Price Gouging is a Fiction of Populist Pablum

This is bound to happen when we teach crap economics in school.

The state’s consumer affairs office has subpoenaed sales records of at least nine gas stations since Hurricane Ike disrupted fuel supplies and drove prices beyond $5 a gallon in some areas, an official said Wednesday.

On Tuesday night I was the lone dissenter on City Council voting against a resolution to encourage people to report price gouging.

Price gouging is populist pablum without any basis in real economics. Better raise prices and have enough fuel to go around than be forced to freeze prices, ration, and run out of gas.

The market works fine when we let it. Even this whole banking crisis — had we not allowed Fannie Mae and Freddie Mac to start encroach in areas not their purvey thereby forcing other lending institutions into riskier and riskier schemes to stay competitive, we’d not be in the mess we’re presently in.

Let the market work and let AIG fail.

/tirade

27 comments

  1. odinseye2k says:

    “The market works fine when we let it. Even this whole banking crisis — had we not allowed Fannie Mae and Freddie Mac to start encroach in areas not their purvey thereby forcing other lending institutions into riskier and riskier schemes to stay competitive”

    I believe this was called the Glass-Steagall Act. It applied to all major lending institutions. Your guys destroyed it.

    It wisely isolated the lifeblood of our economy, free-flowing capital, from the speculative games of Wall Street. With that separation, we could have afforded to let all kinds of organizations go bust.

  2. odinseye2k says:

    Also, some thoughts on AIG from a random blogger that works at a New York investment firm:

    “AIG – well, no one really saw it coming. They’ve been losing money left and right, but it’s hard to imagine the world’s largest insurance firm having no cash whatsoever. In the end, though, the government loaning $85 billion was the last recourse. The idea that the private sector would give them that much money was ludicrous given how little access to credit there is. That said, don’t think that AIG is going to come out of this as the financial behemoth that it became under Hank Greenberg. Given that the firm is getting charged an absurdly high interest rate of around 11-11.5% on its ‘loan’, it’s effectively a race against the clock to sell off the individual parts of AIG to repay it. That’s why it’s more like a bankruptcy than a true nationalization; the government has no intention of running the largest firm in the private insurance markets. If AIG is forced to come back for more cash before it can pay off its loan, then there’s going to be another episode of handwringing – and we lucky taxpayers may get to foot more of the bill. Oh, and the shareholders? They got screwed by the government taking an 80% stake in the company. The stock isn’t worth the paper it’s printed on; I don’t know why anyone would buy it at this point.”

    In other words, at least this person is of the belief that AIG will die. The national credit line is just to let the air out of the tires a little more slowly…

  3. nast says:

    “The market works fine when we let it…had we not allowed Fannie Mae and Freddie Mac to start encroach in areas not their purvey”

    So which is it? How do you have a completely free market yet prevent an institution from doing something?

  4. Icarus says:

    The guy at Redstate I mentioned in another thread had a great, detailed discussion about what happend with AIG and why. There’s a lot more to the government’s bridge loan than just the killer interest rate. In effect, AIG will have no choice but to wind itself down. The government will not be a AIG stockholder for long, and I believe there is a 24 month maximum.

    While this venture toward socialism doesn’t sit well with me, the alternative appears to be a total collapse of our banking and financial system. The repercussions of that probably wouldn’t be much different from true and permanent socialism.

  5. Chris says:

    The taxpayers will only be screwed on the AIG deal if:

    1) The new AIG management can’t chop up and sell off the parts for $85B or more

    2) Once the Fed is paid back the $85B, they don’t remove that currency from circulation (hence $85B in inflation).

  6. Erick says:

    odinseye2k, if Glass-Stegall were still in place Bank of America could not have bought Merrill, Bear Stearns could not have been saved, and Lehman would be in worse shape than it is.

  7. Chris says:

    One more thing Erick. I dispute your claim that anything resembling economics is being taught in our schools. K-12 or university level.

  8. Goldwater Conservative says:

    It sounds as if none of you have investments in the market.

    Shut up.

    You all sound like Hoover after the 1929 crash…it took FDR to fix it.

  9. Rogue109 says:

    You all sound like Hoover after the 1929 crash…it took FDR to fix it.

    But FDR didn’t fix anything. Unemployment remained steady between 10 and 12 million throughout his multiple terms. The economy continued to teeter year after year.

  10. atlantaman says:

    “I believe this was called the Glass-Steagall Act. It applied to all major lending institutions. Your guys destroyed it.”

    It was Clinton who repealed it.

  11. While this venture toward socialism doesn’t sit well with me, the alternative appears to be a total collapse of our banking and financial system. The repercussions of that probably wouldn’t be much different from true and permanent socialism.

    Compared to what — what we have now? Our “banking and financial system” has been on the verge of collapse since the dollar went off of any standard whatsoever, and the Fed was given free reign to counterfeit its own fiat “money” whenever it felt the urge (or whenever Congress needed to spend more money without the political risk that comes with raising taxes).

    Of course, the Fed has been in the business of working towards the dollar’s collapse since, oh, say, 1913. Which is why something you could buy for $1.00 then costs $21.60 today. It’s called “inflation” – as in, “inflating the money supply.” Add more dollars, each one is worth less.

    Economics, indeed.

  12. atlantaman says:

    Over many decades there has been a lot of pressure from Washington to get everyone into home ownership, whether they could afford a home or not. This was the main reason Fannie Mae and Freddie Mac were set-up; both of which became Democrat insider playgrounds. This is probably why you won’t see Obama calling for investigations into these folks. A lot of his campaign finance team comes from those playgrounds; but hey at least he doesn’t take money from lobbyists.

    There are just some people who shouldn’t own homes, no matter how much Barney Frank or Chris Dodd panders about it.

  13. odinseye2k says:

    Well, it was actually veto-proof, so many Dems (and you wonder why we bag on guys like Marshall all the time?) were involved. However, the main sponsors were hard-core Republican free marketers:

    http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

    “odinseye2k, if Glass-Stegall were still in place Bank of America could not have bought Merrill, Bear Stearns could not have been saved, and Lehman would be in worse shape than it is.”

    You’re the one saying they should die. But, Merrill, Bear, and the others would have died as speculators and had much less chance to freeze up all the capital driving the real (non-speculator) economy.

  14. Chris says:

    Goldwater,

    FDR didn’t fix jack. Hitler and Tojo did. Our economy didn’t turn around till 1945.

    Come to think about it, Stalin & Mao might get some credit there too.

  15. travis fain says:

    When you say “Better raise prices and have enough fuel to go around,” I think you mean, “enough fuel to go around for those who can afford it.”

  16. Doug Deal says:

    travis,

    So, why not take all the money from everyone and distribute it evenly. That seems like the society you want to live in. Do you have anything in your possession that someone else in the country doesn’t have? Do you not have a car? Well, it is because you have things that others can’t afford.

    In any event, during a crisis, everyday mundane uses for gasoline take a serious back seat to emergency use. People are not going to spend their money on everyday gas purchases if it is $10 a gallon and will likely only use the car when it is absolutely necessary.

    That means there is gasoline for the grownups to do what must be done during the shortage. Price controls promote hoarding, which makes shortages more severe and harder to recover from, as panic begets panic.

    It is a shame that they do not teach very basic economics to kids anymore. Our world is way too easy, and thus no one appreciate what hard times really are, so we have a bunch of whiners like Mr. fain here.

  17. Atlas Is Shrugging says:

    What is even more concerning than the nationalization of AIG is the fact that all of our politicians are advocating for the necessity of MORE regulation.

    Either A. they don’t realize that their crippling regulations is what caused this mess or B. they know it, and they choose to ignore it with the purpose of gaining more power.

    Whether it is A or B, they will damn us to more economic downturn with their regulations, idiocy and endless quest for power.

    End the socialist regulations now, cut the corporate tax rate in half and return to the gold standard, and we will see the largest economic boom in the history of the world.

  18. odinseye2k says:

    “FDR didn’t fix jack. Hitler and Tojo did. Our economy didn’t turn around till 1945. ”

    Broken window fallacy. All those bombs were essentially make-work for the country. Britain did the same thing post-war, except they called it a national health system and it eventually did pay dividends from their infrastructure.

    Now, after the war … we did have every other major world economy knocked flat and so absolutely no competition on the world stage. That also allowed us to get one hell of a trade surplus going.

  19. Goldwater Conservative says:

    I seem to remember deregulation and corporate greed causing the problems we are in.

    Trickle down economics works only in the negative direction.

  20. Goldwater Conservative says:

    Furthermore, Beta-male Atlas, cutting the corporate tax rate only gives people the incentive to pull out of the markets.

    Your ideology is fictitious.

  21. Doug Deal says:

    Johnson Conservative,

    So, you do not think that the pressure by the government put on banks for giving loans to “sub prime” borrowers at 0% down, or 110% financing had anything to do with the problems?

    What do you think caused the financial crisis that can be traced directly back to “greed”? Use specific examples.

    How much was caused by government threats, which made it virtually impossible for people to get financing with less than 20% down, which caused inflated real estate values to plummet beyond a mere correction (dried up demand) causing formerly safe owners to be upside-down?

    There is a lot of blame to go around, but more than half of it can be pointed squarely at the government. More regulation from top to bottom will simple make the problems worse. Holding people accountable for the various cases of fraud, and making the guilty pay the tax payers back out of their personal holdings would go a long way to preventing this from happening again.

    Plus a felony conviction takes most professional licenses, including those held by traders, accountants, lawyers, brokers and many others. It will get a large number of bad seeds out of the next crop.

  22. odinseye2k says:

    “What do you think caused the financial crisis that can be traced directly back to “greed”? Use specific examples.”

    Um, the development of ridiculous financial derivatives and the rather misguided belief that risk could somehow be divorced from the level of return? The mass deployment and buying frenzy for those very instruments by people that apparently did not fully appreciate their downsides or were able to trace their abstract descriptions back down to the real assets that were the purported source of their values?

  23. Bill Simon says:

    All Y’all,

    Please, stop referring to things like banks and financial institutions as a “system”. It’s not a system any more than multitude of independent hospitals, doctors, and various support people comprise of a “healthcare system.”

    The word “system” signifies that there is a planned path that allows the movement of some substance (be it water, electricity, money or people who are ill) through a defined structure of some sort that is the same for all things moving through the path.

    Neither money flow, nor medical care constitutes a system. Though…the Socialist-Dems are hell-bent on making healthcare a “system” where all outcomes are the same, one would hope that the Socialist-Neo-Cons would refrain from turning the financial and banking markets into a “system” with equal outcomes for all.

  24. The Socialist-Neo-Cons have *already* turned the financial and banking markets into a “system” – a planned path that allows for the movement of money through a defined structure called the Federal Reserve that has the same draining effect on all people: your money becomes worthless.

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