Thread: McCain, Clinton win NH

Red herring, gas station, hardware, and food store owners spiking prices during a disaster has very little to do with wages of rescue workers. if you increase prices less gets sold there is only so much money in a community= sales taxes do not deviate much, if prices stay the same for the basic essentials then volume goes up sales taxes go up.

Originally Posted by zraver

Red herring, gas station, hardware, and food store owners spiking prices during a disaster has very little to do with wages of rescue workers.

No red herring at all. I'm getting at risk premiums. Each of these professions, in order to garner the necessary supply of workers has to pay a risk premium because of conditions.

If I'm a gas station owner and I have a choice to evacuate my family and/or evacuate with my family, I'm going to look at the potential profit I could make if I were to stay. If I can't charge above the original price, then I'm losing money (because gas is already more expensive) staying open, and so instead of selling at a loss, I would decide instead to just turn off the pumps. Some owners may decide to stick around because they fear vandalism and/or looting and their insurance policy won't cover all these costs, but what you've just done is changed the incentive structure. Bottomline, by choosing to remain in the area, a store owner incurs more risk (I am not trying equate the risk of the owners with those of the above professions - I am simply getting at the fact that risk premiums exist and without them, the incentive structure leads to an undersupply).

In additional to changing the incentive structure on the supply side, you've also changed the incentive structure on the demand side. If it's five days to landfall of a hurricane and I fear higher prices for batteries, water, canned goods, etc., I go to the store today to avoid the higher prices. The store now has time to react to the increased demand and can get resupplied prior to the storm, allowing for more of the item to be sold in total. If I know prices will not change, then many will defer their trip to the store because it won't hit them in the pocket book. Now, because stores can only hold so much inventory, you have less volume being sold because purchases aren't made until the last minute.

Now you've made everyone worse off, to include the poor, because of your well intentioned but incomplete look at the second and third order effects that occur because of the change in the incentive structure.

Originally Posted by zraver

if you increase prices less gets sold there is only so much money in a community= sales taxes do not deviate much, if prices stay the same for the basic essentials then volume goes up sales taxes go up.

Econ 101 failure. Things aren't the same. The hurricane has changed demand and supply. Some items are revalued. I value batteries more during times of natural disaster because I know I have to have them to have a source of light since I cannot depend on electricity. If I failed to plan by already having them on hand, then I am "punished" for my lack of foresight, regardless of my income. I value distilled water more because I cannot depend on tap water to have been purified. If I didn't have empty milk jugs or Nalgene bottles on hand to fill prior to the tap water becoming untreated potentially, then I am "punished" for my lack of foresight here. I can repeat this analysis, but higher prices serve as the incentive to buy now instead of waiting for the crisis.

The higher prices then serve as an incentive for firms to rush supplies to the region since there is an arbitrage opportunity (I can take a $1.00 water bottle from Tennessee and sell it for $2.00 in Lousiana). As supply rushes to fill the vacuum, prices then decrease once again until the additonal supply wipes out the arbitrage opportunity. Without the higher prices, then what is the incentive to rush additional supplies if you don't make any additional money (and if you implement a price control at the "normal" price, you will actually probably lose money since it cost you more to ship to the area)?

Now that price controls have been introduced, let's examine their impact (if it is a price ceiling, they cause shortages):

Price controls add to shortages in Zimbabwe

Price controls coupled with increased demand lead to shortages in Iraq

Price controls add to shortages in Venezuela

An Ancient Fallacy: Price Controls
by Thomas Sowell (June 27, 2002)

When Hawaii recently passed a law controlling how high the price of gasoline can go in that state, it was the first law controlling the price of gasoline since 1981, when President Ronald Reagan ended federal control over oil prices. What was unusual about the Hawaiian price controls is that they do not go into effect until 2004.

If price control is such a great idea, why postpone its benefits for two years? The only reason that makes sense is that the public thinks price control is a great idea, but the politicians know its bad consequences, and they don't want those bad consequences to show up before this year's election.

By postponing the date when the law goes into effect, politicians can reap the benefits of doing something the public likes without reaping the whirlwind of voter disenchantment when this attempt at getting something for nothing turns out to be as counterproductive as price caps on electricity in California.

Already an oil refiner in Hawaii has begun talking about shipping his gasoline to the west coast of the U.S. mainland, after price controls go into effect in Hawaii -- which of course will mean less gasoline for Hawaiian motorists. Whenever and wherever government controls have been put into effect to hold down prices, the most common consequence has been a reduction in the quantity supplied.

Those old enough to remember the gasoline crisis of 1979 may recall sitting in long lines of cars at filling stations, waiting -- sometimes for hours -- to reach the pump. This was one of the most common consequences of price control throughout history -- a shortage. Yet how many Americans ever made the connection between the price controls of the 1970s and the gasoline shortages of the 1970s? How many have noticed that they haven't been waiting in gasoline lines since Ronald Reagan got rid of the price controls on oil?

Why do price controls cause shortages? There are basically two reasons: supply and demand.

Continued at An Ancient Fallacy: Price Controls by Thomas Sowell -- Capitalism Magazine

Originally Posted by Blademaster

Shek,

What the guy did in the article is not gouging. Gouging is when someone charges a ridiculous amount of money for something that would be priced at a lower amount of money. If the guy had charged like 4 times the amount or higher, it would be gouging. But gouging only applies to necessities where people need those things to get by in life. If the guy were to come in town and charge something totally unnecessary such as a tv for 4 times the regular price, that is not price gouging.

So 2x is okay, but 4x is bad for necessities. What about 3x? 2.1x? 2.2x? Where do you draw the line? What is the objective criteria for where the line is drawn?

Let's look at the example of a generator. Let's say that John Sheperson has several people in line but only one generator remaining. The first few persons in line are willing to pay $1200 for a $500 generator. They value being able to power their air conditioner and keep the $300 of food in their fridge from spoiling at $1200. The last person in line is a butcher whose backup generator was destroyed in the storm and without a generator, will have $50,000 worth of meat spoil in the next few hours. Accordingly, he'd be willing to pay $5,000 (the cost of their insurance deductible for products) to get the generator. Under your criteria, since 2x is the max markup, then the first dude gets it at $1000 (he's happy, he was willing to pay $1200)and a few steaks are saved. $50,000 worth of meat goes bad and no one can purchase that food. Is society better off with your scheme? The free market will force a bidding war where the butcher would end up with the generator, and there is more supply of food available.

Originally Posted by Blademaster

Price gouging occurs when somebody has artificially raised the prices so much that it creates a panic among the population and stoke fear that those necessities will run out and create the situation where people would buy more than they need and causes massive hoarding. Hoarding occurs when people buy necessities in times of crisis and they buy more than they really need. For instance, I don't need to buy X amount of food for my family when I only need Y amount of food and the rest will only get spoiled. Another example is I buy X amount of gas where I only need Y amount to get to the destination I need or get the power I need but the rest will mainly sit idle just to soothe my fear of not getting the necessary supplies when the prices are so high. I do not have any documents or paper but IIRC, massive hoarding occurs when price gouging occurs and it has been proven to be linked with breakdown of law and order and increase in riots. Hence, my assertion that price gouging and hoarding laws have very little to do with compassionate motives but very much to do with law and order and reining in panic. It has been documented that once panic has set in, it is extremely difficult to rein in the panic and harsh methods may have to be resorted to in order to stop the panic and the hemoraging. Thus, public officials sincerely want to avoid that and has created price gouging and hoarding laws to avoid that kind of situation.

So, let's extend the generator example. If the going price of a generator is $4500, then I will see this, panic that I may not get a generator, and so I'll go out and buy two generators just in case they run out?

Originally Posted by Blademaster

Price control and gouging/hoarding laws come into effect when an emergency has been declared. All sorts of protections come kicking in, allowing extra and special powers. Enforcement would be in the type of constant survelliance on stores and shops that sell necessities such as food, medical supplies, gas, et cetera et cetera. Shopkeepers and storeowners are permitted to increase the price to cover the costs of shipping and adjustments due to the nature and circumstances of the emergency but they may not take this opportunity to inflate their profit margins. If they increase the prices but the profit margins remain the same, that is not price gouging at all or violating price control.

So, let's look at the example of New Orleans, where law enforcement was overwhelmed. You want to dedicate additional resources monitoring to a detailed accounting level to ensure that "excess" profits aren't being made. What is the cost of providing this extra assistance? Is this really what we want law enforcement to be doing? What about extra costs that will be created by the creation of black markets?

Originally Posted by Blademaster

Shek, I think you and I are looking at gouging from different standpoints. I see price gouging occuring when basic necessities are being sold at such a ridiculous high price like when 1 dollars of medicine is being sold for 20 dollars. Shopkeepers and owners may have a defense for that if they can consistently show that their profit margins has not been increased significantly in a statistical manner.

I look at the free market as a way to effectively and efficiently allocate resources. There are market failures, but high prices are not a market failure. They are a reflection of supply and demand. Creating artificial prices that don't reflect supply and demand simply pervert incentives and create a whole host of other problems. I have seen this with my own eyes in Iraq (see the prior post about gas shortages in Iraq), and so I know that this exists and isn't just simply a theoretical construct.

We do know that price controls couple with fast rising price levels (i.e., high inflation) creates hoarding. Here's a great video that shows the effects of price controls in post-WW2 Germany:

Commanding Heights: Germany's post-war recovery, on PBS

Originally Posted by Shek

No red herring at all. I'm getting at risk premiums. Each of these professions, in order to garner the necessary supply of workers has to pay a risk premium because of conditions.

If I'm a gas station owner and I have a choice to evacuate my family and/or evacuate with my family, I'm going to look at the potential profit I could make if I were to stay. If I can't charge above the original price, then I'm losing money (because gas is already more expensive) staying open, and so instead of selling at a loss, I would decide instead to just turn off the pumps. Some owners may decide to stick around because they fear vandalism and/or looting and their insurance policy won't cover all these costs, but what you've just done is changed the incentive structure. Bottomline, by choosing to remain in the area, a store owner incurs more risk (I am not trying equate the risk of the owners with those of the above professions - I am simply getting at the fact that risk premiums exist and without them, the incentive structure leads to an undersupply).

In additional to changing the incentive structure on the supply side, you've also changed the incentive structure on the demand side. If it's five days to landfall of a hurricane and I fear higher prices for batteries, water, canned goods, etc., I go to the store today to avoid the higher prices. The store now has time to react to the increased demand and can get resupplied prior to the storm, allowing for more of the item to be sold in total. If I know prices will not change, then many will defer their trip to the store because it won't hit them in the pocket book. Now, because stores can only hold so much inventory, you have less volume being sold because purchases aren't made until the last minute.

Now you've made everyone worse off, to include the poor, because of your well intentioned but incomplete look at the second and third order effects that occur because of the change in the incentive structure.



Econ 101 failure. Things aren't the same. The hurricane has changed demand and supply. Some items are revalued. I value batteries more during times of natural disaster because I know I have to have them to have a source of light since I cannot depend on electricity. If I failed to plan by already having them on hand, then I am "punished" for my lack of foresight, regardless of my income. I value distilled water more because I cannot depend on tap water to have been purified. If I didn't have empty milk jugs or Nalgene bottles on hand to fill prior to the tap water becoming untreated potentially, then I am "punished" for my lack of foresight here. I can repeat this analysis, but higher prices serve as the incentive to buy now instead of waiting for the crisis.

The higher prices then serve as an incentive for firms to rush supplies to the region since there is an arbitrage opportunity (I can take a $1.00 water bottle from Tennessee and sell it for $2.00 in Lousiana). As supply rushes to fill the vacuum, prices then decrease once again until the additonal supply wipes out the arbitrage opportunity. Without the higher prices, then what is the incentive to rush additional supplies if you don't make any additional money (and if you implement a price control at the "normal" price, you will actually probably lose money since it cost you more to ship to the area)?

A couple of basic mistakes

1- not everyone has the ability to stockpile, the poor in particular may not have the resources to build up a decent disaster kit, or the education to even know what they need, or may be told to stay put or the disaster may be such that evacuation before hand is impossible like a tornado or earthquake. There are times like disasters and wars when profit must give way to people so far as basic services are concerned.

2- $2 for a 1$ bottle of water is one thing, I've paid more at a movie. But 10$ for that bottle of water is more than a risk premium. It is dangerous and unethical profiteering. not only is it most likely to affect the poor, but it encourages a breakdown in the social contract. The results are clearly seen during Wood Stock, Katrina, right after 9-11 when violence followed on the heels of profiteering.

I am not against profit, but we need to remember that people have needs, and not everyone is capable of meeting those needs (kids, disabled, elderly, poor) in the midst of extraordinary circumstances.

Being poor is supposed to suck. That's part of the incentive to not be poor.

-dale

Originally Posted by dalem

Being poor is supposed to suck. That's part of the incentive to not be poor.

-dale

Not everyone chooses to be poor, kids, eldery with savings wiped out by illness, displaced workers to old to be marketable and worth retraining, disenfranchised minorities and minority communities kept out of the mainstream, disaster survirors etc.

Originally Posted by zraver

Not everyone chooses to be poor, kids, eldery with savings wiped out by illness, displaced workers to old to be marketable and worth retraining, disenfranchised minorities and minority communities kept out of the mainstream, disaster survirors etc.

So what?

-dale

Originally Posted by zraver

Roads, cops, schools etc help everyone in some form.

And meds don't?

Pharmas get tax payer money to underwrite RnD- we pay one time. Then they shift the remaining costs (of which only 12% is RnD) and the desire for record profits on to the same shoulders that bear the research burden- we pay twice. Then we pay a third time when the Pharmas get tax breaks on the money squeezed out of the public forcing the public to pay again to make up the revenue shortfall.

This argument goes nowhere. How many times they're paid matters less than the aggregate. You might have heard the news today that the gasoline tax may be increaased 40 cents a gallon over the next few years to pay for road and bridge repairs (on top of the current 18 cents). That is a virtual subsidy for the auto industry no matter how you cut it. Yes, we benefit in terms of transport; but do we not also benefit from meds? Where's the highway for pharma's, the police force, the ATC system? It comes in the form of research assistance and tax breaks. So what if the pharmas are profitable. It beats having the government handle the nation's medicine needs.

We are not talking about an industry going broke it is one of if not the most profitable industries in America.

It will if you have your way.

I don't give a rats rear about Europes attempts at price controls. use the WTO and sue them, they have been leaching off America long enough. I need tob e able to afford medicine for me and mine, but I can't when I am in fact buying medicine for me, mine, a Frenchman, 3 Greeks and a chick from Israel.

If we cut them off, you'll pay even more than you're paying now.

lets use a system that works, that balances the need of the consumer and company. if it costs 200 million to develop a drug, then as soon as you reach 400 or 600 million your patent expires. This way the drug companies make thier money on volume ie supply and demand not price fixing.

That's price control in sheep's clothing. What happens when a new drug that cost $100 million to bring to market flops?

They can, they simply won't. How about a 100% tax on every dollar of profit as decided/averaged by the GAO and 3-4 other private firms when compared to the profit levels of the other American based Fortune 500.

Regulated monopoly.

I have open arms for Africa and the other parts of the globe suffocating under a mountain of poverty. But Europe needs to carry its own weight

You aren't alone in that sentiment.

Originally Posted by JAD_333

And meds don't?



This argument goes nowhere. How many times they're paid matters less than the aggregate. You might have heard the news today that the gasoline tax may be increaased 40 cents a gallon over the next few years to pay for road and bridge repairs (on top of the current 18 cents). That is a virtual subsidy for the auto industry no matter how you cut it. Yes, we benefit in terms of transport; but do we not also benefit from meds? Where's the highway for pharma's, the police force, the ATC system? It comes in the form of research assistance and tax breaks. So what if the pharmas are profitable. It beats having the government handle the nation's medicine needs.

I pay gas taxes, i use the roads, unless it was privately built or turned over to a private company who then get no more Federal money I am done paying. With the pharmas i pay taxes to help pay them to develop drugs but then I have to pay again for something I helped them create, then I have to pay them a third time to cover the tax burden they weaseled out of. They keep making record profits- where and when does the profit of the rich give way to the needs of the many?

If we cut them off, you'll pay even more than you're paying now.

If the cost-loss of doing business in Europe has been shifted on to my shoulders, then removing the cost-loss should lower prices.

Regulated monopoly.

it already is, but it is regulated to maximize the profits not to seek balance between profit and public health.

You aren't alone in that sentiment.

We subsidize thier energy, defense, health care, saved them from thier collective madness at least 3 times. We literally transfered 80% of the worlds gold to them at artificially low prices, given them uncounted billion sin military and economic aid and spent hundreds of thousands of lives fighting thier wars etc. Europe is a leech.

Originally Posted by zraver

. Europe is a leech.

Aw, common. Yurrup ain't that bad, big boy!

Originally Posted by glyn

Aw, common. Yurrup ain't that bad, big boy!

where does the continent shoulder its share of the burden? Does it pay into the UN consumerate with its economy?-No Does it shoulder the burden of fightign the wars for energy based on consumption of that energy?-No Soon and so forth Europe lives on American largess.

Originally Posted by zraver

where does the continent shoulder its share of the burden? Does it pay into the UN consumerate with its economy?-No Does it shoulder the burden of fightign the wars for energy based on consumption of that energy?-No Soon and so forth Europe lives on American largess.

You are quite right. We Europeans are mad, bad and dangerous to know. Still, we've got the good ole US of A to sponge from, haven't we?

No Soon and so forth Europe lives on American largess.

There's no transfer of payments from the US to Europe. You can argue that US military presence saves them from having to have a real military, but that's about it.