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Katrina And Price Gouging

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Of course, the media is desperately searching for any evidence of evil business people "making a quick buck off of other people's misery". The local news here in Houston featured a motel that was charging the stated room rate (ie the price posted on the door that is required by the state) of 19 a night instead of their previous price on Orbitz for 99 a night. I have got to say I was happy to see the manager say flat out that the price she was charging was the stated official rate for the rooms and pointed out that they hotel is actually helping people because they are only charging them the flat rate and not charging them for all the additional adults in the rooms etc.

Understanably, famalies are staying together and technically the motels officially charge a rate based on each and every occupant. The hotelier pointed out that there are 8+ adults in some rooms and they aren't charging them for the extra people and they are letting them off easy. So the people really don't have room to complain.

But of course, the TV station called the corporate offices and they are back down to charging the old Orbitz rate and are still allowing as many people as you can stuff in the room for one low rate. ABC has a special on right now and when they are talking about "already reports of price gouging are pouring in from neighboring states" they showed the print out from the hotel I mentioned. Sheesh.

A motel room is a valuable commodity. There are only a handfull and scarcity drives prices up. It's natural. If people want a perfectly free place to sleep we do have the Astrodome. Mind you, as I mentioned in the other thread we really are rolling out the red carpet for the refugees.

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Not only is "price gouging" not a bad thing in these situations, but it's what the hurricane victims need most right now.

Well, I suppose what they really need most right now is an end to their barbaric system of trade.

Edited by Cole
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Price gouging, in a free society, cannot exist. The only conditions which permit it are government price controls - and it is those conditions which are the direct cause of it.

In the short run, the supply of all produced goods is fixed and limited. Men's needs and desires for those very same goods is infinite. This is the case whether or not a hurricane just swept through your city. In the short run, the effect of prices is to allow those who need a share of a limited supply of goods to procure what they need and no more. If prices are banned, the effect is to allow those who come first to purchase the entire supply, and to leave others, who need those goods more but didn't manage to come until later, dry.

If the supply of a good suddenly is destroyed, say, by Katrina, prices rise. They do so because those who need those goods wish to be able to procure a certain minimum necessary amount, and to restrict others from purchasing more than they really need. Victims are the biggest beneficiaries.

Higher prices benefit the sellers of this limited supply, allowing them to invest in additional inventories and productive capacity, in order to bring back to normal the supply which they can sell. Higher prices, furthermore, attract outsiders in, bringing about a further expansion of investment in inventories and productive capacity. Over the short term, victims desparately need the expansion-of-inventories effect of risen prices; and over the long term, they need the expansion-of-capacity effect.

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Gas is a good point exactly. Given that the gas is actually refined here in Katrinaland, you bet that every refinery that is back up to capacity is doing everything they can do to push product into the system as we speak. Now is the time to strike while the iron is hot so the oil refiners will do everything they can to sell as much gas as possible at these prices.

Of course, that push of product into the pipeline, no pun intended, will have the net result of having the price go down. Let the market decide.

It's the same thing about people complaining about the stock market and housing "bubbles." If someone is willing to pay xyz for something, and they do it willingly, then it's worth it.

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  • 2 weeks later...

[email protected]

Oil scarcity and "price gouging"

Wednesday, September 14, 2005

Dear Executive Douglas Duncan:

Hurricane Katrina caused major damage to the infrastructure (oil rigs, refineries, pipelines, etc.) which produces, processes, and delivers oil. Consequently, gasoline and heating oil will be in short supply for months to come.

This requires that their prices rise substantially from their previous levels. Why, you may ask? To balance supply and demand. Demand must and will be restrained to avoid exceeding the supply which is available in the short run. So some people must be deterred from consuming by higher prices. The infrastructure must be repaired or replaced to restore supplies in the long run. So funds must be made available to pay for those repairs. Neither of these objectives can be achieved without the price increase.

So the market conditions have forced this price increase upon us. Personally, I do not like this. I am not in the oil business; and I do not like having to pay the higher prices. But I am realistic enough to realize that the only choice we have is: limited oil at a higher price or no oil at a meaningless "lower price".

So I implore you: Do NOT impose price controls! Do NOT punish so-called "price gouging"! If you ignore my advice, you will only make the situation worse, not better. If you impose price maximums, then a few "lucky" or "connected" consumers will get and waste the oil. While others, who need it more, go without oil. And suppliers will stop sending oil to our county, so even those "lucky" few will soon stop getting oil.

Yours truly,

James Richard Spriggs

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  • 2 weeks later...

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