Profiteering and Price Gouging
Profiteering and Price Gouging
Kentucky Attorney General Greg Stumbo announced he intends to investigate and prosecute those who are "profiteering" from hurricane Katrina.
Before he begins wasting taxpayer money and harassing gas station owners, I wish he could tell us what separates "profiteering" from profits.
He might suggest that profiteers make "excess" profits; exploiting natural disasters for their own selfish gain by gouging consumers.
Stumbo, like many politicians, illustrates his lack of understanding about economics by attacking business for raising prices and seeking high profits.
In a market economy, prices serve to tell us, instantly, what we must give up to get something else. Price is information -- it is neither good nor bad.
Prices are determined by both supply and demand. How we distribute the scare resources of our planet, including our precious time, is factored into the price of all goods and services.
Remember that no one forces us to buy gas at high prices; we can choose to walk or ride a bike, take the bus or carpool, and indeed some do so. This decreases demand, and tends to lower prices.
Profits are the signals the market uses to help businessmen decide where to invest time and resources. By seeking to maximize profits, business creates more supply. More supply tends to lower prices.
Over time, the price of gas stabilizes, and may start to decline. When prices and profits fall, will Stumbo decry the "gas war" and resulting bankruptcies?
There is an alternative to having the free market set prices: the government can do this.
Centralized command and control of the economy proved spectacularly unsuccessful in the Soviet Union and everywhere it's been tried throughout all of mankind's history.
Government price setting has always resulted in mass shortages (evidenced by rationing and queues), huge waste (think price supports and government cheese), and dissatisfied consumers with little choice (did you ever hear of an East German fashion show?)
Just witness the violent stampede that took place in Richmond, Virginia when the school system sold off valuable laptops for $50 each. Not only did the taxpayers lose out, so did the unfortunates who were trampled.
The truth is that government officials like Stumbo can no more control the cost of gas than they can the fury of nature.
Nixon tried to limit profiteering by Big Oil during the 1973 oil embargo, when he passed the Emergency Petroleum Allocation Act, which set price controls on oil producers, and attempted to coordinate the allocation and distribution of gasoline on a national level.
The result? Gas rationing, with long lines of cars waiting hours to fill up at the pump. Fistfights were common, as tempers flared. The economy went into recession. Our dependence on imported oil actually increased, as domestic producers, forced to sell at pre-embargo prices, cut back production.
To be sure, the cost of gasoline doesn't go down when the government artificially lowers the price. Because now you have to add in the value of the time you've spent waiting in line to get the gas. The cost of waiting varies by individual. Still I don't know anybody who enjoys waiting in line.
Stumbo suffers the fatal conceit of thinking that government knows better than the market what the price of gas should be and how much profit gas stations should make.
I don't know why he's so timid; why doesn't he just mandate gas stations sell gas at $1 per gallon? Or better yet, since we live in a democracy, we could vote on how much profit gas stations should make.
The absurdity of these proposals reveals the truth: government interference in the marketplace causes problems, not solves them.
Hurricane Katrina is a tragedy that given time, individuals and free markets will overcome. Short-term economic disruption and price hikes cannot be avoided.
Let us not compound our problems by asking government to do something it has no right or power to do. Otherwise, nature's freak calamity will evolve into permanent man-made catastrophe.
George Conrad Dick
Chairman
Libertarian Party of Kentucky
Kentucky Attorney General Greg Stumbo announced he intends to investigate and prosecute those who are "profiteering" from hurricane Katrina.
Before he begins wasting taxpayer money and harassing gas station owners, I wish he could tell us what separates "profiteering" from profits.
He might suggest that profiteers make "excess" profits; exploiting natural disasters for their own selfish gain by gouging consumers.
Stumbo, like many politicians, illustrates his lack of understanding about economics by attacking business for raising prices and seeking high profits.
In a market economy, prices serve to tell us, instantly, what we must give up to get something else. Price is information -- it is neither good nor bad.
Prices are determined by both supply and demand. How we distribute the scare resources of our planet, including our precious time, is factored into the price of all goods and services.
Remember that no one forces us to buy gas at high prices; we can choose to walk or ride a bike, take the bus or carpool, and indeed some do so. This decreases demand, and tends to lower prices.
Profits are the signals the market uses to help businessmen decide where to invest time and resources. By seeking to maximize profits, business creates more supply. More supply tends to lower prices.
Over time, the price of gas stabilizes, and may start to decline. When prices and profits fall, will Stumbo decry the "gas war" and resulting bankruptcies?
There is an alternative to having the free market set prices: the government can do this.
Centralized command and control of the economy proved spectacularly unsuccessful in the Soviet Union and everywhere it's been tried throughout all of mankind's history.
Government price setting has always resulted in mass shortages (evidenced by rationing and queues), huge waste (think price supports and government cheese), and dissatisfied consumers with little choice (did you ever hear of an East German fashion show?)
Just witness the violent stampede that took place in Richmond, Virginia when the school system sold off valuable laptops for $50 each. Not only did the taxpayers lose out, so did the unfortunates who were trampled.
The truth is that government officials like Stumbo can no more control the cost of gas than they can the fury of nature.
Nixon tried to limit profiteering by Big Oil during the 1973 oil embargo, when he passed the Emergency Petroleum Allocation Act, which set price controls on oil producers, and attempted to coordinate the allocation and distribution of gasoline on a national level.
The result? Gas rationing, with long lines of cars waiting hours to fill up at the pump. Fistfights were common, as tempers flared. The economy went into recession. Our dependence on imported oil actually increased, as domestic producers, forced to sell at pre-embargo prices, cut back production.
To be sure, the cost of gasoline doesn't go down when the government artificially lowers the price. Because now you have to add in the value of the time you've spent waiting in line to get the gas. The cost of waiting varies by individual. Still I don't know anybody who enjoys waiting in line.
Stumbo suffers the fatal conceit of thinking that government knows better than the market what the price of gas should be and how much profit gas stations should make.
I don't know why he's so timid; why doesn't he just mandate gas stations sell gas at $1 per gallon? Or better yet, since we live in a democracy, we could vote on how much profit gas stations should make.
The absurdity of these proposals reveals the truth: government interference in the marketplace causes problems, not solves them.
Hurricane Katrina is a tragedy that given time, individuals and free markets will overcome. Short-term economic disruption and price hikes cannot be avoided.
Let us not compound our problems by asking government to do something it has no right or power to do. Otherwise, nature's freak calamity will evolve into permanent man-made catastrophe.
George Conrad Dick
Chairman
Libertarian Party of Kentucky
posted by George Conrad Dick at 6:12 AM
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