Price Gouging Saves Lives

Kevin R
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Post by Kevin R » Sun Sep 04, 2005 2:24 am

jbuck919 wrote:Trust me, Steve, there was no significant black market in the US in WW II. There might have been hints and snips that were addressed by things like posters (I mean the thing you stick up on a wall), but everybody just got on. Are you an American? Do you have a grandparent who remembers this? My parents sure do. And many more things than gas were rationed. Many, many more things.

The US is a society capable of absorbing great violations of the law of supply and demand for the sake of a great cause, let alone a temporary emergency. Everywhere else in the world, there would be and was a black market not to mention worse. If you are a Yank, shut up and be proud.
The black market was a stark reality. It was something that concerned government officials because it was so widespread.
"Free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular."

-Thomas Macaulay

jbuck919
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Post by jbuck919 » Sun Sep 04, 2005 2:38 am

Kevin R wrote:
jbuck919 wrote:Trust me, Steve, there was no significant black market in the US in WW II. There might have been hints and snips that were addressed by things like posters (I mean the thing you stick up on a wall), but everybody just got on. Are you an American? Do you have a grandparent who remembers this? My parents sure do. And many more things than gas were rationed. Many, many more things.

The US is a society capable of absorbing great violations of the law of supply and demand for the sake of a great cause, let alone a temporary emergency. Everywhere else in the world, there would be and was a black market not to mention worse. If you are a Yank, shut up and be proud.
The black market was a stark reality. It was something that concerned government officials because it was so widespread.
I am taking my lumps on this one. All right, everyone, educate me.

The black market situation took care of itself in some sense in that things were simply unavailable. It might have been a nice idea to get new tires for your car on the black market, but there was no such thing as new tires.

However, as Ralph has implied, it was kept under control by enforcement and a general sense that this was a necessary sacrifice. It was not to compare with the black markets elsewhere, which had about the status of the gambling in Rick's casino under the watchful eye of the local gendarmerie.

There's nothing remarkable about it. All one has to do is hit the right keys at the right time and the instrument plays itself.
-- Johann Sebastian Bach

Ralph
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Post by Ralph » Sun Sep 04, 2005 5:53 am

jbuck919 wrote:
Kevin R wrote:
jbuck919 wrote:Trust me, Steve, there was no significant black market in the US in WW II. There might have been hints and snips that were addressed by things like posters (I mean the thing you stick up on a wall), but everybody just got on. Are you an American? Do you have a grandparent who remembers this? My parents sure do. And many more things than gas were rationed. Many, many more things.

The US is a society capable of absorbing great violations of the law of supply and demand for the sake of a great cause, let alone a temporary emergency. Everywhere else in the world, there would be and was a black market not to mention worse. If you are a Yank, shut up and be proud.
The black market was a stark reality. It was something that concerned government officials because it was so widespread.
I am taking my lumps on this one. All right, everyone, educate me.

The black market situation took care of itself in some sense in that things were simply unavailable. It might have been a nice idea to get new tires for your car on the black market, but there was no such thing as new tires.

However, as Ralph has implied, it was kept under control by enforcement and a general sense that this was a necessary sacrifice. It was not to compare with the black markets elsewhere, which had about the status of the gambling in Rick's casino under the watchful eye of the local gendarmerie.
*****

When "Odd-Even" rationing was in effect during the last OPEC embargo some people bribed some gas station operators to get whatever they wanted. In WWII some people wanted more meat than they had coupons for and some butchers made early morning illegal sales. That's human nature and that why laws are enforced.

And then there was Prohibition. Nuff said.
Image

"Only two things are infinite, the universe and human stupidity, and I'm not sure about the former."

Albert Einstein

BuKiNisT
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Post by BuKiNisT » Sun Sep 04, 2005 4:31 pm

BWV 1080,
In your theoritising you forget about just one thing:
There is the "poor storekeeper" who is denied the additional profit he might have gained, but has the goods, and there are those guys out there who have nothing to eat. Yes, price-control and rationing creates shortages. But it also ensures that those guys out there won't die of hunger.

It is your obligation as a civilized person to care for them not to.

BWV 1080
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Post by BWV 1080 » Sun Sep 04, 2005 4:46 pm

BuKiNisT wrote:BWV 1080,
In your theoritising you forget about just one thing:
There is the "poor storekeeper" who is denied the additional profit he might have gained, but has the goods, and there are those guys out there who have nothing to eat. Yes, price-control and rationing creates shortages. But it also ensures that those guys out there won't die of hunger.

It is your obligation as a civilized person to care for them not to.
I have not forgot about anything and your whole speil there is a red herring. Show me where I have said that government and private charities should not step in and provide aid free of charge to the truly needy?

BuKiNisT
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Post by BuKiNisT » Sun Sep 04, 2005 5:01 pm

But you did forget that this kind of setup doesn't come out of thin air, and therefore might not (and usually won't) reach its addressees in time, and when it does arrive it can only accomodate the needs of a limited portion of the folks in need, while the simple price control and rationing policy will help most of them survive at least for a short period of time, on the resources already available in the area, without the investment of too much additional effort, before said shortages occur, or the humanitary infrastructure can unfold. And this is exactly what is needed in the case of a short-term crisis or an unexpected force-majore situation - exactly the case in which said policies are applied.

You're just forgetting, my friend, that this is not just ice and gas we're talking about, but food, water and all that stuff a man can't live without.

Finally, this system is applied everywhere in the world whenever an emergency occurs, and there is a damn good reason for that.
But, if you think that you're wiser than all the wisdom of the world then there's certainly no use arguing further.

BuKiNisT
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Post by BuKiNisT » Sun Sep 04, 2005 5:25 pm

BWV 1080
And also a little addition to the above post.
Just in case you haven't thought about the negative effects caused by price-gauging in a major emergency event, rapid impoverishment of the middle-class, almost ensuring abolition of the society - with mass plunder, looting and murder following up - is among them, in case the emergency lasts long enough.

Kevin R
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Post by Kevin R » Mon Sep 05, 2005 1:23 am

jbuck919 wrote:
Kevin R wrote:
jbuck919 wrote:Trust me, Steve, there was no significant black market in the US in WW II. There might have been hints and snips that were addressed by things like posters (I mean the thing you stick up on a wall), but everybody just got on. Are you an American? Do you have a grandparent who remembers this? My parents sure do. And many more things than gas were rationed. Many, many more things.

The US is a society capable of absorbing great violations of the law of supply and demand for the sake of a great cause, let alone a temporary emergency. Everywhere else in the world, there would be and was a black market not to mention worse. If you are a Yank, shut up and be proud.
The black market was a stark reality. It was something that concerned government officials because it was so widespread.
I am taking my lumps on this one. All right, everyone, educate me.

The black market situation took care of itself in some sense in that things were simply unavailable. It might have been a nice idea to get new tires for your car on the black market, but there was no such thing as new tires.

However, as Ralph has implied, it was kept under control by enforcement and a general sense that this was a necessary sacrifice. It was not to compare with the black markets elsewhere, which had about the status of the gambling in Rick's casino under the watchful eye of the local gendarmerie.
In large measure there were shortages because of governmental manipulation of the markets. The optimistic view of price controls for this period (and for advocacy after 1945) was for large part based on the views of Galbraith, who maintained that such actions were of vital importance.

It would be a mistake to assume that black market activity during the war was organized by large criminal elements controlling large organizational structures. A majority of black market activity was carried on by thousands upon thousands of law abiding individuals who supported the war effort, but still circumvented the established regulations (for gas, meat, coffee, and clothing).

Officials in the OPA recognized the problem, but could do little to stem it (outside of a few publicized actions) because so many ordinary folks (like housewives) were engaged in it.
"Free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular."

-Thomas Macaulay

Kevin R
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Post by Kevin R » Mon Sep 05, 2005 1:30 am

Steve is right on the mark. Price controls do indeed cause shortages. In this situation, the markets should be allowed to operate. The entire history of price controls is evidence enough to avoid them now.

The only reason they would be advocated today would be for political benefit. They sound good on paper. But there is always a price to pay. In his memoirs, Nixon admitted that the controls he instituted in the early 1970s (while politically important) were wrong from an economic standpoint.
"Free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular."

-Thomas Macaulay

BWV 1080
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Post by BWV 1080 » Mon Sep 05, 2005 9:22 am

Another good article:

September 02, 2005, 11:59 p.m.
Gouge On
A defense of gas profiteering.

By Jerry Taylor

The devastation wrought by Hurricane Katrina has shocked the nation, but so has the response to that devastation. Anger is surging over the behavior of governmental relief agencies, local law enforcement, the underclass of New Orleans, the National Guard, and the profiteers who are capitalizing on human misery. Regardless of how we feel about the former groups, the assault on profiteering is misguided and counterproductive. The crisis would be shorter and less painful if we accepted without complaint what goes by the epithet of “price gouging.”

There is no doubt that gasoline supplies have been severely constrained by the hurricane. About 12 percent of the nation’s refining capacity has been damaged and the pipelines that deliver fuel from the Gulf Coast are still mostly offline. Oil companies are carefully rationing what they have and are uncertain when the flow of gasoline from refineries might return to normal. Meanwhile, panic is driving up demand as motorists line up for gasoline out of fear that it might be a lot more expensive — or perhaps not even available — tomorrow. Some communities are literally seeing the pumps run dry.

So, how should we ration our limited pool of gasoline? In a free market, scarce goods are typically rationed by price. People who value gasoline most are willing to pay higher prices than those who value it less. The former get the gasoline — the latter to some extent go without. Allocating resources to those who value them most is one very important reason why our economy outperforms economies where resources are allocated by political action.

Some find this terribly unfair. The poor motorist may value the gasoline as much as the rich motorist, but his willingness to pay is constrained by his inability to pay. And even when he does pay, the economic pain caused by those high prices is far beyond anything inflicted on the rich. Accordingly, price controls are offered as a means to cushion the blow on the poor and to ensure a more equitable distribution of fuel.

Price controls, however, come at a cost. Lower prices result in more demand for fuel than do higher prices. That’s why the first thing we notice about price controls is that they lead to shortages. Price to the left of the intersection of the supply-and-demand curve and you are guaranteed to vaporize whatever you are attempting to keep inexpensive. It happened in 1973 when President Nixon imposed price controls on oil — gasoline lines were the result. It happened in 2000/2001 when California Governor Gray Davis refused to lift retail price controls on electricity — blackouts soon followed. Empty shelves are the defining feature of markets where price controls are in place. It’s a law of economic gravity.

Many American politicians seem to vaguely understand this, so instead of ordering price controls, they criminalize excessively high prices (leaving ambiguous just exactly what qualifies as an “excessively high price”) or, alternatively, they inveigh upon the industry to voluntarily price gasoline below what the market would bear. But the effect is the same. The reason that gasoline is disappearing from service stations across the nation is because station owners aren’t gouging with sufficient gusto. Whether out of a misguided sense of kindness, concern about what politicians might think, fear of bad press, or the desire to keep customers happy, they are pricing below what the market would otherwise bear and, as a result, their inventory has disappeared.

Now, how are the poor been helped by service stations closing down for lack of fuel? Gas at $6 a gallon, after all, is better than gas unavailable at any price. Moreover, shortages are likely to disproportionately affect the poor since rich people can spend more money finding gasoline and securing alternative means of transportation.

Price controls are also inefficient when it comes to allocating fuel among competing users. Those who value gasoline only somewhat have as much chance of getting fuel as those who desperately need it. Whoever gets in line first gets the gas. Human well-being in the aggregate suffers as a result.

Moreover, price controls lengthen the shortages. Allowing prices to rise to whatever their natural level might be sets off an economic chain reaction that remedies the shortage quicker than any conceivable government plan to do likewise. That’s because $3 gasoline and moral exhortations from President Bush and Bill O’Reilly to conserve fuel will not produce the same degree of frugality that $6 gasoline would deliver. Likewise, pleas to the oil industry to “help thy fellow man” will not yield up as much gasoline as the promise of great profit were suppliers to get new fuel to the market.

Be that as it may, “profiteering” strikes most of us as unsavory. But it depends on the context. After all, were we serious about criminalizing price gouging, we would throw every member of the National Association of Realtors behind bars. Although the markup on housing is far more dramatic than the markup on gasoline, we don’t seem to mind. Why? Because most of us getting gouged on Sunday afternoon at the open houses hope one day to do likewise. Apparently, Americans approve of gouging as long as they’re the ones doing the deed.

Be that as it may, America is apparently due for a refresher course in Price Controls 101. Watch carefully.

— Jerry Taylor is director of natural-resource studies at the Cato Institute in Washington, D.C.

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