September 24, 2006
From the desk of Jane Galt:Department of Economic Illiteracy: Special Victim's Unit
This is possibly the most economically illiterate television programme ever. I know what you are thinking. In a world with The West Wing in it, can there really be another candidate? Before I had seen this show, I too would have doubted. But no longer.
I am not calling it illiterate because it argues that we could run out of oil, and that this could cause enormous dislocations in the rich world. If Matthew Simmons is right and OPEC are all overstating their reserves by 100% or so, we're in big trouble unless we get some technological breakthroughs. Mind you, I don't think it particularly likely that he is right. But if I weren't willing to suspend disbelief in order to explore an interesting "What if?", I would never read science fiction, or politicians' campaign promises.
Anyway, the problem is not that the show posits a serious shortage of oil. It's that while the producers seem to have gone to elaborate lengths to find out how oil exploration and engines work, they somehow didn't realize that there are experts on oil markets, the auto industry, and so forth, and that it might be wise to talk to them before writing their script.
In their dark future, oil is in very short supply, and getting shorter every year. The show focuses on a family--a daughter who is trying to hit a big new oil strike, and a father who is trying to preserve his oil-drenched lifestyle in the face of shortage.
And what form does that shortage take? It's exactly like 1979 . . . long lines, gas stealing, gas stations running out without notice. Terrible rationing.
What doesn't happen? The price doesn't increase much above $3.50 . . . which by 2016 will be about $2.70 in today's dollars, so apparently the first effect of this terrible shortage is that the price falls. People are queuing for hours, but apparently not one enterprising station manager thinks to raise the price. And since the price doesn't rise, people spend all their time trying to find stations with gas to sell, rather than looking for ways to cut down their usage.
Is this the result of some strange industry practice? Government action? You wouldn't know it from the script. Apparently, people in 2016 are very, very stupid.
Actually, the problem is that they assumed that a shortage would be just like the 1970s. Except, of course, that the 1970s were like the 1970s because of Nixon's wage and price controls, which meant that the price couldn't rise to adjust for lower supply. Note that after Katrina, shortages lasted a couple of days . . . and then prices rose, people cut back on labour day travel, and supply and demand came back into balance.
The other economic crime in the show is that the shortage happens all at once. In fact, of course, the supply problems would take years to develop, and would cause a long appreciation in price, accompanied by spikes and falls as supply shocks developed and were resolved by decreased demand. People would move closer to work, get smaller houses, by smaller cars, and so forth, as gas and oil became increasingly expensive . . . not just wake up one morning and find that there was no gas to power their SUV.
But it's not totally useless. I bet a bunch of economics grad students could turn the show into a great drinking game . . .
Posted by Jane Galt at September 24, 2006 2:50 PM | TrackBack | Technorati inbound links"); ?>Not to defend the show, and I haven't seen it, but gas station owners, even smart ones, wouldn't necessarily raise their prices appropriately. For example, what if politicians intimidate them by announcing intent to enforce price-gouging laws, which they tend to do during "emergencies"?
Posted by: Person on September 24, 2006 3:48 PMApparently ignores substitutable goods, too.
We run out of petroleum? Fine, we do what South Africa did when it was cut off from oil by the apartheid boycott. We'll make petroleum products out of natural gas, coal, oil shale, and anything else that can be Fisher-Tropsched into petroleum for well less than $100/bbl equivalent, unless the cost of switching to non-petroleum infrastructure is cheaper than paying maybe $75/bbl-equivalent.
Posted by: Warmongering Lunatic on September 24, 2006 7:25 PMCertainly politicians can mess everything up. After Katrina hit, there were examples of people that tried to make a profit by offering people what they desperately wanted, giving those people an option that they wouldn't otherwise have had.
One man bought a bunch of generators elsewhere, jumped in a truck and drove the generators down to sell them to people without power. He ended up being arrested for price gouging (selling them for more than they had cost him when he bought them several states away in a place where there was an excess supply).
I'm sure that the people without power were glad to be protected from the opportunity to buy a generator.
But if that was what this show was assuming, then they should have spelled out their assumption that the crisis would be caused largely by 'big-hearted' politicians who were 'protecting' people.
Posted by: Ann on September 24, 2006 7:33 PMYou are right that the economy would adjust if it had time so running out of oil would not produce gas lines. But political problems could suddenly disrupt the oil supply. If the price doubles, gas consumption falls by only 10% so imagine the price if we lost half or more of our imported oil. There is a price that would be so hard on median income people that political pressure would probably cause a repeat the 70's. A couple of hours in a line to fill the tank would have a much bigger effect on my gas consumption than $10 gallon gas.
Posted by: joan on September 24, 2006 9:34 PMThe subtitle for this show should be: "Return of the Club of Rome!". Granted, petroleum is handy stuff, it is portable chemical energy. We'll have to learn how to do with a lot less of the stuff in time. But I recall the flat claims of 1978 that by 2000, all the oil would be gone...
So does this show feature electric cars, such as the one Tesla Motors is selling? Or biodeisel? I don't want to have to watch TV to find out, someone tell me, please...
Posted by: ellipsis on September 24, 2006 9:40 PMSorry, still not as economically illiterate as Lou Dobbs.
Posted by: Crank on September 24, 2006 10:44 PMI haven't seen the show either, but I did see a Science Channel show in which one of the scientists noted that stone age men lived better than modern men because stone age men worked only for themselves while modern men work for profit earning businesses.
Posted by: Scott Wood on September 24, 2006 10:49 PMAside from the obvious rediculosity, what on Earth made them think that stone age tribes didn't have a hierarchy with some people high in the hierarchy benefiting from others' labour?
At least in capitalism you get to choose your boss or go out on your own if the alternatives are bad.
-dk
Have you posted at any stage on the economic illteracy of the West Wing? If so, I'd like to read it.
I remember there was an embarrassing paean to farm subsidies in series 3 (I think) but Bartlett was pretty good on free trade wasn't he (perhaps better than the current incumbent)? And I'm sure there's a scene from when Bartlett was Governor when he was arguing with dairy farmers about something or other and the clincher was giving kiddies cheaper milk but can't remember whether he ended up being pro or anti subsidies or if it was even an issue, although I'd agree it was unlikely to be a basis for good policy either way.
Posted by: cac on September 25, 2006 4:41 AMI'd have to agree with joan. Do you really think that the first time the news covered a poorer family with children in an oil heated home having frozen to death, there wouldn't be irresistable pressure to ration? Especially when the the news story would be cut with movie stars happily driving their SUVs?
In North America, oil is like food. If there is a shortage, you don't let your population starve in the midst of the rich gorging themselves, at least if you intend to remain in office.
(Of course, after several years, people's attitude towards oil might change to allow it to be considered a luxury...)
Posted by: Tom West on September 25, 2006 5:42 AMI'm with cac. Could you please explain why West Wing was so economically illiterate?
I missed the last two seasons, but I don't remember the Bartlett character making any huge mistakes (none on the level of Dave, the presidential-fantasy movie). I remember him arguing against tariffs and farm subsidies. Maybe I'm forgetting somethings.
But hey, he did win the Nobel Prize after all. I mean that has to count for something, right? :P
Posted by: Student on September 25, 2006 7:27 AM"A couple of hours in a line to fill the tank would have a much bigger effect on my gas consumption than $10 gallon gas." With all that idling in line and driving around looking for a station that was still open, wouldn't consumption increase.
Minor correction/clarification: the original posting refers to 1979 as a time of gasoline lines, rationing, etc. While there were some lines for a brief time in 1979, things were FAR less severe than during the Arab oil embargo in 1973 and 1974. That's when you had hours-long lines, supplies running out, and (almost) rationing. 1979 was just a minor blip in comparison.
Posted by: Peter on September 25, 2006 9:18 AMI did see a Science Channel show in which one of the scientists noted that stone age men lived better than modern men because stone age men worked only for themselves while modern men work for profit earning businesses.
And they all died at 30.
Posted by: Anon on September 25, 2006 10:15 AMPeter writes:
Minor correction/clarification: the original posting refers to 1979 as a time of gasoline lines, rationing, etc. While there were some lines for a brief time in 1979, things were FAR less severe than during the Arab oil embargo in 1973 and 1974. That's when you had hours-long lines, supplies running out, and (almost) rationing. 1979 was just a minor blip in comparison.
Peter is correct, the 1973 oil shock (just a couple of years after the US reached its peak of oil production) was much more severe than the 1979 Iranian crisis, due to price controls. One cannot hope for a better illustration of what price controls do to a market than to look at the 1973 case. Because the price was capped, de facto rationing had to occur, both at the distributor-to-local-retailer level and at the retail sales level. "TEN GALLONS ONLY" and similar signs became common on gasoline pumps, & when the fuel in the tanks at a station was gone, the retailer had to shut down until receiving another allotment.
Contrast that with the price shock after the fall of the Shah and the invasion & occupation of the US embassy in Tehran (by the current government of Iran, please note). Removing Iranian oil from the market demonstrated the fungible nature of such a commodity. The price of gasoline shot up rapidly to a never-before-seen high, and customers adapted in various ways. Gasoline remained plentiful, but expensive; there were no lines, no "OUT OF GAS" signs except in a few places.
The difference was, and is, striking. Therefore, any drama featuring lines at gasoline stations ought to include an exposition on why rationing, de facto or de jure, is in place...
Posted by: ellipsis on September 25, 2006 10:34 AMWhile your analysis and comments on the TV show are very good and I agree with what you have to say you apparently have bought into a meme about the 1970s price controls that has virtually no relationship to reality.
To understand the price controls you have to look at the details. There were two categories of oil under the control system. Tier I was oil from well aready in existence when price controls were imposed. This oil faced strong price contorls. Tiers II oil was all other oil and this included all oil from new wells, imported oil and oil from old wells that needed injection or other expensive approaches to keep producing. Tier II oil had no price contols and firms were free to sell it at the market price. The impact of price contols can be seen by looking at the average acquisition price refiners paid for domestic oil that rose from under $4/bbl to $37/bbl under price controls.
At the time I was in an investment firm and we spent a lot of time figuring out what firms has well being reclassified from Tier I to Tier II.
Essentially, price controls were a form of a windfall profits tax that just kept firms, or the government from actually receiving the windfall. Remember, oil is an strange industry in that virtually all the cost is fixed cost and it has extremely low variable cost.
Price controls firms actually increased the incentive to drill new wells because firms could not increase profits by simply charging higher prices on oil from old wells.
So in effect, the price controls actually created an artifical incentive to drill new wells and this is exactly what happened. For example, the rig count that had fallen from 2,500 in 1950 to under 1,000 in 1971 exploded during the period of price controls to an all time record high of over 3,000 in 1980. Interestingly, as soom as price controls were lifted in 1981 the rig count collapsed to under 1,000 where it remained throughout most of the 1980s and 1990s. Moreover, since domestic oil production peaked in 1969 the only time domestic oil production has increased was during the 1970s era of price contols.
Congress is not stupid. Neither are the lobyyist that strongly influence the details of new laws. so congress is very good at writting legislation that appears to do one thing but in actuality does almost exactly the opposite.
The actual gas lines and shortages stemmed from a drop in mideastern oil production and a drop in imports. In 1974 the volume of oil imports fell almost 20% and this was not impacted by price controls. Domesic production actually rose.
The entire meme that price controls caused the gas lines in 1974 is a meme created by a right wing think tank years after the fact and has little or no baises in reality.
Posted by: spencer on September 25, 2006 11:03 AMCan anyone corroborate spencer's story? The bit about the tiered price controls spurring drilling makes a lot of sense and is quite intriguing, but the bit about price controls not causing lines makes no sense at all.
Posted by: Noah Yetter on September 25, 2006 11:50 AMmarkm:
During gas shortages people in lines turn off their engines and push their car. Lines form on the downward slope leading to the gas stations if there is a hill.
Many gas stations put up signs when they are expecting a delivery so when you need gas you know where to go. Neighborhood stations will open at odd times to give their local customers shorter lines.
Assuming that spencer is correct in his facts (and I have no reason to doubt them), the gas lines were still caused by the price controls. The driving influence is that there is less of a commodity available than there is demand, so in normal circumstances, i.e., without price controls, the price rises until supply and demand reach an equilibrium. With price controls, this equilibrium is not reached, with demand far exceeding supply.
As an added factor, people were not waiting for their tanks to be empty before refilling--if you saw a gas station on your day (odd vs. even depending on your license plate number) that had gas and a relatively short line (which happened at the right times in the right places), you topped off the tank because you couldn't be assured that gas would be available when you really needed it. Let's see now, half a tank of gas times the number of cars on the road leads to a whopping increase in demand, over and above the usual demand, which makes it take even longer to reach equilibrium.
Posted by: Rex on September 25, 2006 12:12 PMSpencer is right about the tiered prices for crude; it made for a huge number of lawsuits between companies with long-term supply contracts for petroleum products. Many of those contracts were tied to the published prices of Tier I oil (by accident, they didn't know it would turn out that way when they wrote the contract in 1960 or whenever) so that the contract price and real price were way out of whack. Count on reading such a case if you ever go to law school.
But as for gas lines, isn't the issue the price of gas, not the price of crude? Can someone comment on whether gas prices were controlled directly?
Posted by: Rob Lyman on September 25, 2006 1:01 PMApparently, people in 2016 are very, very stupid.
One of the most plausible extrapolations I've seen in awhile, given the present trends.
Posted by: Kent G. Budge on September 25, 2006 1:18 PMSpencer,
Assuming that the shortage was the proximate cause of the lines, and not the price controls themselves, weren't price controls still the wrong response? How could price controls be expected to shorten the lines?
Posted by: Randy on September 25, 2006 1:22 PMCorn Ethanol production will continue to go up so long as gas prices stay above $2/gallon. Evenutally (maybe not in 5 years, or even in 20 years, but sometime) all new vehicles in the United States will be able to be driven on some new, renewable, growable ethanol blended gasoline.
With the obesity epidemic, the political will for corn ethanol is already there. We are really good at growing corn and we grow more every year. As a parent, I would much rather dump all that corn into my gas tank and drive my car to work than to dump it into my children and see them grow fat off of corn-syrup sweetened foods.
Jane, I think this program is just in response to people being angered about paying more than $2/gallon for gas. I'm betting they started filming and producing the program when gas was over $3 a gallon and showing no signs of slowing. It appears, gasoline has hit it's "bubble price" just like real-estate.
Posted by: Paul on September 25, 2006 1:29 PM"Tier I was oil from well aready in existence when price controls were imposed. This oil faced strong price contorls." And what did oil companies learn from that? That if they anticipated a shortage and expanded their capacity in time to partially meet it, they would be punished by having to sell the oil at the old price.
Nice theory markem-- but that is not what happened. The oil companies actually spent every penny they could get their hands on drilling for new oil.
I'm not defending the price controls -- they do not help except in this case they actually made the average price -- controlled plus uncontrolled prices -- a little lower.
The shortage was due largely to two factors :
(1) a cut in mideast output and imports.
(2) hoarding, evident in a sharp rise in inventories just as we have seen in recent months
and including consumers keeping their gas tanks
fuller then normal.
Remember the price controls were not just on oil, they were imposed across the board in August 1971 and were removed piecemeal with oil being the last to be removed.
I did this comment on price controls largely because I am upset by various peoples attempts to rewrite history to meet some idelogical
view of the world not to defend price controls.
Spencer, a couple of things:
1) I believe the effect of the 1973 tiered pricing rules were rather more complicated than you make out. For one thing, they caused the withdrawal of "old" oil from the market where possible, enhancing the supply shortage in the short run; for another, they only lasted two years (EPCA kept the tiers, but controlled prices on "new" oil); the median and average US prices were both below the world price. As this DOE timeline says "The two-tiered price system established under the Emergency Petroleum Allocation Act of 1973 (EPAA) and later modified under EPCA was intended to encourage domestic production and exploration. However, the rollback of new oil prices and the inclusion of new oil in the entitlements program actually served as a mild incentive to oil companies to increase purchases of imported crude oil. (12) EPCA did little to slow the decline in production in the Lower 48 States, which fell from 8.2 million barrels per day in 1975 to 7.0 million barrels per day in 1980."
2) You're looking only at the supply side. Price brings supply and demand into equilibrium in two ways: it increases supply, and it decreases demand. Since oil demand is relatively inelastic over the short and medium terms, prices have to increase fairly sharply to reduce demand. They weren't allowed to. Meanwhile, while Congress attempted to structure its price controls in order to increase supplies, the structure they chose wasn't all that successful (not least because American reserves were rather expensive, and congress had no control over foreign producers).
3) I stand by my assertion: while obviously the root cause was the exogenous supply shock of the Yom Kippur boycott, and then the Iranian crisis, the lines were caused, not by the supply shock, but by the price controls which caused demand to continue rising in the face of a supply shock. Even if no new supply had been brought online, foreign or domestic, price increases should have brought demand into line with the decreased supply. They didn't, because prices weren't allowed to increase sufficiently; instead we got idiotic measures like alternate day license plates.
Posted by: Jane Galt on September 25, 2006 3:43 PMSpencer,
Falling supplies and rising demand explain why prices rise, not why there are shortages. The question you have failed to answer is "Why did the gasoline markets fail to clear?" The "meme" is that the failure to clear was caused by price controls. What's your explanation?
Posted by: jl on September 25, 2006 3:45 PMI agree with many of the comments. The assumptions Jane indicates are made in this show are unrealistic. Perhaps there was an error and this show was supposed to be on the Sci-Fi channel instead of the Science Channel.
Posted by: Tim on September 25, 2006 4:35 PMThe markets did clear. There were no "widespread" shortages and individuals were able to get gas . Yes there were spot shortages and individual gasoline stations did close early.
But we had spot shortaqes and gas stations without gasoline in Texas and Fla. last year when storms interupted normal resupply. My niece in Pompano Beach, Fl. had to drive 40 miles to Juipter,Fl to get gas for over a week.
Markets do not clear instantaneously. Right now the housing market is not clearing as all the homes on the market are not finding buyers at current prices. But that does not negate economic theory. Typically, housing markets clear just as much or more by sellers withdrawing homes from the market. I sure do not remember anyone driving around in 1974 comparing prices at one gas station to another. You have a theory of "perfect competition" and it is a great theory, but you can not apply it uncritically to each and every situtation.
Jane, you agree that the root cause was the supply shock. And I will agree that price controls had a negative impact. But the dominant causes of spot shortages were supply interuptions and hoarding -- not price controls.
You have access to LexisNexis, go looking in the major newspapers in 1974-75 to see if they were blaming the problems on price controls. I admit it was a long time ago, but I sure do not remeber anyone blaming it on price controls at the time.
The easiest solution for those who desperately need a certain product whose vendors are price-gouging is to take the product by force, i.e., steal it. Situational ethics provides that if an essential product (say, bread) is available from only one seller who deliberately charges an exorbitant price relative to the market value of the product in comparative regions, the would-be buyer can justify the act of theft on the basis of survival. I would argue that power generators are almost as essential a product as bread in modern society, and thus their theft can be justified.
"The power to price can be countered by the power to take. A gun in the face trumps bargaining in any place."
Posted by: Immoralist on September 25, 2006 6:11 PMSpencer: "Nice theory markem-- but that is not what happened. The oil companies actually spent every penny they could get their hands on drilling for new oil." Yes they did - AFTER the crunch started, when it would take YEARS from beginning work to pumping oil. Then they had a glut of oil and a price drop that shook out the smaller operators. And then, they waited for the next crunch.
While Middle Eastern politics keeps these crunches from being entirely predictable, the oil companies do know when the supply is getting tight enough that one pint-sized dictatorship pulling out of the market will cause a shortage - and when they reach that point, they can count on a shortage hitting within a few years. In most industries, work on increasing capacity would start before they were actually in such a vulnerable position - but in the oil industry foresight will be punished.
I would argue that power generators are almost as essential a product as bread in modern society, and thus their theft can be justified.
I would argue the same about cars. Checked your driveway lately?
Posted by: anony-mouse on September 25, 2006 7:04 PMI would argue the same about cars. Checked your driveway lately?
I'm not in the business of selling cars. The justification I outlined only applies in the context of a buyer-seller relationship in which there is only one seller charging exorbitant prices for a product that is essential.
So, of course the taking of my car, whether or not a shortage of cars exists, is not justified. Any claim made to it by sheer power will be met in kind. Remember those spray-painted warnings about looting that appeared in the immediate days following Katrina?
Posted by: Immoralist on September 25, 2006 7:42 PMImmoralist: "I would argue that power generators are almost as essential a product as bread in modern society, and thus their theft can be justified."
and when that happens all the trucks full of generators and driven by people who had intended to "price gouge" turn around and go away, and next time there's a disaster in that area, not even one truck arrives.
-dk
and when that happens all the trucks full of generators and driven by people who had intended to "price gouge" turn around and go away, and next time there's a disaster in that area, not even one truck arrives.
That's why you pay taxes and have a government to manage the effects of a disaster. I know you libertarians like to chant "Send in the private sector" in response to any problem, but desperate, poor people aren't really appreciative of the would-be entrepreneur who loads up on power generators in a neighboring state and then sells them in a disaster area at ten times their market price, which nobody except the well-to-do can afford, or else at a price that most can just barely afford, leaving them with no resources to buy anything else. That's avarice, plain and simple, and whoever suggests that such greed is morally admirable in even extreme survival situations deserves to be slapped upside their silly little head.
Imagine the following conversation between a buyer and seller:
Buyer: I need a power generator.
Seller: I'm selling power generators.
Buyer: How much?
Seller: How much you got?
Buyer: $1,000.
Seller: Then the price is $1,000.
Buyer: I can't pay that. I have to buy food and blankets for my family.
Seller: Then you aren't getting a power generator.
Buyer: But it's 100 degrees and my disabled grandmother will die without air conditioning! Can't you let me have it for a little cheaper?
Seller: Sorry, buddy. I'm the only guy within 100 square miles selling these things, and there are 100 people lined up behind you who are willing to pay whatever I charge. Guess your grandmother's screwed!
Buyer: So you're saying in order to get a power generator, I have to give you everything I have, leaving me without any money to buy anything else.
Seller: Yeah. It's called pricing power, bitch.
Buyer: You fucking asshole.
Seller: I prefer "entrepreneur."
Posted by: Immoralist on September 25, 2006 8:21 PMActually, what happened at the macro scale with regards to generators after Katrina is that evil Wal-Mart used their logistic capabilities to profit from supplying them at the regular price.
Posted by: triticale on September 25, 2006 8:37 PM""And they all died at 30."
"with no teeth."
Well, those that lived past infancy, perhaps.
Posted by: steveH on September 25, 2006 8:51 PMNo, Spencer. They were not "spot shortages" and the markets did not clear. The government responded to shortages by instituting rationing schemes, limiting the days when you could purchase gasoline and the quantities you could buy. They did not do these things because the markets were clearing. And these rationing measures went on for some time, not simply in reponse to a temporary dislocation. By the way, using hurricanes as an example of how unfettered markets don't work is not convincing, as states (such as Florida) often have anti-gouging laws that punish suppliers for attempting to fill unmet demand. Ask yourself this: Why did your niece have to drive 40 miles instead of someone's driving a fuel truck the 40 miles to Pompano Beach? Just more dimwitted suppliers, or someone who couldn't be bothered to drive the distance at the risk of being arrested for price gouging? Might as well save the extra cost, stop in Jupiter Beach and let those poor saps drive 40 miles to the gas station.
As for the generators issue, remember that the choice isn't between high price and low price generators. It's between high priced generators or no generators at all. Rampant, violent theft merely raises the cost of providing generators, driving out black market suppliers and further insuring that no one will get one. On the other hand, if you let anyone sell generators at whatever the market will bear, truck-loads of generators will be rapidly making their way to the disaster, which will drive the price down to the normal cost plus the additional cost of bringing them into the area. It might even make it economically feasible to carry large inventories of generators (and plywood, and batteries, and water, etc.) in places like South Florida so that they will be available should a hurricane hit. That will never happen as long as the authorities won't let the suppliers recover the cost of carrying that inventory. Remove the economic incentive and everybody will have an equal opportunity to shiver in the dark, threatening to kill people who, for some odd reason, refuse to show up.
Posted by: jl on September 25, 2006 9:14 PMAs for the generators issue, remember that the choice isn't between high price and low price generators. It's between high priced generators or no generators at all. Rampant, violent theft merely raises the cost of providing generators, driving out black market suppliers and further insuring that no one will get one. On the other hand, if you let anyone sell generators at whatever the market will bear, truck-loads of generators will be rapidly making their way to the disaster, which will drive the price down to the normal cost plus the additional cost of bringing them into the area. It might even make it economically feasible to carry large inventories of generators (and plywood, and batteries, and water, etc.) in places like South Florida so that they will be available should a hurricane hit. That will never happen as long as the authorities won't let the suppliers recover the cost of carrying that inventory. Remove the economic incentive and everybody will have an equal opportunity to shiver in the dark, threatening to kill people who, for some odd reason, refuse to show up.
Except that those who need generators immediately and can't afford them will still get screwed, while those who can afford them will still get gouged. In addition, who knows how long it will take for those brave, noble entrepreneurs to get the generators to where they're needed? What if the sellers collude to keep prices up?
Why do you think people and politicians alike get so pissed off when there's price-gouging? Is it because their empty little populist heads can't comprehend Economics 101? No. It's because they know that free markets don't work like Economics textbooks and libertarians say they do. (And if they did work like they're supposed to, then we wouldn't need any government at all, because functions traditionally left to government, like policework and military defense, would be made more efficient if they, too, were left to the private market.)
Well, under the Immoralist system, people who need generators but can't afford them get screwed, and those who can afford them...get screwed, because nobody is going to bring them into a world where they'll just get stolen right away. Big improvement, indeed.
Posted by: Rob Lyman on September 25, 2006 10:07 PMImmoralist,
So things are better off when those who need generators get screwed and the people who could afford them also get screwed? Now THAT'S a slogan: "Fight gouging. Get screwed."
How long will it take the entrepreneurs to get there? Well, since the first one there gets the highest price, I suppose they'll get there as quickly as they possibly can. Greedy bastards! Too bad we can't shoot 'em, huh?
But what if they collude?! The only way to prop up prices is to withhold supply, so I bet some of these avaricious SOB's are going to hold their supply off the market so that their brother gougers can make more money! They'll be passing up profits, but in the interest of creating more misery I'm sure someone will make the sacrifice.
So I guess we need anti-gouging laws after all. But hey! As long as we're saving the downtrodden, why not make all generators free?! I think that charging ANY of these suffering salt-of-the-earth proletarian types for a generator is gouging. If we can stop people from charging a market-clearing price, who's to say we can't set it at zero? Free generators for everybody! Problem solved! Now stand back or you'll get run over by the convoy of 18-wheelers hauling free generators to the huddled masses yearning to breath free air-conditioned air. Take that, Economics 101. Welcome to the real world!
Gotta work on the Nuclear Hummer technology.
Posted by: Alan K. Henderson on September 26, 2006 1:34 AMWell, under the Immoralist system, people who need generators but can't afford them get screwed, and those who can afford them...get screwed, because nobody is going to bring them into a world where they'll just get stolen right away. Big improvement, indeed.
Is that how you want to characterize the range of possible options? God, how depressing! I would hope that in a time of disaster, we could--or should, anyway--expect our government to suspend the supposedly immutable laws of supply and demand for a limited amount of time and provide whatever provisions we as a society have decided are essential for modern life. I just happen to think that food, water, shelter, and electricity are extremely useful services that most people in America today would not want to find themselves without. And I don't think they should have to barter with some predatory shithead whose one grand idea in life is to buy a bunch of one commodity that is availabe and cheap in one place, transport it to another where it isn't, and resell it for huge profits to people who can't get it anywhere else and whose lives very well may depend on it.
Government doesn't have to hand out free things all the time. But it should hand out some important things when we're made extremely vulnerable by some event mostly beyond our control. You know, like hurricanes.
Well, under the Immoralist system, people who need generators but can't afford them get screwed, and those who can afford them...get screwed, because nobody is going to bring them into a world where they'll just get stolen right away. Big improvement, indeed.
Is that how you want to characterize the range of possible options? God, how depressing! I would hope that in a time of disaster, we could--or should, anyway--expect our government to suspend the supposedly immutable laws of supply and demand for a limited amount of time and provide whatever provisions we as a society have decided are essential for modern life. I just happen to think that food, water, shelter, and electricity are extremely useful services that most people in America today would not want to find themselves without. And I don't think American citizens[n1] should have to barter with some predatory shithead whose one grand idea in life is to buy a bunch of one commodity that is availabe and cheap in one place, transport it to another where it isn't, and resell it for huge profits to people who can't get it anywhere else and whose lives very well may depend on it.
Government doesn't have to hand out free things all the time. But it should hand out some important things when we're made extremely vulnerable by some event mostly beyond our control. You know, like hurricanes.
[n1] Nobody should, really, but I'm being realistic.
Posted by: Immoralist on September 26, 2006 2:48 AMWhy all the discussion when a "consensus" has emerged? CONSENSUS, people! That means anyone who disagress is a "denier" and should be hounded and pilloried as the stooges of the oil companies that they so obviously are. How much oil industry money does this blog receive?
Posted by: DocBud on September 26, 2006 7:49 AMWhile the government is suspending the law of supply and demand,why not suspend the law of gravity? Sure would make shipping all of those free generators a lot easier. It would probably also make them easier to harvest off of those trees that they apparently grow on.
Posted by: jl on September 26, 2006 9:00 AMImmoralist,
I am not someone who is opposed to government disaster response, although I don't have a ton of faith in it, either.
But I'll take a "gouger" who buys his goods at market and makes the difficult trip over the guy who gets a free generator that he doesn't need from FEMA and then turns around to sell it.
Which is of course guaranteed to happen because 1) there's a conflict between speed and careful review of generator applications, and speed will win out, politically, and 2) the government can't possibly buy and ship enough generators to satisfy demand if the price is $0, or even if the price is exactly what it is 500 miles away.
The nice thing about markets is that they help to allocate things efficiently. Even if everyone on my block has grandma swooning in the heat, that doesn't mean we all need our own generator. We can corral all the grandmas into the biggest house and pool our resources to buy just one (overpriced) generator. That will help ensure that there enough of the (scarce) generators to go around, rather than selling them at low enough prices that everyone on my block gets one and everyone on the next block gets none.
It doesn't work perfectly, I know, but the standard isn't perfection, the standard is the alternative.
Posted by: Rob Lyman on September 26, 2006 9:27 AMImmoralist,
How going out and buying one today, before you get 'screwed'?
I agree with Crank above, nothing is as economically illiterate as Lou Dobbs...well except maybe the half of Americans who actually listen to him and believe that crap.
Meanwhile: The politicos and enviros are all chasing their tails searching for the magic "miracle fuel substitute" of the future, to eliminate dependence on foreign oil. Well, it's already right under our noses, and it's called biodiesel from corn or soy. It takes no research at all. It takes no magic at all. It takes no time at all. It only takes more cars with diesel engines to run it. Bring them in and lets get on with it...like yesterday.
Posted by: Thomas on September 26, 2006 11:33 AMjl -- the reason that people could not buy gas in south fla last year was not a shortage of gasoline. The gas stations had gas but because they did not have electricity they could not pump it. Your argument that all someone had to do was drive a gas truck down there demonstrates my point exactly-- you are applying a theory to a situation where it is irrelevent and expect me to take you seriously. In other words you are making up shit and expect me to accept it.
The point on the gas shortages of the 1970s was that price controls did not prevent oil firms from drilling new wells or importing oil and selling it at any price they wanted to. That is the fact and given that fact you again are making up shit and expecting me to concede to your bull shit. Maybe that is how you win an argument in a sophomore bull sesion over beer, but in the real world that is not the way it works.
You are entiled to your opinion, and I will respect that. But you are not entiled to your own made up facts.
Posted by: spencer on September 26, 2006 3:08 PMWell, Jane won't take up the West Wing challenge, but I'll contribute. Everytime they told me that a $40k/year worker, being in the 25% tax bracket, paid an annual income tax of $10k, I wanted to throw a brick through my telly.
Posted by: mike on September 26, 2006 3:10 PMActually, gas trucks sit up off the ground. Gravity will fill the autos gas tank.
Posted by: rmark on September 26, 2006 3:32 PMSeller: Sorry, buddy. I'm the only guy within 100 square miles selling these things, and there are 100 people lined up behind you who are willing to pay whatever I charge. Guess your grandmother's screwed!
Shocking, really. But before I rush out and vote Democratic, may I ask a couple of questions, just to be sure I understand the situation?
1. Why is this seller the only guy within 100 square miles selling generators, given the huge profits that can apparently be realized?
2. If the seller were to have a sudden fit of charity, and give the generator to this particular seller, what happens to the grandmothers of the other 100 people in line?
3. If many of us feel that generators should be handed out for free in emergencies, why can't the many of us that so feel just send the generators, rather than rely on the ponderous mechanisms of government?
First Spencer asserts: "But we had spot shortaqes and gas stations without gasoline in Texas and Fla. last year when storms interupted normal resupply. My niece in Pompano Beach, Fl. had to drive 40 miles to Juipter,Fl to get gas for over a week."
Then he insists: "the reason that people could not buy gas in south fla last year was not a shortage of gasoline. The gas stations had gas but because they did not have electricity they could not pump it."
And then, to complete the delightful irony, he admonishes: "You are entiled to your opinion, and I will respect that. But you are not entiled to your own made up facts."
Classic! But please, do try to keep your stories straight.
Posted by: jl on September 27, 2006 4:39 PM