Nelson Atwell
Well-Known Member
Considering they made $10 Billion in profits in the past three months, they shouldn't be surprised by this. :blink:
In praise of price gouging
by John Stossel
September 7, 2005
Politicians and the media are furious about price increases in the wake of Hurricane Katrina. They want gas stations and water sellers punished.
If you want to score points cracking down on mean, greedy profiteers, pushing anti-"gouging" rules is a very good thing.
But if you're one of the people the law "protects" from "price gouging," you won't fare as well.
Consider this scenario: You are thirsty -- worried that your baby is going to become dehydrated. You find a store that's open, and the storeowner thinks it's immoral to take advantage of your distress, so he won't charge you a dime more than he charged last week. But you can't buy water from him. It's sold out.
You continue on your quest, and finally find that dreaded monster, the price gouger. He offers a bottle of water that cost $1 last week at an "outrageous" price -- say $20. You pay it to survive the disaster.
You resent the price gouger. But if he hadn't demanded $20, he'd have been out of water. It was the price gouger's "exploitation" that saved your child.
It saved her because people look out for their own interests. Before you got to the water seller, other people did. At $1 a bottle, they stocked up. At $20 a bottle, they bought more cautiously. By charging $20, the price gouger makes sure his water goes to those who really need it.
The people the softheaded politicians think are cruelest are doing the most to help. Assuming the demand for bottled water was going to go up, they bought a lot of it, planning to resell it at a steep profit. If they hadn't done that, that water would not have been available for the people who need it the most.
Might the water have been provided by volunteers? Certainly some people help others out of benevolence. But we can't count on benevolence. As Adam Smith wrote, "It is not from the benevolence of the butcher, the brewer or the baker, that we can expect our dinner, but from their regard to their own interest."
Consider the storeowner's perspective: If he's not going to make a big profit, why open up the store at all? Staying in a disaster area is dangerous and means giving up the opportunity to be with family in order to take care of the needs of strangers. Why take the risk?
Any number of services -- roofing, for example, carpentry, or tree removal -- are in overwhelming demand after a disaster. When the time comes to rebuild New Orleans, it's safe to predict a shortage of local carpenters: The city's own population of carpenters won't be enough.
If this were a totalitarian country, the government might just order a bunch of tradesmen to go to New Orleans. But in a free society, those tradesmen must be persuaded to leave their homes and families, leave their employers and customers, and drive from say, Wisconsin, to take work in New Orleans. If they can't make more money in Louisiana than Wisconsin, why would they make the trip?
Some may be motivated by a desire to be heroic, but we can't expect enough heroes to fill the need, week after week; most will travel there for the same reason most Americans go to work: to make money. Any tradesman who treks to a disaster area must get higher pay than he would get in his hometown, or he won't do the trek. Limit him to what his New Orleans colleagues charged before the storm, and even a would-be hero may say, "the heck with it."
If he charges enough to justify his venture, he's likely to be condemned morally or legally by the very people he's trying to help. But they just don't understand basic economics. Force prices down, and you keep suppliers out. Let the market work, suppliers come -- and competition brings prices as low as the challenges of the disaster allow. Goods that were i
Gasoline prices
by Walter E. Williams
August 31, 2005
Nationally, the average per gallon price for regular gasoline is $2.50.
Are gasoline prices high? That's not the best way to ask that question. It's akin to asking, "Is Williams tall?" The average height of U.S. women is 5'4", and for men, it's 5'10". Being 6'4", I'd be tall relative to the general U.S. population. But put me on a basketball court, next to the average NBA basketball player, and I wouldn't be tall; I'd be short. So when we ask whether a price is high or low, we have to ask relative to what.
In 1950, a gallon of regular gasoline sold for about 30 cents; today, it's $2.50. Are today's gasoline prices high compared to 1950? Before answering that question, we have to take into account inflation that has occurred since 1950. Using my trusty inflation calculator (www.westegg.com/inflation), what cost 30 cents in 1950 costs $2.33 in 2005. In real terms, that means gasoline prices today are only slightly higher, about 8 percent, than they were in 1950. Up until the recent spike, gasoline prices have been considerably lower than 1950 prices.
Some Americans are demanding that the government do something about gasoline prices. Let's think back to 1979 when the government did do something. The Carter administration instituted price controls. What did we see? We saw long gasoline lines, and that's if the gas station hadn't run out of gas. It's estimated that Americans used about 150,000 barrels of oil per day idling their cars while waiting in line. In an effort to deal with long lines, the Carter administration introduced the harebrained scheme of odd and even days, whereby a motorist whose license tag started with an odd number could fill up on odd-numbered days, and those with an even number on even-numbered days.
With the recent spike in gas prices, the government has chosen not to pursue stupid policies of the past. As a result, we haven't seen shortages. We haven't seen long lines. We haven't seen gasoline station fights and riots. Why? Because price has been allowed to perform its valuable function -- that of equating demand with supply.
Our true supply problem is of our own doing. Large quantities of oil lie below the 20 million acre Arctic National Wildlife Refuge (ANWR). The amount of land proposed for oil drilling is less than 2,000 acres, less than one-half of one percent of ANWR. The U.S. Geological Survey estimates there are about 10 billion barrels of recoverable oil in ANWR. But environmentalists' hold on Congress has prevented us from drilling for it. They've also had success in restricting drilling in the Gulf of Mexico and off the shore of California. Another part of our energy problem has to do with refining capacity. Again, because of environmentalists' successful efforts, it's been 30 years since we've built a new oil refinery.
Few people realize that the U.S. is also a major oil-producing country. After Saudi Arabia, producing 10.4 million barrels a day, then Russia with 9.4 million barrels, the U.S. with 8.7 million barrels a day is the third-largest producer of oil. But we could produce more. Why aren't we? Producers have a variety of techniques to win monopoly power and higher profits that come with that power. What's a way for OPEC to gain more power? I have a hypothesis, for which I have no evidence, but it ought to be tested. If I were an OPEC big cheese, I'd easily conclude that I could restrict output and charge higher oil prices if somehow U.S. oil drilling were restricted. I'd see U.S. environmental groups as allies, and I would make "charitable" contributions to assist their efforts to reduce U.S. output. Again, I have no evidence, but it's a hypothesis worth examination.
Let the market do its job
By John Stossel
Sep 28, 2005
Co-anchor, 20/20
"It's going to be a catastrophe!"
So I keep hearing.
The damage from hurricanes Rita and Katrina will send gas prices through the roof and destroy the economy!
"It's inevitable that this is just the beginning, it's not the end, of this gasoline crisis!" Sen. Charles Schumer told me, as Rita approached last Friday. The New York Democrat went on to say that we're "twiddling our thumbs while Rome burns ... we are weakened in every way!"
He is eager to spend your money to cure his panic. Schumer wants a new "Manhattan Project" that would use huge amounts of your money to fund "independent energy sources." I reminded him that the last time government tried that, it wasted billions on the totally failed synfuels project. Schumer said that was a failure because "political leaders" chose synfuels, but this time Congress would have "non-politicians" decide what projects to fund.
Sure they would.
If non-politicians are going to decide what projects to fund, why do we need Chuck Schumer? We already have a system in which non-politicians decide what projects to fund. It's called "the market."
If the price of a barrel of oil stays above $50, lots of entrepreneurs will scramble for ways to supply cheaper energy. They'll come up with alternative energy sources or better ways to get oil out of the ground. At $50 a barrel, it's even profitable to recover oil that's stuck in the tar sands in Alberta, Canada. As Peter Huber points out in his book, "The Bottomless Well," the Athabasca tar sands alone contain enough oil to meet our needs for 100 years.
But Schumer and other politicians don't trust the market.
After Hurricane Katrina, he and Sen. John Corzine, Democrat of New Jersey, invited reporters to a gas station where they said gas prices were rising not because demand exceeded supply, but because oil sellers are doing something fishy.
"Up 50 cents one day, down 25 cents the next, then up another 30!" Schumer told the cameras. "Something's wrong with the market!"
Something's wrong with the market? I'd think "up 50 cents one day and down 25 the next" shows the market working very efficiently. The oil business is hugely competitive. Gas station profit margins are paper-thin. Station managers have to adjust prices constantly to keep from losing business to a station down the block. Any of us can see the posted prices without even having to leave our cars, and people often drive blocks just to save a penny.
Despite Schumer's complaints about "catastrophe," today's gas prices aren't especially high. Even after the price increases of recent years, and after the high gas taxes imposed by our bloated government, today's price ($2.75, for regular, according to the AAA) is still lower than it was in 1981 ($2.86, adjusted for inflation). The politicians won't tell you that, and neither will most of the media. When they rant about "record" gas prices, they usually forget to adjust for inflation.
Fox News' Bill O'Reilly last week also ridiculed the idea that competition sets gas prices. On his popular TV show, he said, "Somebody tells your local gas station owner exactly what to charge! Somebody does that!"
Really? There's a secret price dictator?
Why don't people trust the market? Schumer thinks congressionally appointed "experts" are the answer, but imagine how much gas would cost if the government produced it! At least $20 a gallon. Gasoline isn't easy to make.
First, the oil has to be found, then sucked out of the ground ... sometimes from deep beneath an ocean. The drill may have to bend 90 degrees, dig sideways and bend down again, sometimes drilling through 5 miles of earth. What they finally<
Dangerous Demagoguery
By Jack Rafuse
It's no secret that Hurricane Katrina did awful damage to the Gulf Coast region and the US energy infrastructure in the Gulf. A lesser known casualty of the storm has been the thinking of many politicians and pundits. Some of them are now calling for destructive economic policies such as price controls and time-wasting initiatives such as investigations into allegations of profiteering.
With Hurricane Rita bearing down on the Gulf today, let's review some of the facts surrounding Katrina and energy prices to understand what's happened and what we should be doing - and not doing - in response.
In the year before the Katrina hit, gasoline prices rose $0.50 per gallon, and politicians and reporters remained calm. They knew the rise was due to many factors, including booming Chinese, Indian and world-wide demand; lack of excess production capacity; rising US crude oil inventories; US refineries running at peak capacity; uncertainty about Iran, Iraq and Venezuela; high US summer demand; and other causes. But there was no "crisis." Logic and calm prevailed.
Then the storm smashed the US energy infrastructure as badly as it damaged cities, homes and lives. Consider the following facts, available at www.eia.doe.gov:
--The US uses 21.3 million 42-gallon barrels of oil a day (21.3MMBD);
--The US uses 11MMBD of the 21.3 as gasoline.
--The US produces 5.5MMBD (1.6MMBD from thousands of platforms in the Gulf of Mexico).
Katrina shut down hundreds of platforms and cut 0.9MMBD of supply - 60% of Gulf
Offshore production.
--Many damaged platforms are now producing; it will be weeks before all are at full capacity.
--The oil moves through undersea pipelines to Gulf Coast refineries; other pipelines distribute
crude oil and petroleum product around the country.
--Some pipelines were damaged and must be repaired.
--US refining capacity is 17.0MMBD; 8.1MMBD (47.4%) in the Gulf Coast Region.
--Katrina left six refineries damaged, flooded and without electricity. Four are now running;
two (5% of US refining capacity) will be out for several weeks.
--The US imports 10.8MMBD of crude oil (refined products make up the difference.)
--The Louisiana Offshore Oil Port (LOOP) which brings in 0.9MMBD was evacuated and shut
down as Katrina neared.
--Another 2.6MMBD that comes through Gulf Coast ports was cut off completely for about a
week.
--It will be weeks before those facilities can move pre-Katrina volumes; repairs will cost
hundreds of millions of dollars.
So at the height of the summer driving season, Katrina shut down platforms producing one-sixth of US domestic oil production; and LOOP, which throughputs 30% of US oil imports. She damaged handling facilities and refineries that process almost one-half of our domestic and foreign oil; and the tank farms and pipelines that move most of that oil and gasoline to the US Northeast and Midwest.
This damage compounded the "non-crisis" causes. The result was that the world price of crude oil topped $70 per barrel for a short while. The US average price of gasoline hit $3.05 by September 1 -- up $0.70 from August 1 and $1.20 from year-earlier levels (although as facilities come on, prices have begun to drop).
Politicians and journalists who understood and explained earlier gasoline price hikes totaling $0.50 suddenly found it incomprehensible that anything could increase prices by another $0.70. They saw no connection among Katrina, the damage, supply cutoffs and the price increase.
They knew that prices rose since 2004 because of supply and demand in a world market; they should figure out that losing 16% of US crude oil production could cut US and world crude oil supply and raise prices.
They knew that US refineries had been at full capacity f
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