't possibly make with hysteria. With all of the other supplies such as batteries, candles, nonperishable foods, and water, the shortage in preparing for a storm is adequate, and prices remained fair. Why is it not the same with fuel??? Ike is gone and prices still remain at 3.99 vs the 3.63 the day before the storm, and I am a good 500 miles away from Houston. Answer that for me. The oil companies can fix their platforms in the Gulf with their record profits...so don't feed us that excuse either.
Dear Last Anonymous:
Of course, no one likes to pay higher prices. I sure don't. The question is what is the alternative. You have a problem: the amount of gas that people want is more than is available. How do you propose that we solve that problem? If you don't have price go up, people are going to waste gasoline. If you do let prices go up, you won't have companies storing gasoline for after the storm. Just tell me how you will solve this problem.
I was raised in a family business that was a petroleum jobber with convenience stores. Crude is traded on the open market and purchased on a daily basis and delivered to stores. The prices changes each and everyday and sometimes many times during the day. It is the luck of the draw as to timed pickup and delivery. The irony to the situation is that it is the federal and state government that is locked in on what they received in tax money per gallon - they never loose. Their margin is set. The retailer at times struggles to make a .10/gallon margin. When an emergency happens and the prices are soaring every station is demanding fuel from the wholesaler - the customers panic and then the supply cannot met demand. The customers will literally suck every gallon of gas out of the ground and sometimes the wholesaler cannot delivery any fuel for days - that leaves the retailer having to either shut down his store not bringing in any income to cover all his expenses that have to come from the money made off of other items they sell. I have been a retailer and a wholesaler - look around and take note that the smaller business man is having to get out of the business. One tanker of fuel is costing 45-50 thousand dollars at wholesale. Everone is paying in credit cards for everything - all the credit cards are going to the oil supplier and then passed back to the retailer against the gas delivery. If you go in an purchase drinks, groceries, ice, chips, beer and a magazine - the money goes against the retailers gas bill - it cannot be used to pay for the items you bought. When you only buy gas which little profit is realized for the retailer - he cannot cover the other expenses.
My family is now out of the business after 27 years of it - sick and dead dog tired of it. A no win situation and the customers actually hate you in a time like this - thanks in part to the media hype and the gov't.
"Understanding economics has never been a requirement to be a reporter or a politician." Rare to run into a statement truer than that. This was a great piece, so I'll refrain from the many tangents that could take us on. Thanks for another good dose of common-sense to pass along.
Anonymous,
I can sympathise, the local independant I buy from when I can is stuck with the last delivery he got. His margin is €0.03 / litre, and he is stuck with €1.35 /litre when the big boys have later deliveries they can sell for €1.29.9/litre.
To a Socialist, that probably looks like greed. to him, it's a nightmare.
Brent
I can't believe that charging twice the price for a hotel room from it's normal price is considered "free enterprise" - it's taking advantage of those in a crisis situation. Those companies that pulled such a stunt should be penalized. This is not the same as the rate shifts between winter and summer. It's just plain greed.
John Lott, thank you for this fine piece on basic economics.
Based on news reports about "price gouging" and some of the comments here, we Americans desperately need this education.
He's just full of crap and he knows it.
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