OT-Gas Prices-OT

Discussion in 'Computer Support' started by Frosty, May 27, 2007.

  1. Frosty

    Frosty Guest

    The Giant Gas-Gouging Gaffe

    On Wednesday the House passed a bill that would make price gouging by
    oil and gas companies a federal crime. The legislation called for jail
    time and fines of up to $150 million a day for charging
    "unconscionably excessive prices" and taking "unfair advantage" of
    consumers.

    As frequent readers of this website already know, this proposed
    legislation is horrendous and would do nothing to help the American
    motorist. In this short piece I'll outline some of the major problems.

    VAGUE LANGUAGE

    The most obvious difficulty is the arbitrariness of the "crime." Say
    what you will about outright price controls, at least they're
    explicit. In contrast, how's the owner of a gasoline station supposed
    to know if he's charging "unconscionably excessive" prices? After all,
    if he's taken a basic economics course, he might think that any
    market-determined price is quite reasonable. If this bill becomes law,
    sellers here will be at the mercy of the FTC the way drivers are at
    the mercy of traffic cops — you can always get written up for
    something.

    While we're at it, let's just spend a moment on the wording of this
    bill. Why isn't it a crime to merely charge "somewhat excessive"
    prices — though perhaps not receiving the same penalty as
    unconscionably excessive ones? (After all, it's a crime to murder
    someone, but it's also a crime to punch someone in the face.) Come to
    think of it, shouldn't we also punish unconscionably low prices —
    after all, they're unconscionable by definition! And if you can't
    imagine what that would mean, maybe an unconscionably low price is one
    where mom and pop gasoline stations can't stay in business. (You know,
    kind of like unconscionably cheap imports from China that we have to
    keep out for reasons of "fair trade.")

    And let's not forget the other clause, taking "unfair advantage" of
    the consumer. Shouldn't it also be a crime to take "fair advantage" of
    the consumer? (After all, you're still taking advantage of the
    consumer in this case.)

    My point, of course, it that this language refers not to objective
    behavior, but merely reflects arbitrary subjective judgments on the
    part of the government official meting out the punishments. Adding on
    a layer of uncertainty and vague threats of massive fines and possibly
    jail time won't increase the supply of gasoline, and hence won't help
    motorists.

    WHY ARE PRICES SO HIGH?

    Before using the guns of the federal government to try to force them
    down, people ought to first consider why it is that gasoline prices
    are so high. The usual explanation — "The oil companies are greedy and
    want to screw over the hapless drivers!" — makes no sense. After all,
    oil companies were greedy during the whole 1980s, when the price of a
    barrel collapsed to under $11 (in nominal terms) in July 1986. And
    automobiles weren't invented in the last three years, so it's not as
    if the US "addiction" is something new.

    The general causes for high oil prices are pretty straightforward:
    Supply is restricted because of the mess in the Middle East (not to
    mention environmental and other regulations), while demand is booming
    as China and other developing countries grow much more quickly than
    people had anticipated years ago (when oil infrastructure decisions
    were made). On top of these "real" factors, the general uncertainty
    about the Middle East — especially the possibility of war with Iran —
    has caused speculators to push up the price even higher.

    Now high oil prices explain gasoline prices in part; if oranges are
    really expensive, you can bet that orange juice won't be cheap. But
    what is particularly strange is that oil prices are actually a lot
    lower than they were just last July ($64 and change as of this
    writing, compared to highs of $78 in July), yet prices at the pump are
    at all time (inflation-adjusted) highs.

    The immediate answer is that refineries can't keep up. (If there were
    a major strike at Tropicana packaging plants, then the price of orange
    juice would be higher still, than would be justified by higher orange
    prices.) There are all sorts of reasons people have given, such as the
    lingering effects of Katrina, new environmental regulations about
    diesel fuel, restrictions on new refinery construction, and so on.

    PRICE CAPS CAUSE SHORTAGES

    But regardless of the specifics, the thing to remember is that market
    prices are not arbitrary. The market price is the one that (tends to)
    equate quantity demanded with quantity supplied. If a gas station can
    charge "whatever the market will bear" at $3.15 per gallon, but only
    charges $2.85 out of fear of fines, then it automatically follows that
    this gas station will have to sell people fewer gallons than they want
    to buy at the lower price. In other words, the proposed legislation
    will cause dreaded shortages of gasoline.

    The only thing I've "assumed" to reach this conclusion is that people
    buy more gasoline at lower prices. If you grant me that, then you have
    to admit that government efforts to reduce prices below their market
    levels will cause shortages, and that means (as in the 1970s when the
    great Republican Nixon imposed price controls) long lines at the pump
    and arbitrary rationing schemes.

    This is an important point so let's make sure we follow it: The market
    price is the one that matches supply with demand; it's the one where
    gas stations want to sell the same amount of gallons that motorists
    want to buy. So if the government forces the gas stations to lower
    this price, then motorists want to buy more gallons than they would
    have at the higher price. So unless you think a gas station owner
    would be willing to sell certain stockpiles of gas for (say) $2.50,
    but he wouldn't want to sell them at (say) $3.15, you have to admit
    that this legislation will lead to lines at the pump.

    Incidentally, this isn't academic speculation. This is exactly what
    happened during the hurricane season, when people in the Gulf states
    tried to flee to safety. Certain gas stations (out of fear of
    punishment or perhaps misguided altruism) didn't raise their prices,
    even though their business was astronomical (since everyone was headed
    for the highways). The result? These gas stations got drained fairly
    quickly, and consequently many of the fleeing motorists ran out of gas
    and were stranded on the interstates.

    TAKE IT TO THE LOGICAL EXTREME

    "But regardless of the specifics, the thing to remember is that market
    prices are not arbitrary."

    I'll wrap up this article with a simple question: If all it takes is a
    stroke of the pen for Congress to magically lower gas prices back to
    "conscionable" levels, why not go further? Why not make it a crime to
    charge "moderate" prices too, so that we're left with very cheap
    gasoline? Woo hoo, break out the SUVs!

    Once you think through the logic of why a government-imposed cap of
    (say) 25 cents per gallon wouldn't work, it's not much harder to see
    why a cap of $3 would be bad too.

    The reason for high prices is increased scarcity. The way to solve
    that is to make it worthwhile for producers to increase supplies. No
    one in his right mind would spend billions looking for new oil fields,
    laying pipelines, hiring geologists, etc. if it looks like Congress
    might tax "windfall profits," impose price controls, or artificially
    stimulate demand for a competitor's products.

    The oil industry involves long time horizons, and investors don't want
    to be exposed to a fickle public. Property rights serve a purpose,
    after all.

    The solution to high oil and gas prices is to get the government out
    of the way. Ease restrictions on new refineries and oil drilling, get
    rid of taxes on gasoline, and stop threatening to nuke Iran. That
    would solve the "crisis" very quickly.
     
    Frosty, May 27, 2007
    #1
    1. Advertising

  2. Frosty

    elaich Guest

    Frosty <> wrote in
    news::

    > Incidentally, this isn't academic speculation. This is exactly what
    > happened during the hurricane season, when people in the Gulf states
    > tried to flee to safety. Certain gas stations (out of fear of
    > punishment or perhaps misguided altruism) didn't raise their prices,
    > even though their business was astronomical (since everyone was headed
    > for the highways). The result? These gas stations got drained fairly
    > quickly, and consequently many of the fleeing motorists ran out of gas
    > and were stranded on the interstates.


    This is complete, total bunk. If the stations in question did raise their
    prices, would this have stopped desperate people from buying the gas they
    needed? There was (as you stated) an astronomical demand, and a finite
    supply of gasoline. When the lower priced stations ran out, the alternative
    was to pay more.

    I agree with you that this bill is a joke, but some stations during the
    Katrina crisis did exactly what this bill is designed to prevent. They took
    advantage of desperate people who needed a commodity, and made obscene
    profits in the meantime.

    --
    A: Because it disturbs the logical flow of the message.
    Q: Why is top posting frowned upon?
     
    elaich, May 28, 2007
    #2
    1. Advertising

  3. It is hard to use the supply and demand theory since they control the
    supply. The demand has gone up steadily for years (since more driving age
    people are getting lisenced, do to natural population growth). But refiners
    do all they can to limit supply. But it isn't just the refiners it is also
    speculators that are really driving up prices.
     
    IMALWAYSRIGHT, May 28, 2007
    #3
  4. On Sun, 27 May 2007 16:39:39 -0500, Frosty <> wrote:

    >The Giant Gas-Gouging Gaffe
    >
    >On Wednesday the House passed a bill that would make price gouging by
    >oil and gas companies a federal crime. The legislation called for jail
    >time and fines of up to $150 million a day for charging
    >"unconscionably excessive prices" and taking "unfair advantage" of
    >consumers.
    >
    >As frequent readers of this website already know, this proposed
    >legislation is horrendous and would do nothing to help the American
    >motorist. In this short piece I'll outline some of the major problems.
    >
    >VAGUE LANGUAGE
    >
    >The most obvious difficulty is the arbitrariness of the "crime." Say
    >what you will about outright price controls, at least they're
    >explicit. In contrast, how's the owner of a gasoline station supposed
    >to know if he's charging "unconscionably excessive" prices? After all,
    >if he's taken a basic economics course, he might think that any
    >market-determined price is quite reasonable. If this bill becomes law,
    >sellers here will be at the mercy of the FTC the way drivers are at
    >the mercy of traffic cops — you can always get written up for
    >something.
    >
    >While we're at it, let's just spend a moment on the wording of this
    >bill. Why isn't it a crime to merely charge "somewhat excessive"
    >prices — though perhaps not receiving the same penalty as
    >unconscionably excessive ones? (After all, it's a crime to murder
    >someone, but it's also a crime to punch someone in the face.) Come to
    >think of it, shouldn't we also punish unconscionably low prices —
    >after all, they're unconscionable by definition! And if you can't
    >imagine what that would mean, maybe an unconscionably low price is one
    >where mom and pop gasoline stations can't stay in business. (You know,
    >kind of like unconscionably cheap imports from China that we have to
    >keep out for reasons of "fair trade.")
    >
    >And let's not forget the other clause, taking "unfair advantage" of
    >the consumer. Shouldn't it also be a crime to take "fair advantage" of
    >the consumer? (After all, you're still taking advantage of the
    >consumer in this case.)
    >
    >My point, of course, it that this language refers not to objective
    >behavior, but merely reflects arbitrary subjective judgments on the
    >part of the government official meting out the punishments. Adding on
    >a layer of uncertainty and vague threats of massive fines and possibly
    >jail time won't increase the supply of gasoline, and hence won't help
    >motorists.
    >
    >WHY ARE PRICES SO HIGH?
    >
    >Before using the guns of the federal government to try to force them
    >down, people ought to first consider why it is that gasoline prices
    >are so high. The usual explanation — "The oil companies are greedy and
    >want to screw over the hapless drivers!" — makes no sense. After all,
    >oil companies were greedy during the whole 1980s, when the price of a
    >barrel collapsed to under $11 (in nominal terms) in July 1986. And
    >automobiles weren't invented in the last three years, so it's not as
    >if the US "addiction" is something new.
    >
    >The general causes for high oil prices are pretty straightforward:
    >Supply is restricted because of the mess in the Middle East (not to
    >mention environmental and other regulations), while demand is booming
    >as China and other developing countries grow much more quickly than
    >people had anticipated years ago (when oil infrastructure decisions
    >were made). On top of these "real" factors, the general uncertainty
    >about the Middle East — especially the possibility of war with Iran —
    >has caused speculators to push up the price even higher.
    >
    >Now high oil prices explain gasoline prices in part; if oranges are
    >really expensive, you can bet that orange juice won't be cheap. But
    >what is particularly strange is that oil prices are actually a lot
    >lower than they were just last July ($64 and change as of this
    >writing, compared to highs of $78 in July), yet prices at the pump are
    >at all time (inflation-adjusted) highs.
    >
    >The immediate answer is that refineries can't keep up. (If there were
    >a major strike at Tropicana packaging plants, then the price of orange
    >juice would be higher still, than would be justified by higher orange
    >prices.) There are all sorts of reasons people have given, such as the
    >lingering effects of Katrina, new environmental regulations about
    >diesel fuel, restrictions on new refinery construction, and so on.
    >
    >PRICE CAPS CAUSE SHORTAGES
    >
    >But regardless of the specifics, the thing to remember is that market
    >prices are not arbitrary. The market price is the one that (tends to)
    >equate quantity demanded with quantity supplied. If a gas station can
    >charge "whatever the market will bear" at $3.15 per gallon, but only
    >charges $2.85 out of fear of fines, then it automatically follows that
    >this gas station will have to sell people fewer gallons than they want
    >to buy at the lower price. In other words, the proposed legislation
    >will cause dreaded shortages of gasoline.
    >
    >The only thing I've "assumed" to reach this conclusion is that people
    >buy more gasoline at lower prices. If you grant me that, then you have
    >to admit that government efforts to reduce prices below their market
    >levels will cause shortages, and that means (as in the 1970s when the
    >great Republican Nixon imposed price controls) long lines at the pump
    >and arbitrary rationing schemes.
    >
    >This is an important point so let's make sure we follow it: The market
    >price is the one that matches supply with demand; it's the one where
    >gas stations want to sell the same amount of gallons that motorists
    >want to buy. So if the government forces the gas stations to lower
    >this price, then motorists want to buy more gallons than they would
    >have at the higher price. So unless you think a gas station owner
    >would be willing to sell certain stockpiles of gas for (say) $2.50,
    >but he wouldn't want to sell them at (say) $3.15, you have to admit
    >that this legislation will lead to lines at the pump.
    >
    >Incidentally, this isn't academic speculation. This is exactly what
    >happened during the hurricane season, when people in the Gulf states
    >tried to flee to safety. Certain gas stations (out of fear of
    >punishment or perhaps misguided altruism) didn't raise their prices,
    >even though their business was astronomical (since everyone was headed
    >for the highways). The result? These gas stations got drained fairly
    >quickly, and consequently many of the fleeing motorists ran out of gas
    >and were stranded on the interstates.
    >
    >TAKE IT TO THE LOGICAL EXTREME
    >
    >"But regardless of the specifics, the thing to remember is that market
    >prices are not arbitrary."
    >
    >I'll wrap up this article with a simple question: If all it takes is a
    >stroke of the pen for Congress to magically lower gas prices back to
    >"conscionable" levels, why not go further? Why not make it a crime to
    >charge "moderate" prices too, so that we're left with very cheap
    >gasoline? Woo hoo, break out the SUVs!
    >
    >Once you think through the logic of why a government-imposed cap of
    >(say) 25 cents per gallon wouldn't work, it's not much harder to see
    >why a cap of $3 would be bad too.
    >
    >The reason for high prices is increased scarcity. The way to solve
    >that is to make it worthwhile for producers to increase supplies. No
    >one in his right mind would spend billions looking for new oil fields,
    >laying pipelines, hiring geologists, etc. if it looks like Congress
    >might tax "windfall profits," impose price controls, or artificially
    >stimulate demand for a competitor's products.
    >
    >The oil industry involves long time horizons, and investors don't want
    >to be exposed to a fickle public. Property rights serve a purpose,
    >after all.
    >
    >The solution to high oil and gas prices is to get the government out
    >of the way. Ease restrictions on new refineries and oil drilling, get
    >rid of taxes on gasoline, and stop threatening to nuke Iran. That
    >would solve the "crisis" very quickly.

    .....lots of time spent writing the above.
    .....we could all go without orange juice.......

    --
    Posted via a free Usenet account from http://www.teranews.com
     
    up for the game, May 30, 2007
    #4
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