Peenie Wallie

http://www.townhall.com/columnists/thomassowell/ts20040914.shtml

'Price gouging' in Florida
Thomas Sowell

September 14, 2004

In the wake of the hurricanes in Florida, the state's attorney general has received thousands of complaints of "price gouging" by stores, hotels, and others charging far higher prices than usual during this emergency.

"Price gouging" is one of those emotionally powerful but economically meaningless expressions that most economists pay no attention to, because it seems too confused to bother with. But a distinguished economist named Joseph Schumpeter once pointed out that it is a mistake to dismiss some ideas as too silly to discuss, because that only allows fallacies to flourish -- and their consequences can be very serious.

Charges of "price gouging" usually arise when prices are significantly higher than what people have been used to. Florida's laws in fact make it illegal to charge much more during an emergency than the average price over some previous 30-day period.

This raises questions that go to the heart of economics: What are prices for? What role do they play in the economy?

Prices are not just arbitrary numbers plucked out of the air. Nor are the price levels that you happen to be used to any more special or "fair" than other prices that are higher or lower.

What do prices do? They not only allow sellers to recover their costs, they force buyers to restrict how much they demand....

...For centuries, in countries around the world, laws limiting how high prices are allowed to go has led to consumers demanding more than was being supplied, while suppliers supplied less. Thus rent control has consistently led to housing shortages and price controls on food have led to hunger and even starvation.

Among the complaints in Florida is that hotels have raised their prices. One hotel whose rooms normally cost $40 a night now charged $109 a night and another hotel whose rooms likewise normally cost $40 a night now charged $160 a night.

Those who are long on indignation and short on economics may say that these hotels were now "charging all that the traffic will bear." But they were probably charging all that the traffic would bear when such hotels were charging $40 a night.

The real question is: Why will the traffic bear more now? Obviously because supply and demand have both changed. Since both homes and hotels have been damaged or destroyed by the hurricanes, there are now more people seeking more rooms from fewer hotels.

What if prices were frozen where they were before all this happened?

Those who got to the hotel first would fill up the rooms and those who got there later would be out of luck -- and perhaps out of doors or out of the community. At higher prices, a family that might have rented one room for the parents and another for the children will now double up in just one room because of the "exorbitant" prices. That leaves another room for someone else.

Someone whose home was damaged, but not destroyed, may decide to stay home and make do in less than ideal conditions, rather than pay the higher prices at the local hotel. That too will leave another room for someone whose home was damaged worse or destroyed....

Arresting people for raising gas prices, in this case, may not be the best solution.

Consider that the current situation is clearly chaotic, and no gas is available. Cars are running out of gas on the side of the road. Gas stations that have gas and electricity to pump it are patrolled by police

Maybe the police should be patrolling congress and the state legislatures, and arrest politicians for raising taxes.

And don't forget that there hasn't been a gasoline refinery built in the United States in the past 30 years.

http://slate.msn.com/id/2102031

The Great Refinery Shortage
America needs oil. You'd rather have a beach condo.
By Daniel Gross
Posted Tuesday, June 8, 2004, at 2:53 PM PT

There are plenty of reasons gas costs so much, but one of them is that the United States doesn't have enough refineries. The National Petrochemicals and Refiners Association says that the last new refinery built in the United States was Marathan Ashland's Garyville, La., plant—and it was completed in 1976. According to this report, between 1999 and 2002 refining capacity in the United States rose only 3 percent, squeezing up prices since demand grew much faster than that....

http://www.reason.org/commentaries/moore_20050901.shtml

Orange County Register
September 1, 2005

Katrina Reveals Gas Price Folly
Environmentalists, NIMBYs have blocked new oil refineries for 30 years
By Adrian Moore

...Bloomberg News reports that Katrina forced the temporary closure of at least eight refineries, responsible for as much as 10 percent of the nation's oil production....

...A new oil refinery has not been built in the United States since 1976. During that time, our gasoline use has increased over 25 percent. The nation's 149 existing refineries have been running at maximum capacity trying to meet record demand and, as a result, not only do we import oil, we actually have to import 10 percent of our daily gasoline from refineries overseas.

So when Hurricane Katrina or a refinery fire or anything else causes even just a few refineries to shut down for awhile, there is absolutely no excess capacity nationwide to make up the difference, and prices at the pump skyrocket.

For the wealthiest, most powerful nation in the world this is a ridiculous situation that will only get worse as our insatiable demand for gasoline keeps growing and refinery capacity falls further behind in the coming years.

Just a few new refineries would alleviate the problem and help keep our gas prices lower and steadier.

But getting an oil refinery built is next to impossible, hence the 30-year construction drought. There will always be environmental activists who fight any new proposed refinery, regardless of where it might be located and how environmentally safe it is. And our environmental rules give them the upper hand. ...

...President Bush recently signed a new energy bill that tries to make it easier to build new oil refineries, especially in areas with high unemployment – where the new jobs would likely be welcome. And yet, special-interest groups decried the provision as an environmental and public health injustice, arguing that these communities won't want refineries but won't have the political power to fight them off.

The opposition to building new refineries ignores the dramatic technological improvements that have been made since an oil refinery was last constructed here in 1976. New, clean refineries emit far less pollution than older refineries, with new scrubbers and design changes that dramatically reduce sulfur and other emissions...

If the price were deemed too high by the consumer, wouldn't he just move on to someone with a cheaper rate? Thus if anyone is willing to pay the higher price, then it is by definition not too high.