Price gouging, or capitalism?

[Warren]

The only reason that things don't work as they should is that there are alot of policitcians and bureaucrats mucking up the works.

 

[Can'thavenuthingood]

Spitzer, Spitzer, Spitzer? Oh yeah, this guy? He wants to be governor?


http://www.gunweek.com/2000/nssfsuit.html

The National Shooting Sports Foundation (NSSF) and seven gun manufacturing companies announced at a Washington, DC, press conference on April 26 the filing of a suit the same day in federal court against Secretary of Housing and Urban Development (HUD) Andrew Cuomo, New York Attorney General Eliot Spitzer, Connecticut Attorney General Richard Blumenthal and the mayors and other officials of 14 municipalities, charging them with an illegal conspiracy in restraint of trade and in violation of the Commerce Clause of the US Constitution.

The seven gun companies joining NSSF in the suit are Beretta USA, Browning Arms, Colt’s Manufacturing, Glock Inc., SIGarms, Sturm, Ruger and Company, and Taurus International all of whom sell to law enforcement.

"The lawsuit arises from a politically-motivated scheme in which these bureaucrats have sought to bully law enforcement professionals into buying handguns based not on the quality or safety of the product, but on capitulation by the manufacturer to a regulatory agenda concocted by these officials," Robert Delfay, president of the NSSF, said at the National Press Club.

"We are here to expose a plan that brazenly places political self-interest above police and citizen safety," he said...............................................


Those leopards don't change their spots, the oil companies probably didn't cut him in on the deal.
I shouldn't have said that, I don't know that. He is probably just looking out for the best interests of the citizens.

Vick

 

[Justin]

ustin, there is a 3rd way, which is the legal one at the moment: allow normal pricing mechanisms to continue. (even if the goods are exhausted). if those guys can show that their costs are going up from $1 to $3/gal i'm sure that's a valid defense. however, since reality is that gas peaked then, and has fallen quite a lot since, these "what if" theories aren't going to go very far.

Define "normal" pricing mechanisms? It strikes me as rather intuitive that the normal pricing mechanism that results from a shortage of a particular good is to raise the price to match the demand.

In a situation like Katrina, where demand for a limited commodity is high, while supply dwindles, neither system does a thing to create or bring in more of that commodity. Raising prices only serves to cause people to question how much of that given commodity they want. The natural result is that the commodity is automatically rationed, and everybody gets some.

When the state steps in to maintain pricing at "non-gouging" levels, people are going to continue buying without doing an honest appraisal as to the quantities needed. As a result, not only must the state then force the sellers to maintain their mandated prices, but they must also institute some sort of rationing scheme.

Bottom line is this:
In a disaster situation, the supply is going to be limited. There's nothing that can be done about it. You can either allow the market to determine the allocation, or you can advocate that the state step in and do it.

now if you want to argue about how things would work in our little anarchist fantasyland, then fine.

Hmph. In retrospect, I shouldn't have put any thought into my response. Your ill-advised use of a deliberately pejorative term (OHHHHH NOOOOEESSS!!!!!!11111ONE ANARCHISTS!!!!!!11111ELEVEN) pretty much shows that you have no interest in an honest discussion.

 

[jefnvk]

during gulf war II, a local gas station raised their prices from $2 to $6 the night the "shock and awe" phase started. the state AG busted them on it. no surprise. they deserved it.

WHY DID THEY DESERVE IT?

They owned something. They wanted to sell it at a price they seen fit. WHAT IS THE PROBLEM WITH THAT?

And I sure hope you guys saying price gouging is bad aren't the same ones that say when a disaster hits and someone asks you for a gun, because they don't have one, you're going to tell them to screw off, they should have thought about that.

Come to think about it, what if I have a few hundred gallons of water stockpiled, when a disaster hits. Does that mean I can't sell it for $20 a gallon if I want to? That because tehre is some disaster, I am under some obligation to provide it at an affordible price to those that think they need it?

 

[Can'thavenuthingood]

The natural result is that the commodity is automatically rationed, and everybody get

I think the natural result is someone else is going to see the money to be made and open another shop next to yours. Somewhere along the curve the pricing will stabilize, though IAW supply and market situation.

Katrina or SHTF scenario being the extreme. I don't think I'd have a problem giving a gun to someone who needs it. I also wouldn't try to sell the same guy water at $20 a gallon.

Any disaster changes the market. Everyone will have the same basic needs at the same time and the market is not stocked for massive needs at once. It works on a steady stream with no or minimal interuptions.

If ammo stocks were to dry up, we'd all be saving, driving and stocking up just in case. Or if the politicians decided rationing of ammo was needed, you betcha prices would be going up. I'd sell some of mine for a much higher price than what I payed for it, and that wouldn't be gouging.

I'm rambling.

Vick

 

[taliv]

now, now. don't get all salty. you can say a quote (presumably directed at me personally, since i seem to be the only one on this side of the fence) that includes "evil nasty business owners" "here's a clue" and "grow up." bears repeating. you've got to admit, that's not a tone that's exudes interest in honest discussion.


'normal' pricing mechanisms include all the supply and demand stuff you're talking about. if the cost goes up, prices can too. that's not a problem.

keep in mind that in most of these situations, like katrina, there isn't time for any of the gov options (not that i'm a proponent of any of them). the gov doesn't have time to implement a fixed price or even controls. they don't have time to implement rationing of stuff. the crisis is usually too shortlived.

the market, in theory, is the only thing that could solve the problem. but like i said, it breaks down.

i agree completely that price controls keep people from conserving when the market is functioning. e.g. california's energy crisis/blackouts

however, if you and I are stuck in an attic for a couple weeks in N.O. and you've got all the water, then we either don't have enough, and we're conserving anyways, or you have plenty, in which case it would be morally wrong for you to ask for my house in exchange for a couple gallons of water.

the point is that pricing of inelastic goods doesn't help resolve allocation in any useful way, especially when the market isn't working.

 

[taliv]

WHY DID THEY DESERVE IT?

because they broke the law?

And I sure hope you guys saying price gouging is bad aren't the same ones that say when a disaster hits and someone asks you for a gun, because they don't have one, you're going to tell them to screw off, they should have thought about that.

i appear to be the only guy saying price gouging is bad. but i'm under no obligation to distribute guns in a disaster. you don't have to give up any of the goods you've stockpiled, including water. you just can't take advantage of people in an emergency.

from the FL AG Price Gouging FAQ:

1. What is Price Gouging?
Florida Statute 501.160 states - It is unlawful during a state of emergency to sell, lease, offer to sell, or offer for lease commodities, dwelling units, or self-storage facilities for an amount that grossly exceed the average price for the commodity the thirty days before the declaration of the state of emergency or the seller price for the commodity the thirty days before the declaration of the state of emergency unless the seller can show increases in its prices or market trends justifying the price. Examples of necessary commodities are food, ice, gas, oil and lumber. This is a civil crime enforced by the Attorney General, the Department of Agriculture and Consumer Services and State Attorney.

2. How do I know if I’m being price gouged?
The law compares the price of the commodity or service to the average price charged over the 30 day period prior to the declared state of emergency. If there is a “gross disparity” between the prior price and the current charge then it is price gouging.

3. What kinds of things are covered under the Price Gouging statute?
The Price Gouging statute covers only essential commodities. A "commodity" means any good, service, material, merchandise, supplies, equipment, resources, or other article of commerce, and includes, without limitation, food, water, ice, chemicals, petroleum products, and lumber necessary for consumption or use as a direct result of the emergency. Examples of non-essential items luxury items are alcoholic beverages and cigarettes. The law also requires those selling goods and services to possess an occupational license.

 

[wingman]

I have a different take on this in that capitialism without morals/standards
is wrong and that is what we see in modern America, the stockmarket,
greed continues to drive the need for high, quick profit and in truth hurts
everyone. Make no mistake I believe in our system but it is failing and it
is due to greed. When super large profits are obtained other people suffer
now you can call it eco #1, spin it anyway you wish however everyone hurts
and in the end America. I find it sad.

 

[Camp David]

Price gouging, or capitalism?

While it is tempting to say that fluctuating gas prices reflect capitalistic market conditions, and that gas retailers should have the same opportunity as others, I think that their excess profit margins need to be checked!

First, though, a story... our neighbor operates a Christmas Tree sale close to our home where he helps the local Boy Scouts sell Christmas Trees during december... last week he was there on Saturday and noticed a guy on the lot as the owner of a local Shell gas station franchise... he walks over to guy and says hello... gas owner asks how much were the Christmas trees? My neighbor says, "$1,000... for you." Then he pauses...

Price gouging, or capitalism? Why not?

 

[NateG]

Quote:
WHY DID THEY DESERVE IT?

because they broke the law?

If it were in Florida (and it were a "state of emergency" not just an expected disruption of the oil supply, so I don't think the law was broken), then yes, the store probably broke the law. I don't think we're trying to argue what is and isn't against the law under the current laws in the several states. Instead, we're trying to argue what they should be. I think the law should leave well enough alone.

If you won't let a gas station owner raise his prices in anticipation of future wholesale price increases, will you let him close his doors and refuse to sell the gas he has on hand to keep it for his own use?

Pilgrim

I have no (legal) problems with someone not selling his property. (Of course, I didn't have a problem with his deciding what price to sell at, either.) You could make the case that he has a moral obligation to help people out, etc., etc. But not a legal one. (The difference: I think there's a moral obligation to tithe, but if the government wanted to madate that one, well, I wouldn't like that so much.) Heck, it could even be bad business to jack prices up to what the market will bear. Running out is bad for business (you're not perceived to be reliable) but maybe raising prices is worse. (People think you're taking advantage of them... read some of the comments about "price gougers" from this thread.)

Taliv brings up monopolies. Yes, those distort the market and make the analysis much more complicated. The local telephone monopolies are goverment created. So, lo and behold, the government meddles in the economy and breaks stuff, requiring more government regulation to keep the now-created monopoly from abusing it's government-blessed status. I think that's more evidence of not letting the government meddle in the first place than an argument for the government to meddle in another instance.

Microsoft isn't in the same category (I'd argue not even a monopoly-there are other pretty serious competitors, Microsoft is just the big one).

 

[NateG]

Arrrg!

I think that their excess profit margins need to be checked!

They are. If profit margins are high, others will want to enter the market. In the oil/gas retail business, most of the barriers to entry are regulatory. (See previous comment about regulation making the problem in the first place) That's the longer-term check on prices. If a business is "too profitable" others will enter it and it won't be any more. If it's just "too expensive" (whatever those terms mean) then folks will try to find/develop/invent an alternative.

Next, the current "excess" profit margins in the oil industry are around 7% The US economy-wide margins are around 7%. What excess margins? The financial industry has some big honkin margins: ~30% in some cases. Look at the rise of low-cost brokers and index funds as a result. The costs were high, and someone else stepped in and realized he could still make a good profit at a lower cost, so he did. Making people better off.

 

[Sergeant Bob]

The government makes more per gallon than the oil companies.
Why isn't everyone screaming about being "gouged" by them?

 

[Marko Kloos]

Heh, heh...scratch most people with the right emotional issue, and you'll find raging Socialists underneath. I always laugh out loud when I read, "I fully support capitalism/free markets, but..."

There can't be any such thing as "price gouging". It's socialist claptrap. In a free society, a fellow can charge whatever he wants for his property, and people are free to either buy it or go somewhere else. All that talk about "monopolies" misses the point that the barriers for market entry are regulatory, not financial or technical. In other words, it's a government-induced problem, and government is the last party interested in a free and open market with self-regualting prices (which are the only kind of "fair" prices.)

Besides, the government made more money via gasoline taxes during Katrina than any other entity involved, including the "evil" oil industry, but somehow people come running to the government to help fix this "unfairness". How far down the road from capitalism we have come since the days of Carnegie...

 

[Firethorn]

Define "normal" pricing mechanisms? It strikes me as rather intuitive that the normal pricing mechanism that results from a shortage of a particular good is to raise the price to match the demand.

In a situation like Katrina, where demand for a limited commodity is high, while supply dwindles, neither system does a thing to create or bring in more of that commodity. Raising prices only serves to cause people to question how much of that given commodity they want. The natural result is that the commodity is automatically rationed, and everybody gets some.

Actually, in a true free market economy the increased prices do tend to bring in additional supply, as Here2Learn stated. How fast this happens depends on the details of the commodity, how drastic the price difference is, etc. With a hurricane you're dealing with a sharp spike. Have some people live through a spike or two and they'll learn to be prepared or to do without for a couple days.

I'll use oil as an example. There are many different oil wells scattered around the earth. Depending on the nature of the well, the cost to extract a barrel varies. For a number of wells in texas, all sorts of deposits elsewhere, the cost exceeds $20 a barrel. Until recently, when oil was 10-$12, nobody is going to bother pumping oil out of that well. When oil reaches $40 a barrel, people start looking at restarting that pump. Digging the new well in that difficult field. When oil reaches $60 a barrel, oil sands and shale start looking practical/profitable.

On the other hand, when oil hits $100 a barrel, suddenly bio-products start looking good. People start looking hard at electric cars, etc... Riding bicycles.

In a hurricane situation, at the normal prices, extraordinary measures aren't profitable. Double the price, and suddenly it starts looking real good to hire some tankers to get in there. Triple the price and we'll haul it in by pickup truck in gas cans. Quadruple and I might even haul it in by plane.

When the state steps in to maintain pricing at "non-gouging" levels, people are going to continue buying without doing an honest appraisal as to the quantities needed. As a result, not only must the state then force the sellers to maintain their mandated prices, but they must also institute some sort of rationing scheme.

agreed.

 

[mike40-11]

NateG, Marko, Firethorn, well said.

No one can force you to buy anything from anyone at any price. How much you spend on what is up to you. If prices rise (or fall), the market changes.

Look at the fall off in SUV sales since the recent gas price increases. This free-market thing is really neat!

 

[Nathanael_Greene]

The government makes more per gallon than the oil companies.
Why isn't everyone screaming about being "gouged" by them?

Excellent point.

And as Walter Williams says, "which is preferable: a room available at $200 or a room unavailable at $79?"

(Some interesting reading:
http://www.jewishworldreview.com/cols/williams091405.asp
http://www.jewishworldreview.com/cols/sowell082405.asp)

 

[Molon Labe]

Assuming there's free-market competition, and assuming there's no collusion going on, there is no such thing as "price gouging." All prices are exactly what they should be.

Assuming there's free-market competition, and assuming there's no collusion going on, there is no such thing as "price gouging." All prices are exactly what they should be.

Assuming there's free-market competition, and assuming there's no collusion going on, there is no such thing as "price gouging." All prices are exactly what they should be.

Just thought it was worth repeating...

 

[ID_shooting]

I am trying real hard to stay out of this. This debate will have no end. There are those that believe in uncontrolled capitalism and those that don't. I really enjoy the "you need eco 101" replies, what a way to woo the opposing side of a debate by calling the intended target a stupid moron

For every one that wants a free market, complete with no government oversight, well, I hope you like being a serf. Guess what, it breaks down just like a game of Monopoly, eventually, one group or entity ends up owning or controlling everything. What happens then? They become the new government and usually will not your personal freedoms in mind, only how they can mass more wealth and power and could care less if you live or die, there will always be more. How do you think royalty got into power in the first place? Check the profits and outrageous CEO payrolls for evidence.

Now, we also know that pure socialism does not work, people become too dependant on the government and there is no incentive for succeeding or advancement, only making quota and the standard of living suffers.

What needs to take place is balance, if you live by greed alone, all you will be is greedy and an isolationist. But to have a functional society, we also need to watch out for each other, if I have water and my neighbor is dying of thirst and is unable to get water, I will share. Now the incentive exists to get more water or we will both die of thirst so we must work together to get it.

Same with gas, yes, companies can and should charge a bit more to start the control process. But saying that they are subject to the laws of simple economics is a farce. The individual stations maybe, but not the controllers, they are the ones with the largest profits for this fiscal year of any other industry in the entire history of the US. That is not supply and demand, that is corporate greed with out even slightest thought of corporate citizenship, plain and simple.

By even implying that people have a choice not to by that gas is not living in the real world, oil for fuel is a necessity. The simple truth is that our way of life will grind to a halt and we will quickly become a third-world country where only the very rich have food, water, healthcare and sanitary living conditions. Would we be better off backing the clock up 100 years, maybe, I would like it, but more people died every day than what needed to.

I think most are for a free market, but frankly, if the free market does not control itself, checks and balances need to step in to prevent the abuses that are taking place.

 

[Khornet]

"High-school microeconomics dreamland"

uh, tell that to Walter Williams, PhD, and Thomas Sowell, PhD. I think they got well beyond high school.

 

[jefnvk]

For every one that wants a free market, complete with no government oversight, well, I hope you like being a serf.

And, somehow government control of everything, kinda like places like the Soviet Union, result in you being free?

 

[Telperion]

ID_Shooting,

A competitive free market will always control itself, friend. Supply and demand will meet at a price so that there is no surplus or shortage.

Even if I were to stipulate that oil is a necessity, why must producers sell it to you at a price that you like? The era of cheap oil appears to be drawing to a close and no amount of magic wand waving, shouting "PRICES DOWN!", will change it. The rising price of oil means alternative energy is more economically viable, so I highly doubt your conclusion that without price controls we will be reduced to living in the 19th century.

In short, appeals to "balance" and "corporate citizenship" are code for interference in the market. The market will balance itself in the most efficient possible manner and corporations are under no requirement to do you a favor -- they fulfill their duty as "citizens" by paying taxes and obeying the law.

On a side note, Hazlitt's Economics in One Lesson is available for less than $10 at Amazon. And if you want to understand serfdom, Hayek's Road to Serfdom is similarly priced.

 

[taliv]

All that talk about "monopolies" misses the point that the barriers for market entry are regulatory, not financial or technical. In other words, it's a government-induced problem, and government is the last party interested in a free and open market with self-regualting prices (which are the only kind of "fair" prices.)

it's really a tangent, but i wanted to point out this is not correct. railroads, telephones, etc were all monopolies long before the government intervened. where do you guys come up with this stuff? these aren't government-induced problems. (granted, the government regulation has greatly magnified the problem, instead of solving it, but they didn't create it)

uh, tell that to Walter Williams, PhD, and Thomas Sowell, PhD. I think they got well beyond high school.

I have a lot of respect for Sowell's position, even though I disagree. i think if you read beyond the wikipedia article, you'll find his position makes sense if you also implement the rest of his vision. in a vacuum, it breaks down.

My comment however, was directed to this notion that today's economy is a free market. it ignores countless external artificial influences that change the way the market behaves. I've listed plenty of examples already, and I could continue with stuff like the patents and copyright protection that goes all the way back to the constitution. these aren't new 'liberal' concepts. they certainly constrain the market though.

if we could, in theory, remove all this external crap, then sure, i'd agree that price gouging would be practically non-existant. but like i said, that's high school level economics; it's distilled enough so that high schoolers can understand the concepts, but it doesn't accurately model reality.

A competitive free market will always control itself, friend. Supply and demand will meet at a price so that there is no surplus or shortage.

that is ONLY the case, by definition, for goods that are elastic. the vast majority of price gouging and profiteering we're talking about is for necessities (food, water, gas) that are inelastic. economics only goes so far here.

 

[Justin]

now, now. don't get all salty. you can say a quote (presumably directed at me personally, since i seem to be the only one on this side of the fence) that includes "evil nasty business owners" "here's a clue" and "grow up." bears repeating. you've got to admit, that's not a tone that's exudes interest in honest discussion.

Because, quite frankly, like AR vs. AK, or 9mm vs. .45 or any number of the debates that crop on this forum repeatedly, it's a dead horse that has been beaten to pulp. To say nothing of the continual rehashing of the topic on the news as spun by inflated talking heads who know about as much about basic economics as I know about calculating the relative postions of entangling electrons.

One can only put up with the same nonesensensical arguments for so long before calling them for what they are; and Chris did that more succinctly than I certainly could have.

however, if you and I are stuck in an attic for a couple weeks in N.O. and you've got all the water, then we either don't have enough, and we're conserving anyways, or you have plenty, in which case it would be morally wrong for you to ask for my house in exchange for a couple gallons of water.

1) Seems to me there's a big difference between charging even $10/gallon for fuel and forcing someone to give up a (let's say) $100,000 home for a few gallons of water.

2) No one short of an outright psychopath would do such a thing.

the point is that pricing of inelastic goods doesn't help resolve allocation in any useful way, especially when the market isn't working.

Except that whole thing where, actually, you know, it does. And even if the solution is imperfect, I have yet to see anyone advance one that works.

 

[Justin]

My comment however, was directed to this notion that today's economy is a free market. it ignores countless external artificial influences that change the way the market behaves.

So there are flawed market externalities that are legally required, but since they're legally required, they're ok?

 

[Oleg Volk]

One other note:

If prices are artificially restricted, then people who have extra goods for sale won't sell. They would value the goods higher than the permitted prices. So no goods would be available at any price, an instant shortage...

...government to the rescue! They make "hoarding" illegal next, so that no one could sit on goods without offering them for sale for anything but the state-set price. In short, private property rights go away.

Did I ever mentioned how disappointed I am to have come all the way from Russia just to find a socialist infestation right here in the US?