A memo in defense of price gouging for Perdue and Chambliss

This weekend, I saw gas for $3.99 on Amelia Island, $4.09 in Brunswick, $4.59 in Macon, and $4.20 in Atlanta. This morning, I awoke to sound bites from Sonny Perdue and Saxby Chambliss (who never met a populist position they didn’t like and clearly don’t want to be considered conservative) making sure to warn the public at large to report all “price gougers.”

Super. But maybe they should shut the hell up.

Who is to say that the station in Macon which was charging $4.59 a gallon isn’t engaging in normal, everyday capitalism? Just like when people cry and gnash their teeth when someone sells a chainsaw in a hurricane ravaged area for $1,000.00, the seller is still providing a service. If the demand for that service is high, then the supply diminishes and the cost increases.

No one was jumping up and down when gas was $.89 a gallon in the late 1990’s in Georgia but now all of a sudden the monitoring of prices and profits has to be something that is strictly monitored by Comrade Perdue and Comrade Chambliss.

Allowing prices to freely fluctuate permits opportunists to bring additional quantities of the demanded product into the area where prices are high…thus bringing about economies of scale and resulting in self-correcting action to fix any irregularities.

Next time, gentleman, shut your pie hole. Because remember that station in Macon that was selling for $4.59 a gallon? Five hundred feet away was a guy selling for $4.20 and he was getting all the business.

25 comments

  1. Chris says:

    Don’t forget that high prices discourage the soccer moms (and presumably the hockey moms) from wasting gas shuttling the rug-rats to practice leaving the Doctor and nurses able to find gas to get to work.

    Price is the only effective mechanism for dealing with scarcity.

  2. Gray says:

    I’m torn on this. On one hand, regulation can be useful to prevent price gouging in the oil markets- let’s face it, we have to buy gas no matter what the price is.

    But, by regulating the price and not allowing it to fluctuate upward, you wind up having gas shortages, as was evident on Saturday when all three of my local convenience stations were out of gas.

  3. GreenAllTheWay says:

    It should be completely deregulated and let the market decide. If I want to pay $7.00 a gallon, it is my choice.

  4. Decaturguy says:

    I agree with you on this one Rouge.

    GOP politicians prove every day that they are nothing but a bunch of left wing socialists.

  5. Rogue109 says:

    Gray: But, by regulating the price and not allowing it to fluctuate upward, you wind up having gas shortages, as was evident on Saturday when all three of my local convenience stations were out of gas.

    There isn’t a right to gas. And I’m sure there was a station a little further down the road that did have gas. Just because some Georgians are stupid and had a mob mentality where they had to prepare for the End of the World, doesn’t mean that there is a role for government. Heck, if we have an inch of snow people immediately rush out and buy milk and bread (even if they haven’t had a glass of milk in decades).

    drjay: it is strange however when your father in law is actually in houston and paying much less for gas than we are…

    Strange? No doubt? Criminal to the point that the mighty State of Georgia needs to get involved? No way, Jose.

    Decaturguy: GOP politicians prove every day that they are nothing but a bunch of left wing socialists.

    LOL, at least I write negative things about my party. You and Trevor keep riding around on the Sweet Pickles Bus with nary a bad word (grin).

    Tekneek: I would be right there with you guys, if only it were as simple as you make it sound.

    Economics IS simple. And it shows the way to solve the vast majority of problems.

  6. Rogue109 says:

    Economics is simple. But so are people’s minds.

    But that doesn’t mean that we need government to fix their stupidity. Like I’ve said many times here on PP: It’s freedom, baby, and it’s groovy.

  7. Donkey Kong says:

    Ok, apologies for the snarky comment. It’s been a long couple days.

    Economics really is simple, but people think short-term when economics is a long-term science. People want things better NOW.

    For example, price controls effectively bring down the price of gas, and if the price is set just below the market price, it may not even affect supply in the short-term. Everyone appears better off. Then one day an oil pipeline bursts off the shores of New Orleans, flooding the ocean with oil. This incident reveals a widespread problem — the nation’s infrastructure in oil refining and transportation is in poor shape because of a lack of investment. The oil companies, because of the price control, had to choose between breaking even and investing in their pipelines. No company can operate long-term at a loss, so they chose to forgo investments. Poor infrastructure is a problem all over the world in socialist countries, and their restrictive policies in the name of “consumer benefit” blindly destroys the country’s infrastructure, or at best, keeps it from being built.

    Profits are the reward for innovation, hard work, and risk. Unnaturally high profits cannot, and WILL not, continue long-term in a free market, because investors will start pouring into the industry to capture their share of the profits, driving up competition and driving down prices. The process, unfortunately, does not fit in the attention span of many, so we choose short term “solutions” that cause even greater problems long-term (re: ethanol as a driver of global food-price inflation).

  8. Tekneek says:

    Wait a minute… Are you telling me the oil companies aren’t making money because of price controls… But are you also saying that they are actually paying royalties for using public land? My impression was that they are not paying royalties and that the industry has actively lobbied to keep it that way. They want government actively involved when it works in their favor, it seems…

  9. Donkey Kong says:

    My situation was hypothetical, but I used one that was realistic so as to be easily imaginable.

    Any time corporations go hat in hand to the government asking for help, or check in hand, it makes me want to vomit. There are a couple exceptions, such as when the government is to blame for their problems (i.e. how the state’s watering ban led to the demise of Pike Family Nurseries), but I haven’t made up my mind on what should happen in that situation.

  10. Tekneek says:

    Are you telling me that a watering ban in response to a dwindling water supply was actually a bad idea? I would love to hear your argument about this, actually.

  11. Donkey Kong says:

    Tekneek,

    I’ll be honest and say I don’t know. The problem I have is that there are hidden costs when the price cannot reach market level (a usage restriction is a de facto price control). Plus, certain people/entities are singularly hit hard, not by market forces which are risks they expect to face, but by government mandate.

    The other side of the coin is the free rider problem and legitimate humanitarian concerns (I don’t see health care as a legitimate fundamental human right, but water is a whole different matter).

    So, suffice it to say, I don’t know the answer to this one.

  12. Gas will go back down later this week most likely. Price too high, evaluate if you really need to get somewhere. I had to come back to school on Sunday, so I spent $4.00 per gallon till I had enough to get me to Americus. I’ll spend the rest when it’s down and I need to go home.

    Hurricane is heading for the gulf, go get gas before it gets there. We all know this cycle, it happens every year. Besides, it’s not that bad. I went to a full service station and got gas for 4 bucks a gallon – and the Walmart was selling for the same price. Comparitive shopping saves you money and time. I looked around till I found a Mom and Pop operation hedging their bets on the fact that I would indeed return if prices were fair enough. So they sell it at cost. Normally they are several cents higher than the stores in the “big city” of Eastman.

    Having said that, the only need for regulation I have seen thus far was in McRae where a man pretended he was out of gas until other stations went out, and then he sold gas at outrageous prices. Then the tanker truck came and he started it again. Not so much price gouging as it is creating an artifical run on gas.

  13. Donkey Kong says:

    Ron,

    I’d say that shouldn’t even need regulation. I suspect that once the public heard about this, they were outraged, and hopefully some people decided to boycott his store. Should he do it again next time, people would be even more mad, and surely he would start to lose business.

    If the people aren’t mad enough to boycott his station, its not an issue the government should be regulating. If the people are mad enough to boycott and do, he will lose enough money to either not price gouge again or be pushed out of business.

  14. DK,

    In cities wherein a major amount of income is posited by people traveling 341 it is simply not feasible to believe local boycotting will be detrimental to store operation. Otherwise I agree.

  15. Just the Facts Please says:

    Ok, everyone who thinks they were “gouged”, please gather around….

    Everyone knows how much retail prices went up on Friday and naturally assumed it was gouging. The problem is that you do not have access to the dramatic increases in wholesale prices, driven by speculation that the hurricane would reek havoc on the petro areas.

    I have a friend who is in the business. He got a call from his supplier on Thursday telling him that his Friday deliveries would cost him anywhere from $1.03 to $1.51 per gallon more, depending on when he got his gas. These costs increases are never reported with the same vigor that helicopter news crews give the retail prices. It takes a lot more work to actually get the info than to do flyovers.

    Gas is basically priced on replacement costs, meaning that if you know that your next delivery is going to cost more, you have to adjust costs BEFORE you get it, otherwise you won’t have enough money to pay for it. Unlike most products which are paid net/30, gasoline is paid for within 7 days or less.

    What you saw was a market reacting to dramatic cost increases. These had nothing to do with the cost of crude world wide, since Atlanta gets its gas from the gulf. I am told that the effective price of crude from the gulf was equal go $200 per barrel.

    So go ahead and boycott my friend because he refuses to sell his product below cost. How dare him actually cover these increases? He should really eat all these increases as a matter of public service right?

    He has already had a complaint filed for gouging. Nothing will come of it, but it will cost him money to come up with the “proof” that he was simply running his business passing on costs.

  16. Tekneek says:

    Why don’t they publish the prices they are paying then? It isn’t reported because these businesses keep this information secret. If they want the public to make decisions based on this new information, they should share it with the marketplace. Otherwise, they cannot whine about it, can they? If I keep my costs secret from you, but want you to consider my costs when complaining about my prices, do I really have a leg to stand on?

  17. Icarus says:

    “Wait a minute… Are you telling me the oil companies aren’t making money because of price controls… ”

    I think you’re confusing the “oil companies” with the gas retailers. Very little money is made, and lately, a lot is lost, at the retail level of gasoline distribution. Exxon is divesting itself of its gas stations. Most chains are not affiliated with the company that drills for the oil. Fewer and fewer each year are related to the refinery that carries their “brand”.

    The majority of money currently being made in the oil industry is for those who own and drill the reserves. The refiners have the second best postion. The retailer gets to take the brunt of the consumer hostility, while paying the above two entities an ever increasing share of their revenue. After they pay the credit card fees on gas purchases, the independent store owner often loses money on each gas transaction, even before he applies his overhead.

  18. drjay says:

    they actually did a story on what the retailer pays for gas here in sav’h yesterday–in the story the retailer said they only clear about 1% on gas–the manager showed the news reporter their buy sheet from friday that showed they paid 3.28/gal and paid 45 cents a gallon for a total of 3.73/gal–which is more than i paid for gas friday morning–so clearly it went up–and the retail price had to follow–of course the retailer still managed to make themselves look odd b/c they were charging 4.59 when the news crew showed up and were lowering their price to 3.99 on camara as the crew left???

  19. Just the Facts Please says:

    Lesson 2:

    No everyone pays the same for gasoline. Today there is as much as a 60 cent difference in what my friend is paying against his competition, depending on his supplier. So why not just paste it up there so your competitor can beat your brains out once he knows he has you by the short hairs? I don’t think many of you would survive in business very long with your “let everyone know what my costs are publicly” way of running your business.

    Not living in Savannah, I didn’t see that story. Here in Atlanta its much easier to just do flyovers and yell gouging.

  20. Demonbeck says:

    Price gouging when a threat is imminent discourages people from evacuating. Price gouging in non-life-threatening situations is just an issue of supply and demand.

    Ticket scalpers gouge prices, but if you need two and the game’s about to start…

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