Asymmetrical Information

Great post. Food for thought as we drive 350 miles each way for our Labor Day weekend getaway.

In my wife's company car.

Hallelujah! A voice of wisdom, crying in the wilderness, I'm afraid, at least judging by what I heard on NPR this morning (as I paid $3.99 for my hi-test). If you polled most journalists, they would tell you that there is no moral difference between breaking down the door of Circuit City and boosting a 50" plasma TV and raising the price of retail gasoline to market clearing levels. Ron Kuby on WABC was calling for oil company executives to be drawn and quartered this morning because of the possiblity that gasoline prices might be going up.

Well said, Jane. Agree 100% on principle.

I would only point out that occasionally financial traders can drive a commodity market regardless of underlying supply-demand conditions, and that there might be a role for government in such situations. E.g.: Once in while the Fed weighs in to the Treasuries market to scare off the speculators whose activities are creating distortions. I have read that the oil market over the last six months has also seen distorted pricing more because of speculative plays than underlying supply-demand conditions. While the federal govt has some ammo for the oil market in terms of the strat pet reserve, I doubt they have much if any to play in the distillates markets. Maybe they should.

I say tripple the price. This, from a happy and healthy biker.

Good post. As I tell people, "the law of supply and demand has not been repealed".

The kind of price gouging that is bad is when a local supplier becomes a temporary monopoly and jacks up the price up to maximize his own profit by taking advantage of the fact that the locals have no other choice. This is quite different from the increase in market price that naturally follows a shortage. Unfortunately, most people don't understand the difference.

Earnest

Bu-ut...

Judson, what happens to the price of your groceries and clothes (of which you probably buy more, because you get more exercise) when the fuel needed to transport them from their points of origin also triples? What about the additional increase resulting from low crop yields, as a consequence of the fact that petrochemical-based pesticides are also considerably more expensive?

Finally, what of the rural poor? How many of those people absolutely depend on affordable fuel in quantity (for electricity as well as transport) to conduct the shreds of a normal lifestyle? What happens if they cannot do their jobs? (I suspect that the effects would be more far-reaching than might immediately meet the eye.)

Granted, large drayage concerns can exert disincentives against price gouging that Joebob Motorist cannot, and one imagines that non-fuel producers can and do get contracts that are less volatile than those for Auto Fuel Right Now.

I accept as common sense that allowing supply-and-demand to do its thing has some positives, by encouraging consumers to conserve during spells of high prices, and encouraging producers to become more efficient during spells of low prices.

But it's still only that - encouragement. I've yet to see how it works just as well in practice, as it ought to in theory.

"many US regions and even cities have special requirements for gasoline additives--this is one of the things that makes our refining infrastructure so inefficient"

I have heard that before, but is the cost really so high? Refineries already have giant computer-controlled blenders to make the numerous grades of jet fuel, gasoline, diesel, kerosene, waxes of various melting points, liquified gases, chemical feedstocks for industry, and so forth. They already have tracking and routing infrastructure to send the right mix into each pipeline, truckload, and rail car load. I can't imagine that the marginal logistics cost for doing region-specific blends is terribly high.

I consider myself a free market capitalist, but if jacking up hotel and food prices on people who are refugees in a true crisis situation is just good clean fun, it is time to make an exception. If gas prices are going up because of short supplies induced by a national crisis, then we are witnessing gouging under duress, not market captitalism. At a time when many individuals and businesses are donating free or substantially reducing prices, it is disgusting to see others try to profit off of this tragedy.

McKinney-

Read closely the distinction drawn by Earnest Iconoclast. It's great that many individuals abd businesses are donating to the flood victims, and indeed resource suppliers should be charitable to the flood victims, but that by no means entitles you (the driver hundreds of miles away from the crisis) to that kind of charity.

mckinneytexas: Who is making a profit off of the rising gas prices? It's certainly not the retailers. As Shannon Love explained earlier today (over at the ChicagoBoyz):

However, the price of a gallon of gas you buy doesn't reflect the cost that particular gallon but rather the expected cost of the gallon of gas the station will have to buy to replace it. As the expected replacement price soars, so does the cost to the customer for the gas already in stations tanks because that is where the station is getting the money to buy the replacement fuel.

You may argue that the wholesalers are making disgusting profits off of the retailers, but I don't buy that either. The wholesalers are going to be spending everything they earn trying to purchase fuel from around the world and trying to bring their refineries back online as quickly as possible (think of both the raw materials cost and the overtime cost of labor). Prices are going up, but I don't think anyone is going to make a profit on these events.

Daniel Newby:

I think it is inefficient because already prepared gasoline cannot be transported from one region to another when disaster hits. Arizona has an extremely specific blend of gasoline. Arizona residents can only use that gasoline -- they cannot use surplus gasoline from New York, Chicago, Wisconsin, Flordia, or Virginia. And that makes the entire process of allocating fuel a very inefficient one.

It is working as Jane says. My son called me up this morning and told me he's cancelling his vacation. He was going to drive home, from Connecticut to Michigan. Even with a 45mpg VW Jetta, prices over $3/gallon deterred him.

As for the rural poor: The manufacturing plant where I work employs quite a few of them. Maybe we'll see them riding to work together now even when nobody's car broke down. People got to work somehow in WWII, even though many cars had been put up on blocks because gasoline was severely rationed and tires simply weren't available. Sharing rides does make life more complicated and takes more time, but it's quite possible to cut down on gasoline usage by quite a lot.

My own work schedule (or lack of any predictable one) makes ride-sharing impractical, but $2.50 a gallon was enough to convince me to get a small old rust-bucket for normal commuting, and leave the gas-hungry pickup truck for when I've actually got something big to haul, or need the 4WD and high clearance to make it through a snowstorm.

I consider myself a free market capitalist. But when there's a reduced gasoline supply during a crisis, I think it's immoral to raise prices on gasoline to prevent lines and shortages. Instead, a moral gas station owner should be praying to the Flying Spaghetti Monster to fill up the storage tanks using His noodly appendage.

Joe Martin--if rising prices are market driven and not crisis-driven, fine. If not, its indefensible.

"if rising prices are market driven and not crisis-driven, fine. If not, its indefensible."

There is no such distinction. Market forces are things that effect supply and demand, the crisis has reduced supply. Prices must go up to clear the market.

Where I live, (Oregon), gas is currently $2.69/gallon. No gouging yet, but every gas station I pass is full of cars or there are even lines. It seems everyone thinks there will be a shortage, and will probably create one by topping off their tanks.

Ammonium--in a bona fide crisis, if the seller of essentials determines price based on what the high end of the market will bear, instead of fairness, then the free market will not last. In a crisis, but only in a crisis, when the supply of necessities is insufficient to meet demand, you have to look at rationing or some other method of burden-sharing. Libertarian theory is only as good as the society willing to tolerate it. Put too many people on the outside looking in under circumstances as dire as these and theory is all it will be unless you can get the government to fight its own citizens for your right to gouge. What makes our free market system work is not unvarnished Adam Smith, but rather a widely held consensus that there is equality of opportunity and that, on balance, it is fair and right for people to go as far in life as their abilities will take them, provided they do so in a fair and lawful manner. The third leg of this tripod is a belief that, in times of crisis, we pull together and don't take unfair advantage of other's misfortune.

Fox News just showed a gas station on I-10 in Alabama that had run out of gas. They were charging $2.79.

I'm sorry, but that's totally nuts. I was paying $2.79 a gallon for a couple weeks before the hurricane, and I live in the rural Midwest. Two weeks ago I went on a trip across the Midwest and never paid less than $2.65.

But if I went to hurricane ravaged Alabama and somebody tried charging $3.00, I could complain that they were gouging me because the markup was too high? Since we are in a bona fide crisis it means that I have to wait in a mile line and then be told that the gas is gone and I have to drive to the next town? The basis of the free market system means that I have to be good friends with a gas station owner or ride my bike?

Perhaps in a crisis we should just lower the price of everything to zero. I mean, people in crisis can't spend too much, so charging them anything is just taking advantage of them. Or maybe there's a better price that is more acceptable to our free market central planners?

By the way, I can't afford a plasma TV. This really insults the widely held consensus that there is equality of opportunity in a free market.

I say hooray for price gouging, since it gets us one step closer to the glorious workers' revolution.

mckinneytexas

What do you mean by fairness?
Does charging a low price, which doesn't give the retailer enough money to replenish his stock, meet your standard? Will that make someone better off, having a cheap gas avilable once a week, but having to spend hours in line to buy it - is that your ideal of fairness, a violation of which will lead to chaos?

Of course, people can always decide that the station owner is gouging prices, and in the interst of fairness they should pay him less than what he asks, or nothing at all. But this will not help bring oil production back on line, or deliver more fuel to where it is most needed(and where people will consequently be willing to pay for it).

Ben (a.k.a. the guy who thinks the theory of supply and demand makes sense in theory, but is yet to be proven in practice): have you ever worked in a clothing store? Did you notice how the managers lower prices in order to clear out stock? This whole idea of people responding to prices seems to be working for them. Perhaps they don't realize it's just a theory, and that some serious thinkres (umm, you) are not yet convinced it works in practice.

in a bona fide crisis, if the seller of essentials determines price based on what the high end of the market will bear, instead of fairness, then the free market will not last

"Fairness" and "what the market will bear" are exactly the same thing. If you only have 1000 widgets to sell and ten thousand people want to buy widgets, what can possibly be more fair than selling the widgets to the 1000 people who are willing to pay the most for them? And don't say "selling them to the 1000 people who need them the most", because there is no practical way for a retailer to tell, on short notice, how much a customer needs something.

The free market works. What doesn't work is your proposed system, which guarantees that disasters will be followed by an excess of suffering, starvation, and death. Say you're a food wholesaler in Texas. What motive, aside from kindness, do you have for selling your food in New Orlenas instead of Texas? None, if you aren't allowed to charge more. What motive does a fuel distributor have for redirecting fuel to New Orleans? None, if he can't charge more. Etc, etc, etc.

The rest of us, who do not think it would be fun to live in the Soviet Union, recognize that, painful as it may be, prices are in general a better way to allocate scarce resources than lines.

It rather depends. If you aren't doing so well, then you probably don't have money, but you do have time. So for them, higher prices are definitely not better.

As far as economization goes, higher prices for a commodity such as gas, which is a significant cost to a lower income household, but a negligible cost to a higher income household, mean that the cutting back is done entirely by the poorest, and then moves up through the economic ranks as the prices get higher and higher. Rather than a case of everyone cutting back 10%. It's closer to 10% cutting back 100% to devastating effect on their personal welfare. (All figures for illustration purposes only...)

Of course, higher prices do eventually bring some relief through greater supply, so maybe it is 7% cutting back 100%...

There are some reasons why people support rationg. In times of crisis, the idea of "shared burden" helps keep social cohesion. Something it seems in short supply at the moment.

Good post
And aren't the toppers-off (the people who cause these sporadic lines) really trying to short the market? They say, well, the price went up 60 cents today, by teh time I need a fillup it will be up 90, so I'll cut my losses.

Tom, how do you figure that the less well off have more leisure time than the well off? I've always been under the impression that they spend their time travelling from job to job, hoping to have a few minutes left at the end of the day to spend with their children. I know that was true of my parents. As little spare money as we had, I know they would have preferred to pay more for gas and have more time with their children. Waiting in line for gas, looking from station to station for gas would not have appealed to them -- even if it was for a lower price.

Might I suggest that those who can find it online or otherwise check out the front page of the Kansas City Star for June 26. Then take what they had to say about the purposeful closing of refinery capacity by the oil companies to boost profits as the base that the current crisis built upon.

The article Jim referred to can be found here. Warning, may require registration.

I certainly won't attempt to defend oil industry executives as saints. But I am suspicious of the charge that this represents a failure of the free market. If refining profits are up 292 percent, why isn't that fueling a boom in refinery building as other players rush to make big profits? I suspect that that there are government regulations on who can start, own, and operate a refinery. I would also suspect that there are local regulations in many places that prevent refineries from being built.

While the article addresses some of these questions, it paints all of the oil companies in a negative light. It seems to me that Chevron, for instance, would love to compete on price:

A spokesman for Chevron, which later acquired Texaco, said the company has continuously upgraded and expanded existing refineries. He referred to a recent speech by a Chevron executive for the company’s position on building new refineries.

Patricia Woertz, executive vice president of Chevron’s downstream operations, said expansion of the nation’s refining infrastructure would seem an obvious solution. But Woertz said any company would be hard pressed to find a community that would welcome a new refinery.

“Even if you believe the investment economics have become more favorable, other discouragements remain,” she said at an industry conference in San Francisco.

So, are the oil companies to blame? Yes and no. But I believe government shares a lot of the blame as well.

One more thought that popped into my head: the article mentions that the oil companies will temporarily drop prices in a region in order to discourage competitors from opening a refinery. At first listen that sounds like a free market failure -- except for one thing: how is it that refineries are able to drop prices in one specific area? It turns out that government regulation has created a balkanized market. The link points to a graphic showing the different gasoline blends required by different regions of the country. While a large portion of the map is white (no special blend required), I believe that the most populous cities and regions do require specialized blends. (These would also be the regions of the country with the greatest demand and highest potential profit margins.)

If any blend of gasoline could be used anywhere in the U.S., there would be no problem. If the oil companies tried to charge radically different prices for different areas, the purchasers could resell their gasoline to other areas, undercutting the oil companies. That's not possible with specialized blends. Gasoline meant for Norfolk, VA cannot be resold in Charlotte, NC. Gasoline meant for Arizona cannot be resold in Los Angeles.

These artificial, government created market zones allow the oil companies to freeze out competitors and keep prices high. The solution is not more government involvement in the oil market, but less regulation of the oil market. Without friendly government regulators, oil companies would have a much harder time escaping competition.

Yep, it's always the government's fault. It was their fault when Enron and their fellow energy traders manipulated the power supplies in California too. Of course they never had any reason to regulate these businesses, of course. They just did it because they wanted to.

Joe, while you say that you don't want to defend oil company executives as saints the rest of your posts certainly seem to do so. Especially when you try to claim that the cure is de-regulation. Competition is almost certainly NOT going to arise due to massive capital needs. Given the existing players in the business and their extremely deep pockets due to the kind of profits they're currently seeing I just can't see anyone having the resources combined with the willingness to back new blood entering the field.

Ivan:

Where I live, (Oregon), gas is currently $2.69/gallon. No gouging yet, but every gas station I pass is full of cars or there are even lines. It seems everyone thinks there will be a shortage, and will probably create one by topping off their tanks.

In my experience, that occurs anyway (in the populated areas of the valley, at least) because in Oregon, you are considered too stupid and inefficient to pump your own gas (IIRC the legal poke with which that stray cat was passed off as bacon was 'job creation'). Stations in busy areas almost always have a line (during the peak of the day, anyway) because the station has no incentive nor financial return to hire the number of people that would be necessary to keep cars moving through the station as efficiently as self-service would accomplish.

Maybe the lines are visibly longer and linger during off-peak hours?

Jim S:

Yep, it's always the government's fault. It was their fault when Enron and their fellow energy traders manipulated the power supplies in California too. Of course they never had any reason to regulate these businesses, of course. They just did it because they wanted to.

Mmm, thanks for the non sequitur. Sooo...you, like, want to actually respond to the points he raised and show why they don't suffice for an explanation? Or are dodgy dismissals which leave your POV unscathed really that fulfilling?

Just steal the damn gas, already. The feeling of guilt is easily vanquished when you think about Ayn Rand rolling in her grave.

Hear, hear!

Best defense I've read of so-called "gouging" since shortly after 9/11!

(http://www.nationalreview.com/comment/comment-taylor091401.shtml)

I love this blog... I was just asking my husband last night whether B-school addressed some threshhold whereupon raising prices due to scarce supply becomes profiteering or gouging, and he explained commodity markets to me. Sadly, as with so many optical mineralogy lectures back in my student days, it made perfect sense at the time but I have a hard time recreating the explanation on my own.

However, I can go this far: a commodities market, such as diamonds or oil, is as close to a "pure" market, with prices set by supply and demand in all their crystal clarity, as you can get. An airline is not a commodity and is far from pure. If an airline feels it needs or wants to make more money, it raises its prices some and watches whether its competitors follow suit - it tests the waters. If the market will support higher prices, as indicated by all the other airlines' surreptitiously wiping their brows and saying, "Whew! Somebody took the plunge," and doing it too, up they go. If not, back down they come.

Oil is not like that. (Here's where I see through a glass darkly.) If the market (as expressed by futures? I think?) expects $3/gallon gas six months from now, and it's $2 now, the price goes up NOW to, say, $2.85 - not because "What the heck, it's going there anyway, we may as well take some profits now before the higher price is forced on us" but because it can be stored at a relatively low marginal cost against the day when (based on that $3/gallon prediction) supply is going to shrink relative to demand, and so it makes sense - up to that cost of storage - to stockpile some, and suppliers need to pay NOW for what they can stockpile. Diamonds, while a commodity, can be stockpiled forever and in enormous quantities with minimal storage cost, and it's theoretically possible for one player to become a monopoly, so the diamond market is not nearly as purely supply/demand driven as oil; it's no longer possible for oil to become a monopoly because there's a world market. (And the refractive index of tourmaline is...)

I asked about the isolated gas station right on the freeway that bumps its price a dollar compared to everything farther from the freeway; IIRC he said that gas station's big bump could only survive temporarily, and would be dependent on how much pass-through traffic they got as opposed to local traffic that had the easy option of looking elsewhere. Something like that. In essence, Big Oil can't "gouge" in the sense that a hotel owner could, though Little Oil, individual gasoline retailers, might be able to get away with some gouging, very locally, as with the "Last Gas for 100 miles" stations you see in the CA desert, for instance. There's no - there can be no - secret cabal of gas station owners meeting before dawn every Monday to make sure everybody's got enough 3's for their signs.

Economists in the crowd - did I get it sort of right? Can any of you spell it out better so I can stop concreting my frown lines in place?

Do you still defend market logic when talking about basic neccesities, a critical shortage and difficulties to increase supply ?

Would you require the refugees in the Superdome to pay anything the local market will bear for water and bread ? Even if only 20% could afford it and the others starve ?

Yes, I would still defend market logic even then. Especially then. The entire goal of the market is to get supplies where they are most desparately needed. High prices will provide plenty of incentive for even the most selfish person to take food and water down to New Orleans. Supplies might be short on day 1. By day 2, people would board planes and carry food down to New Orleans, if they new they could make a killing by doing it. Prices would be high -- but food would arrive, increasing supply, and lowering the price. Keeping the price low only encourages supply to stay low as well. And low supplies will kill people quicker than high prices will.

AFAIK, New Orleans airport is closed down, so people can't simply 'fly in'

More seriously, I just wonder how many refugees have enough cash on hand to pay for bottles of water helicoptered in by private enterprise. Not just once, but for as long as they have to stay in that place.

As far as I know ATM's are not working in New Orleans right now.

And exactly, what do you imagine the reaction of those standing nearby who can't afford the stuff would be ? Start adding the cost of hiring a private security company team to the transportation cost.

From an early comment:

"If refining profits are up 292 percent, why isn't that fueling a boom in refinery building as other players rush to make big profits? "

Building a refinery is a major operation requiring years of planning and construction and lots of money, even without any regulation and law suit issues.

Any company building a refinery wants to be sure of reasonable profits for one or more decades. A profit spike lasting a few months or even a few years is not enough incentive to build a new refinery.

PS.
I guess you also are prepared to argue any charitable organization handing out food and water for free would just be distorting the market and making things worse ?

Actually, it's not just the airport. The entire city is under interdiction right now. Officials on the scene aren't allowing anyone into the city:

Lots of people including yours truly have volunteered to bring (including food, generators, food, etc., to be self sufficient for a week or so) the most important thing which is a boat but have been told NO under no uncertain terms.

How is the government helping things along in this way?

No, a temporary profit spike is not enough. But demand outstripped supply before Katrina hit. Long-term demand will continue to increase, guaranteeing those profits for the next couple of decades. Also, don't ignore the quote about Chevron wanting to build refineries and having nowhere to build. The desire is there, but the (political) means aren't.

You may argue that the wholesalers are making disgusting profits off of the retailers, but I don't buy that either. The wholesalers are going to be spending everything they earn trying to purchase fuel from around the world and trying to bring their refineries back online as quickly as possible (think of both the raw materials cost and the overtime cost of labor). Prices are going up, but I don't think anyone is going to make a profit on these events.

So next January when the profits for oil and gas come in..we won't be hearing about the record profit making and bonuses for those in the industry, as we have for the past couple of years?

"Would you require the refugees in the Superdome to pay anything the local market will bear for water and bread ? Even if only 20% could afford it and the others starve ?"

God help the refugees if they are seriously expected to provide for their own food and water at any price. This isn't exactly your typical market scenario, which is why we see various aid groups and levels of government becoming involved.

It is the role of government and charities to come to the aid of those in dire need. It is not the role of a business to sell cheap gas to me to promote national unity. I'm not sure how cheaper gas would help any of the refugees at this point anyway - I suspect most of them have more on than minds than what their next fill-up will cost.

Those with substitutes (natural gas) and/or uninterrupted petroleum supply chains are the ones who will make windfall profits. Companies with interrupted production will suffer a decrease in volume that may or may not impact the increased price. I'm assuming their facilities are insured.

If you are selling refined product out of NJ, or moving natural gas you'll sell every ounce you can make at a much higher price until supply is back on-line.

Obviously the market thinks the industry as a whole will have increased profits, as the sector has appreciated about 3 percentage points more than the S&P (and probably about 4% over the S&P ex-energy, which would be the right way to look at it).

Maybe Exxon could sacrifice some of their MULTI BILLION DOLLAR PROFITS.

anony-mouse says:

In my experience, that occurs anyway (in the populated areas of the valley, at least) because in Oregon, you are considered too stupid and inefficient to pump your own gas (IIRC the legal poke with which that stray cat was passed off as bacon was 'job creation').

Don't dis our mandatory full-service! I love the fact I don't have to pump my own gas. Everyone else does too; that's why attempts to change it have been voted down every time.

Most of Oregon's gas comes from Alaska but they say it's being diverted to other parts of the country.

On another local note, an Oregon resident returning from New Orleans says she saw a policeman shoot a looter...

"No one is going to make a profit on this"???

Why on earth not? What would be the point of moving heaven and earth to jump into a high priced market if you didn't expect to make a profit? The prospect of making a big buck is what shakes the lethargy out of the system and stimulates imaginative solutions. The bigger the possible profit, the greater the number of people dumping effort and resources into the quest.

Most likely, a few will score handsomely, a larger number will do OK, and the rest will go bust trying--but meantime the efforts will bear fruit in terms of added supply and prices will fall in consequence. With only slender profits to be made, some suppliers will drop out, and prices will then stabilize at a new equilibrium.

Is making a huge profit somehow evil? In the absence of force or fraud, I don't think so, but one can certainly imagine some ticklish ethical issues. F'rinstance, someone falls off a dock and you shout down, "I'll throw you this life ring for $100. You got a hundred bucks?" In economic theory, exploitation has no down side.

It has been argued that "fairness" and rationing by price are one and the same. Tom West pointed up the contrary notion that there's a difference between everyone giving up 10% and one person having to give up 100%.

FWIW: My mother was in her early 20s in London during WWII. She explained that there was both individual food rationing and government restaurants where one could buy simple meals at affordable prices and not have to give up ration coupons. (At private restaurants, you did have to give up meat coupons, etc.)

Point one: General health was better by the end of the war than at the start -- the poor ate better and it was harder for anyone to get fat.

Point two: By the end of the war, and especially in the years immediately following, when rationing was still in place, the system was starting to fall apart. Shortage were worse in 1946 than they had been in 1942, and cheating had become acceptable.

Bottom line: Rationing schemes would seem to be fairer than pricing schemes if the goal is feeding the masses in a crisis, but will work for only a limited period of time before the absence of price signals start to distort insentives to produce.

The libertarian model assumes that all goods and services belong exclusively to the owner who has the unqualified right to dispose of his/her goods and services as he/she pleases irrespective of context or circumstances. Call me a 99.9% libertarian. Property rights depend entirely on living in a society--the society being one and the same as 'the market'-- willing, in the final analysis, to wage war to defend those rights. Pure self-interest property rights require a consensus among those who recognize and secure those rights, again, ‘the market’. Such rights, in their pure, libertarian sense, are not universally recognized and adored as self-evident--if this were the case, we wouldn't have the Cobra's and El Jefe's of this world to provide amusement.

Under very limited circumstances, the market will not consent to SOME goods and services being distributed solely at the discretion of the owner to those best able to pay. This is understood intuitively by most people who would otherwise call themselves free market capitalists.

For example:

If I am the owner of the lifeboats on the sinking Titanic, I am free, under the purist construct, to sell seats in those boats to the highest bidder. However, enforcing that right depends on the willingness of the market to recognize, ratify and defend that right. I suspect the micro market on board the Titanic would not do so.

A similar example would be the private ambulance operator who demands twenty times the going rate for a ride to the hospital from someone in extremis.

These are two examples of 'dire necessity' under which the mainstream market will not tolerate price gouging, much less praise it.

So, returning to my basic position: if the price increases on essentials (if you put it to a vote, gasoline is an essential--again, this would be a market consensus) are opportunism in the face of crisis rather than driven by otherwise standard market forces, the eloquence of the libertarian model nothwithstanding, the market will not tolerate it.

From my viewpoint, it is immoral as well. Call me a starry-eyed and old fashioned idealist, but I believe what holds this country together and what makes it work is a shared consensus that favors maximum economic and personal freedom under almost all circumstances and shared sacrifice in time of crisis.

Finally, history suggests that rationing essentials in a time of crisis-induced shortage does not bring about the collapse of society. We rationed in WWII and every time a city or region experiences drought, water is rationed. If, during war or a drought, the market determined who got food, water, gas, etc., then you would see all manner of civil unrest.

Joe, you ask, reasonably:

"What do you mean by fairness?
Does charging a low price, which doesn't give the retailer enough money to replenish his stock, meet your standard? Will that make someone better off, having a cheap gas avilable once a week, but having to spend hours in line to buy it - is that your ideal of fairness, a violation of which will lead to chaos?"

No, it is not unfair for anyone to charge what is necessary to replenish stock, to meet cost of operations or to secure a profit. I did not modify the word 'profit' by using the word 'fair', although to some degree it is implied. As a general rule of fair pricing during a crisis, I suggest that the seller is always free to pass along each and every cost added by the crises, and to achieve the same profit margin on that added cost as the seller was realizing pre-crisis. Nothing more, nothing less.

Regards.

Yep, it's always the government's fault. It was their fault when Enron and their fellow energy traders manipulated the power supplies in California too.

Yes, it was. Because they refused to deregulate the pricing on sales of electricity to consumers and refused to allow any new power plants to be built.

The California government placed a cap on what retailers could charge, a cap on supply, and then removed the cap on what wholesalers could charge. Simply put, they artificially increased demand, artificially limited supply, and then had the nerve to look surprised when the middlemen got taken to the cleaners.

Would you require the refugees in the Superdome to pay anything the local market will bear for water and bread ? Even if only 20% could afford it and the others starve ?

That would only happen if there was only enough water and bread for 20% of the population, in which case 80% of the population was going to die anyway no matter what pricing scheme was used. A seller isn't going to leave 80% of his stock unsold because 80% of the market can't pay as much as the richest 20%.

What you would see, if the sellers had enough bread, would be initial sales at very high prices. Once they'd sold to all those buyers they'd cut prices and sell to the next tier. And so on down the line. So the poorest people would be the last to get food -- but everybody would eventually get fed, so long as the food held out.

Dan, not to be argumentative, but the poor in your illustration would get fed only if the wealthy didn't stockpile and deplete the food supply. Actually, the poor would get fed--they'd attack the wealthy, who would end up starving, if they survived the food transfer.

If you don't treat people the same in a crisis, they will level the playing field themselves. Since our police don't make six figures a year, they might not be as diligent in protecting hoarders as your model would require.

The gas and oil belong to the oil companies, wholesalers and retailers. They are under no obligation to even sell these things.

Fortunately for those of us who wish to travel, they do sell them, and so they can attempt to make a profit. All the profit they want.

I am under no obligation to buy these things. If I don't want to buy their product I will either find a substitute or go to a competitor.

And if you think prices and profits are too high, start your own damn gas company. Become filthy rich and suck me dry. Or make a minimum of profits and force the others to reduce theirs.

It is, after all, a free country.

Umm, so we should keep prices at what is determined to be an "acceptable" profit, everyone knows gas supplies are down, and every gas station that is supplied every Sunday, runs out every Tuesday.

1) How would that be better?
2) Haven't we done this before?
3) Why don't we do this every day of the year, if it is superior to the free-market economy?
4) Since that is more Socialism/Communism as practiced in the USSR, why did their economy collapse (if it is a better plan)?
5) If we decide to "ration" gas, won't that give those with Political clout the same "unfair" advantage as the "rich" have now? Have you ever seen a rationing system that wasn't gamed?

If this power is only to be used in a crisis, who determines what a "crisis" is? Do you trust Politicians not to cry "crisis" everytime they believe there is some Political advantage to be made?

The free-market system. the worst economic system in the world, except for all the others...

The current situation does stink, but I haven't sen an alternative methodology that I would bet could work better.

Better yet, W, last time I looked anyone could join the Big Oil club from M-F 9am to 4pm simply
by putting an order with your stock broker.
If they have been "ripping us off for years,"
then anyone with a couple hundred bucks can get back their share of the rip-off, with the added bonus of being a shareholder with the right to sound off at stockholder meetings and band with other shareholders to have the board end their egregious practices!

McKinney: So, returning to my basic position: if the price increases on essentials are opportunism in the face of crisis rather than driven by otherwise standard market forces, the eloquence of the libertarian model nothwithstanding, the market will not tolerate it.

McKinney,

The part of your posts that I challenge is the assumption that opportunism and market forces are diametrically opposed. Right now, supplies of everything in Lousiana are limited. Supplies of fuel nationwide are limited. The nationwide capacity to produce fuel is less than the nationwide desire to consume. Fuel must be rationed.

The price system is the single most efficient and fair method of doing that. Essentially the oil companies are holding a nationwide auction of fuel. The price is being bid up by the desire of each state, city, station owner, and driver to obtain fuel. Yes, it's opportunism to charge high prices in an emergency. But because supplies are genuinely limited, it's also market forces at work. Already I've heard reports from my mother-in-law (in Buffalo) that stations are running out of fuel. If high prices are required to keep consumption down, so that we don't run out of fuel, then I fail to see why high prices are objectionable.

Dan, not to be argumentative, but the poor in your illustration would get fed only if the wealthy didn't stockpile and deplete the food supply

That's true, sure. But high prices discourage that sort of behavior, while low prices encourage it. Think about it: a lot more people can afford to stockpile food if it costs $5 per meal than can if it costs $50 per meal.

Actually, the poor would get fed--they'd attack the wealthy, who would end up starving, if they survived the food transfer.

Well, that's why it's important to be armed -- to discourage that kind of brigandry. But, yes, obviously if some billionaire buys far more food than he needs and then points at the poor starving people and laughs, he might find himself facing an angry mob. That would be another disincentive to stockpiling food you don't need.

Don't dis our mandatory full-service! I love the fact I don't have to pump my own gas. Everyone else does too; that's why attempts to change it have been voted down every time.

I've talked with other Oregon natives who take the exact opposite perspective in their personal opinions as well as what their opinion on what other people think, so I rather doubt that "majority favors" constitutes "everyone." In the extreme, a majority need only be a shade over one-half.

Nonetheless, the people of Oregon are free to vote themselves as much enforced largesse as they can get away with, I guess. I just hope that the plausible relationship between Oregon's litany of similarly-reasoned laws, and 15% overall unemployment, isn't lost on those voters.

I work for a small business (very small, just the owner and me) in a small Iowa town. Today I spoke with a woman who just arrived from Mobile, Alabama to live with her sister.

She complained about "price gouging" when a store in the Mobile area was charging $7 for a bag of ice. The poor woman has been through more than enough (house severely damaged, husband in Iraq) that I didn't argue with her. But with the high demand for ice, if it was $1 a bag, the first 10 people at the store would buy all the ice and there wouldn't be any left for anyone else.

At least at $7 a bag, more people have the chance to at least get a little ice. Ice isn't all that expensive to produce, but it does take time, and not every store that sells ice actually has an ice machine on the premises anyway.

I'm only guessing on the logistics of something like ice production, but surely if $7 is that out of whack, someone else can sell ice for $5 and make a killing. And in fact, that sort of oppurtunity is what could motivate someone farther north to load up a truck full of ice and drive to Mobile, thus increasing the ice supply.

Yesterday, I talked to a man who was about to leave for Jackson to pick up some family who had evacuated to there after losing everything.

I'm all the way in Iowa, and yet there is a direct impact on people I know, even apart from the gas prices. It boggles the mind.

And Shep Smith just now said on TV: complaints of price gouging in Mississippi...ice $10/bag...

Yeah, mandate ice at $1 a bag or whatever, and see how fast you get an ice shortage.

Yet there are others who are donating ice, water and food... yep, the free market certainly does separate the men from the boys.

In my humble opinion, the high cost of gas is due to the fact that Congress allowed the big oil companies to merge. For example, Exxon/Mobil, Shell/Texaco, and Chevron/BP, all merged recently thereby reducing competition and allowing for price gouging at the pump. When I drive down the street, I see an Exxon on one corner and a Mobil on the other and their prices are roughly a penny difference. So where is the competetion?

Moreover, if increased demand is forcing up the price of gas, than why is it that states are complaining that gas revenues are decreasing because people are purchasing less gas this year than they did last year? It simply does not make any sense.

I believe there is collusion going on with the oil companies to keep the price of gas high. Why? So Congress will vote in favor of opening the Alaska National Wildlife area to oil drilling.

liberals you bleeding hearts you tree hugging druids its time to stand up and take some resposibility for the gas crisis were in no new refineries no new drilling look in the mirror assholes and youll see the perpetrators of this fiasco

Yet there are others who are donating ice, water and food...

... which they bought.

yep, the free market certainly does separate the men from the boys

Indeed it does. If we operated according to the communistic "to each according to his need" standard advocated by some of the people in this thread there wouldn't be any surplus food available for well-meaning citizens to buy and donate.

When I drive down the street, I see an Exxon on one corner and a Mobil on the other and their prices are roughly a penny difference. So where is the competetion?

That IS the result of competition. If one of the stations closed, the other could get away with raising its prices. But a station can't generally get away with charging much more per gallon than the station directly across the street from it does, so the higher-price station has to cut its prices to stay in competition with its cheaper rival.

Moreover, if increased demand is forcing up the price of gas, than why is it that states are complaining that gas revenues are decreasing because people are purchasing less gas this year than they did last year?

You're forgetting that oil is a global market. The increased demand is due to other countries (particularly China) wanting to buy more oil to feed their growing economies.

So if gas prices at stations are noticeably different, it's proof that the stations with the higher prices are gouging, but if prices are "roughly a penny difference", it's proof of collusion?

Dan:
What you would see, if the sellers had enough bread, would be initial sales at very high prices. Once they'd sold to all those buyers they'd cut prices and sell to the next tier.

What you are describing is *not* a free market with multiple suppliers and customers. You are describing a monopoly. The way such a monopolist would maximise profits is to tell everybdy "Gimme all your money, I will give you survival rations". That's not capitalism, it's a caricature of Coimmunism's "Each one according to his ability, to each according to his needs".

Because you do not describe a market, the price you suggest to cash for the bread is *not* a market price. Read an elementary economics text about price formation in a market. In an open market, there is only one market price for all, not a separate price for everybody.

In your rhethoric, you also have shifted the terms of discussion about bread and refugees. You spoke about a stock of available food.

The original thsis was that no food is available locally and that anybody who is out for a profit helicopters in bread and water to the superdome.

That is, you have a free market with :

- high cost of production (or, in this case, transport) that can not be lowered easily.
- a lot of people who do not have the money to pay the cost, that is, demand for the goods at a cost-paying price is limited.

Any producer who sells below cost is making losses and will not do it (unless he is acting out of charity)

Result: A lot of people do not get the product. In this case, they starve.

Let's sample the irony here: Jane is distraught, along with many others, and pleas for donations. These donations, in turn, to some degree, in theory, by the gougers she praises. So why not just pay the gougers directly not to gouge? Answer: we are not donating to alleviate only the current crisis, but to help get these folks back on their feet. Donations that are soaked up dealing with true gougers, not those passing along their costs and retaining their pre-market margins, are lost dollars.

All of the purist models and constructs assume a population of poor people with some assets available to spend for essentials once supply and demand equalize, assuming they live that long. The flaw in that assumption is that the victims have between zero and very limited assets and no ready means of acquiring more. Friends, your models just don't hold up when there is no underlying infrastructure to support a supply/demand economy.

No one, other than Dan, has addressed the specifics of any example I've put forth. Dan concedes, in his model, that hoarding is permissible and that the hoarder himself would have to be sufficiently well-armed to hold off the starving. If this is not precisely the shortages and civil unrest your models predict if they are tinkered with, I don't know what else could be.

Supply and demand are true market forces. When supplies are crisis-limited, the demand will be for fair equalization. You can insist, as some have done, that oil companies could withhold their product entirely. True also for drug companies and grocery stores. The problem is, when this happens, those injured by this foolishness move over to Cobra's line of thinking and then the state owns everything, possible the worst outcome.

Demanding that all defer to the purist model, rather than giving just a bit under highly limited and extreme circumstances, invites destruction of the model itself. It is not for nothing that the Libertarians can't even get 2% of the national vote every year.

What you are describing is *not* a free market with multiple suppliers and customers. You are describing a monopoly.

"Monopoly" and "free market" are not antonyms. You can have monopolies in a free market -- they just don't last long. Indeed, once a monopoly starts charging high prices for its goods, other sellers begin to flood into the market undersell it. Prices drop, etc etc.

The best way to prevent a monopoly from being broken, of course, is to set price caps so other sellers have no reason to enter the market.

The way such a monopolist would maximise profits is to tell everybdy "Gimme all your money, I will give you survival rations".

A monopolist can't do that, for the obvious reason that he doesn't know how much money people actually have. If you told me "give me all your money for these rations", I'd give you $37.72 and swear up and down that that was all I had in my wallet when the floods hit.

why not just pay the gougers directly not to gouge?

Well, for starters, you have to pay them with tax money. All tax money ultimately comes from the people. So basically you end up taking money from the people, wasting a good portion of it on bureacrats, and then giving the rest back to the people again (by paying corporations to charge lower prices).

Then there's the second huge problem, which is figuring out what the correct amount is to pay each merchant for each type of good. The amount you have to pay, to prevent gouging, is equal to the difference between the real market price and the price you think is "fair". That price changes constantly. If you offer less than it the merchants will opt out of your system and keep "gouging". If you offer *more* than that, you're effectively giving them free money for nothing, which is never a good idea.

Finally, unless you have an army of bureacrats monitoring the sales, you can't prevent the merchants from taking your money and then gouging anyway. Even if you do assign bureaucrats they'll just end up bribed and subverted, as always happens in centrally-planned economies.

But anyway, fear not, because there's a much better way to accomplish what you want to do: distributing free food and supplies. That satisfies some of the demand. The remaining, lessened demand is spread out over the same pool of goods, so prices drop.

The flaw in that assumption is that the victims have between zero and very limited assets and no ready means of acquiring more

Those people can't buy food at ANY price, so the fact that sellers are gouging has no effect on them at all. A person with no money and no income is, by definition, going to be relying on charity and/or theft to get by.

If this is not precisely the shortages and civil unrest your models predict if they are tinkered with, I don't know what else could be

I conceded only that, if a rich person were to behave in the (absurdly stupid, in my opinion) manner your hypothetical situation required, unrest would likely follow. That does not mean that I was conceding that your scenario actually happens often enough in real life for it to be worth our converting to a centrally-planned economy to avoid it. A rich man does not buy fifty day's worth of food for his family while the people next to him starve -- not unless he's convinced that he won't be able to buy more food for fifty days. Even if you assume that he is the mythical Evil Heartless White Male Capitalist, buying more food than you need at grossly inflated prices is economically stupid. Rich people are not in the habit of making stupid purchasing decisions; that is a behavior more typically found in the poor.

When supplies are crisis-limited, the demand will be for fair equalization

Look, all you're saying is that when un-met demand gets high enough, people will start using force to take what they want without paying for it. Nobody is denying this. What you're failing to realize is that your way assures that that demand will continue to be unmet, and thus assures that the violence will be worse than it would have been if people were allowed to gouge.

The free-market supporters in this thread aren't being callous. We just realize that the supposedly "humanitarian" view that gouging is bad is, in fact, very, very bad for the people it is supposed to be helping. If you want to see a lot more people starve to death than would have normally, go right ahead and put caps on food prices. If you want nobody to have portable generators, cap prices on portable generators. Etc, etc, etc.

The price system is the single most efficient and fair method of doing that.

Efficient - yes. Fair - well, it rather depends on how you define it. If you have $100 and I have $1, does that mean you have the ability to "need" something 100 times more than me? Are my needs worth 1/100th of yours?

Assuming that pricing allows people to prioritize according to their wants/needs works when there's rough parity in purchasing ability. In an economy with high inequality, it can more often simply means a threshold effect. Those above adjust little if at all, those below do without. Society is prioritizing, but simply by total wealth rather than "need".

Of course, that's an argument for rationing rather than price control. (Since price control without rationing simply prioritizes those willing to wait in long lines.)

Mckinneytexas writes:

>>>"If you don't treat people the same in a crisis, they will level the playing field themselves."

We hardly ever agree, truth be told. But RIGHT HERE, you have made the most poignant statement I've ever seen you make. Not only do I agree with you wholeheartedly here, but I will reference this statement WHENEVER there is a discussion on this blog regarding discrimation, inequality, Sunnis/Shia/Kurds, Palestinians/Israelis, tax cuts for the richest Americans during a time of war, and of course the TRAGEDY going on in the Gulf States right now.

I don't disagree with people just to be a contrarian. When people say something TRUE, I'm the first guy to say "Amen".

--Cobra

Extremes such as the present situation highlight the basic fact of life: few commodities exist in usable form without human enterprise. If no one was profiting to provide them, they would not exist at all. Enough about other people besides the loud moralist making money. So what? Without profit, everyone's standard of living would equal those that of the Pleistocene.

Friday afternoon on the way home from work. Passed several gas stations moderately busy in the $3.29/gal price range. Sunoco at Rt 1 & 202 (Chadds Ford PA) selling the cheapest grade at $3.99 and no takers. Today I drove buy and they had dropped their price to $3.49. That's 50 cents in less than a day.

Bravo. That's an interesting angle. Thank you. By the way folks, we've just launch a message board/support group for Katrina. www.katrinatalk.org Come over and give some support and get some, too. Talking about it helps.

Mindles or Jane--would you mind adding a link? It will be helpful to people.--Thanks

Efficient - yes. Fair - well, it rather depends on how you define it. If you have $100 and I have $1, does that mean you have the ability to "need" something 100 times more than me? Are my needs worth 1/100th of yours

I don't see what "need" has to do with "fair". Just because you need something doesn't mean that is fair for you to pay less than it is worth to somebody else. What's "fair" is giving the item to the person who is willing to give up the most to get it -- i.e., the person willing to expend the most wealth. After all, $1 buys the same thing whether it's being spent by Bill Gates or a homeless bum.

Besides, who decides who "needs" what? Some government bureacrat? He'll be the first one bribed. Like the saying goes, when you let the government control buying and selling, then first thing bought and sold is the government.

Side note: rationing is a form of price control, since it artificially lowers prices by forbidding merchants from selling to the people who are willing to pay the most. So you get the same effects that you get from price controls -- i.e., shortages and a lack of entry of new merchants into the market.

From the weblog of the objectivistly-named Jane Galt, here is the worst of American reaction to the New Orleans disaster in a nutshell. Below find samplings of statements that reveal a seemingly bottomless capacity for churlish, selfish, callous, racist cruelty by self-congratulatory blog barnacles who coolly watch the NOLA tragedy play out from the comforts of their dry, food-filled, proudly right-wing homes. I believe many of them may fancy themselves a tad intellectual, and hard-nosedly so. The poverty of their arguments demonstrates otherwise. And as none of them lay claim to any sort of humanitarian compassion, you won't be surprised to find it absent here. Hold on to your lunch:

Tsk. Talk about predictable.

What's "fair" is giving the item to the person who is willing to give up the most to get it -- i.e., the person willing to expend the most wealth.
Of course, the "bum" who gives up the only dollar he's got might think he's giving up bit more than Bill Gates does when he gives up one million dollars, since Bill would still have at least 50,000 more of those millions left. Although I suppose Bill earned the right to dispose of such a large proportion of the world's resources. It took great skill to ruthlessly prevent anyone from competing with him for all those crucial years.

Of course, the "bum" who gives up the only dollar he's got might think he's giving up bit more than Bill Gates does when he gives up one million dollars

A five year old may think that her life savings of $3.27 should be enough to buy a pony. Like the bum in the above example, she would be mistaken. You need to remember that the merchant is a person, too. $1 may mean a lot to a bum, but it means jack diddly to a person looking at an offer that will pay off his mortgage, his car, and his kids' college tuition all at once.

Ah, you meant fair to the *vendors*, not the *victims* of the disaster. Now your argument makes much more sense.

Ah, you meant fair to the *vendors*, not the *victims* of the disaster

No, my scenario is fair to both the vendors (who are paid what their property is worth) and the victims (who all have an equal right to buy that property). It also, as noted above, results in a lot fewer of the victims going without.

I'm afraid I don't understand your attitude that the "fair" price for a good is whatever the poorest person in society can pay for it. In the above scenario two starving people are competing to buy the same bit of food. You think that a "fair" system would not allow one to pay more than the other for it. So "fair" would be, what -- flipping a coin to see who pays $1 for that bit of food, apparently? How is that fair? It gives the poor person something he never earned and punishes the wealthier person for being successful.

Dan writes:

>>>"It gives the poor person something he never earned and punishes the wealthier person for being successful."

Who says the wealthier person EARNED their wealth? Who says the poor person doesn't work hard?

Class warfare is what you're really aiming at, Dan, and you know what? There have been revolutions throughout history for far less. Look at our OWN history.

--Cobra

Who says the wealthier person EARNED their wealth? Who says the poor person doesn't work hard?

Statistically speaking, few Americans inherit the majority of their wealth, and the poor on average work far less than middle or upper-income Americans.

Class warfare is what you're really aiming at, Dan.

Some class war; the poor are a small minority of the American population and do little of the useful work. This isn't some third-world nation where eighty percent of the people are impoverished workers.

Look at our OWN history

The American Revolution was started by, funded by, and run by a bunch of rich and middle-class white men angry at the British government for violating their economic and political rights. Hard to see how that supports your argument.

Who says the wealthier person EARNED their wealth? Who says the poor person doesn't work hard? - Cobra

Statistically speaking, few Americans inherit the majority of their wealth, and the poor on average work far less than middle or upper-income Americans. - Dan

That's one answer, but more to the point, "hard work" does not mean that your output is very valuable. The market - i.e. the aggregate interaction of free individuals - is the sole arbiter of value. The reason that Bill Gates (to use the poster boy of wealth) is worth more than a Walmart cashier has nothing to do the fact that he's worked "harder" (e.g. longer hours). Nor is Bill's wealth ill-gotten, as it resulted purely from freely undertaken economic interactions.

One could argue that Bill's heirs have not "earned" their wealth, but so what? Shouldn't he have the right to bequeath his property to whoever he chooses?

The poor, on the other hand, are poor because their output isn't worth very much (excepting those who have become poor by squandered their money, of course). There is no shortage of people who can wash cars or stock shelves, so those in the market for such services don't have to pay very much for them.

I don't see why someone couldn't support social services to assist the poor without trying to bolster this support with claims that their "hard work" is somehow "worth" more than the pay it commands.

Prices are going up, but I don't think anyone is going to make a profit on these events.

This is a quote from Joe Martin earlier, I do not know how to change the font.

NO. Someone has to be making a profit from this.

Moreover, that is exactly what is suppose to happen in a free market. The firm or whatever that is making the most profits is the one that owns the biggest bottleneck in the production-distribution system. It is the way markets work. The market use prices to generate profits in the market segment that most needs new investments. The profits are then used to expand capacity and eliminate the shortage.

The shortage is in refining. Yes, regulations and not in my back yard is part of the reason we have a shortage of refiners. But it is a very minor reason. The dominate reason is that until recently we have had a surplus of refining capacity and refining has been a very low return industry that did not attract new capital. The industry has been contracting. The overwhelming dominate reason we do not have new refineries is that it has not been profitable to build new refineries. Now we are seing refining become profitable and with a lag new refineries will be built. This is the way markets work -- in the US economy virtually all investment is done by corporation in the industry they are already in out of retained earnings. Virtually no investment is done by individuals out of private savings.

So, yes someone is making profits, the someone who will invest in new capacity to eliminate the shortages.

As a consequence, in a few years we will have a surplus of refiners -- like we did for years after the last massive run up in oil prices.

That is the way free markets work, and yes it is highly inefficient and wasteful. I do not understand why anyone who really understands the way the free market really works would believe for a singe minute it is efficient.

Efficient market are a theorical construction
tha only exist in some economists minds.

Jamie -- the local gas station on the freeway, or at other isolated locations can get away with charging higher prices because they have what economists call a locational monopoly. The competition is so far away that it is less effective. This allows them to charge a premium, but the premium will have a limit.

That is the way free markets work, and yes it is highly inefficient and wasteful. I do not understand why anyone who really understands the way the free market really works would believe for a single minute it is efficient

When people say "free markets are efficient", they usually mean "compared to every other way of doing things". And indeed free markets, for all their wastefulness, are indeed much better than any of the alternatives. To paraphrase your earlier remark -- I don't see how anyone who has worked with the government could possibly think the free market could be more wasteful or less efficient.

Of course, it is questionable that you could really call something as tightly regulated as gasoline production and distribution "a free market" anyway.

The only way price gouging can exist is if the seller has some kind of monopoly. If price gouging is so good, we should encourage more monopolies. And if that is a good thing, it stinks. It's doodoo economics. It's too absolutist. It's the kind of thinking that prefers corporate democracy (one dollar, one vote) to political democracy (one person, one vote): "What's "fair" is giving the item to the person who is willing to give up the [nominal] most to get it". I fully appreciate that trying to convince most of you who live in this particular construct that you should shun this kool-aid will give you a chummy giggle at my ignorance. But someone needs to point out that you have lost your moral compass - notwithstanding your compassionate efforts to raise funds for those who have nothing left to give up. http://guambatstew.blogspot.com/2005/09/doodoo-economics.html

The only way price gouging can exist is if the seller has some kind of monopoly. If price gouging is so good, we should encourage more monopolies

That's like saying "people only buy medicine when they are sick. If medicine is so good, we should encourage more people to get sick". Price gouging is good because it cures problems in the quickest and least-painful way possible. That doesn't mean that we should want problems to occur so that price gouging can solve them.

Also, price gouging does not require a monopoly. It only requires that the current demand for a good exceed the current supply of that good.

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