They don’t tell you want price to set anymore, writes William Anderson. They tell you not to gouge, and call it “consumer protection” and “response by concerned citizens,” backed by intimidation and spying and prosecution. This is back-door price control with all the attendent effects on supply and market clearing. FULL ARTICLE
Source link: http://archive.mises.org/4138/backdoor-price-controls/
Backdoor Price Controls
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The day they began evacuating Houston happened to also be the day that my gas tank deropped to a level low enough to trigger my car’s low fuel level warning. So I pulled into the next gas station I saw to fill up. I had to wait over thirty minutes to fill-up because everyone else was there to get the ‘cheap’ gas before it went to $4 or $5 per gallon.
What prompted this? I didn’t get it, here I am just filling up when the tank is low like usual and all these people were rabidly gobbling up as amuch as they could get as fast as they can pump it, all at once.
While I was waiting, I turned on the local news radio station. And there it was. The objective, intelligent journalists who provide us with information that protects us from the big, greedy businesses and the government, where warning us that Rita was going to cause gas to hit $4 or even $5 per gallon. In their kind wisdom, they were creating a shortage where none existed by agitating people and increasing demand so rapidly, even though the supply disruption was likely to be minimal.
Gas did not hit $4 per gallon. Rita disrupted gas production but not hardly even worth mentioning and I was pretty mad. Not at the idiot on the radio, he has a degree in journalism and a nice booming voice, he has no economic understanding. I pitty the ignorant, I don’t hate them. I wasn’t even mad at the gas station, they did their best. I was pissed becuase the gas station couldn’t rasie prices(whether VA has price gouging laws or not, I don’t know); either becuase of laws or the public-education-inspired social(ist)-market (how dare he try to profit in these trying times.
Had the prices been rasied (oh my god, he is rasing prices on his ‘old’ supply, he didn’t have to pay more for that stock, the theif) to $4 or $5, most of the people in line ahead of me, would not have filled up. Leaving me to fill-up as I please in a time-efficient manner. I would have been happy to pay the exrra $17 to save thirty minutes. My time is worth way more than that even though my hourly billing rate is capped by the government.
Thanks for pointing out this insideous form of economic destruction.
Something like that happened in NC. There were rumors going around that there was going to be a shortage, so people started rushing to fill up, and some stations ran out, creating further fears that there really was a shortage. I was actually informed by a colleague that if you raise the price of gas because demand is increasing due to rumors of an impending shortage, you are profiting by taking advantage of people’s fear and misinformation and should be stopped, since that’s unethical. Sigh…..
Just before Katrina hit, my wife and I filled up the gas tanks on our two cars. We expected that the price of gas would rise shortly, in response to the decrease in supply that would occur as much of the refining capacity along the Gulf Coast was shut down. I warned family and friends that they, too, should consider filling their tanks before prices went up.
I’m sure my wife and I weren’t the only ones who filled up their gas tanks and urged others to do the same. So I’m willing to bet that a lot of gas stations saw a big surge in demand even before Katrina made landfall and even before the refineries along the Gulf Coast were shut in. (Does anyone know if there are any statistics on this on the web?) I’m also willing to bet that many gasoline retailers predicted that at this new, increased level of demand, they were going to run out of gas before their next scheduled delivery. So they made the only decision that was rational, in light of the then-current increase in demand and in light of the then-expected decrease in supply: they raised their prices. They did not wait for Katrina to make landfall and they did not wait for their next delivery of gas. Had they waited for their next delivery before raising prices, there could have been a “run” on gas stations, many stations would have run out of gas, and people who really needed gas would have been met with “out of gas” signs at station after station.
The fact that the gasoline retailers’ margins went up along with the price increase is irrelevant. The selling price of a product or service is set by supply and demand, it is not simply the seller’s cost plus what the public or the state (with its anti-gouging statutes) thinks is a “reasonable” profit margin.
We filled up all three vehicles on Monday before Rita hit (as soon as Galveston was in the projected cone). We also filled several 5- and 6-gallon cans. I then proceeded to top up my primary vehicle on a daily basis until the lines started (which for me, my last top-up was Thursday before the storms, when the first evacuees made it to my community).
I’m not price-sensitive for gasoline. Like the old GM Goodwrench ads used to say, “it’s not just my car, it’s my freedom.” A higher price would just mean that I paid more to have basically a barrel of gasoline in my garage, and that I might not have had as much of a line on Thursday. I am time-sensitive, however, and will gladly spend 20 minutes bringing every vehicle and can I own to the station on Monday, in order to avoid waiting even 30 minutes on Friday.
If I ever have to bug out, rest assured, I will be the guy stopped in traffic in front of you, filling my Jeep from the cans strapped to the roof rack, with my pistol in the waistband of my pants.
A smarter way to “gouge” occurs to me: sell the gasoline cheap, but raise the price of cold sodas, bottled waters, and assorted snack food. Using the gasoline as a loss leader avoids the scrutiny and will drive business in other ways. Besides, gasoline is a low-margin product for convenience stores anyways, it makes much more cents to raise the cold Pepsi from $1.09 to $1.19 and probably won’t even be noticed.
“There were rumors going around that there was going to be a shortage, so people started rushing to fill up, and some stations ran out, creating further fears that there really was a shortage.”
This happened a couple of weeks ago in the UK because gas was approaching $8 a gallon (and you Americans think you have it bad) and there were expectations of possible blockading of refineries again by truck drivers. People rushed out to buy lots of petrol and a number of stations ran out.
We have high prices because it is mostly tax – it is a politically engineered problem that makes life difficult for hauliers (getting them rather irate), and probably is what makes things in the UK so expensive. Why is it not a problem that faces mainland Europe? They don’t tax fuel so heavily…
The effect of all of these “anti price gouging” laws will be that there is no perceived benefit to retailers to allocate additional resources to stock extra supplies in preparation for future disasters.
Allocating these resources without such stupid laws makes economic sense, as the additional investment can be recouped during the period that prices temporarlily rise in response to the demands of the market.
The governement has made it illegal for store owners to plan rationally to meet the demands of their customers.
The end result will be that – instead of food (for example) and other goods becoming temporarily very expensive (but available) during natural disasters – everyone can rest happy in the knowledge that they are starving (because there will be no supply), but at least prices are “fair”
…. arrrggh!
I doubt competitors trouble themselves to report price gouging. First, super-high prices do provide “cover” for them to raise their prices AND perhaps move a little product at those prices. Second, competitors are in a better position than most to recognize the (market) folly in setting a price too high to encourage trade, and are happy to let the fool who does so stew in the ruinous consequences of his folly for as long as possible.
It is the old story, people will only stay free if they believe in freedom. Whilst politicians thing that price controls (and other things) will win them move votes than they lose them, they are likely to introduce price controls.
And of course, contrary to J.S. Mill in “On Liberty”, economic liberty (free trade domestic and with people in other nations) is not in a different box from the rest of liberty.
People are either free to engage in civil interaction or they are not. What matters is whether an action is an aggression against the body or goods of another person, not whether an action “harms” their interests.
It is this J.S. Mill style “harm principle” that lets the government into virutally any area. If you are not attacking me or mine that is the end of it – if you will not sell me stuff at a price I would like (or you are selling stuff cheaper than I am selling it) then that is just my hard luck.
The DA is a political opportunist who in the future would likely declare candidacy for the position of state governor.
Harry Valentine
I’m all about free-market principles, but with the energy market, it is far from free. Given that fact, it seems that a minor windfall tax on the oil companies would be great to return some of the money back to the working families.
Er, something like that. Feel free to fill in your own “this isn’t a ‘free’ market argument.”
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