Coming October 7th: More Government Gouging
We are speeding down the road to denying reality. We will be there on October 7th when the special session is supposed to end. Governor Richardson actually said this (subscription) to help speed us down the road:
“I don’t believe that these profits that are being generated are being done without some kind of manipulation,” he said.
While he couldn’t articulate during a news conference on Monday how New Mexico might quantify exploitation, the governor reiterated that most residents are feeling the pain of high gasoline prices.
“It’s hurting consumers, it’s hurting kids, schools, agriculture,” Richardson said. “In essence, the first step has to be, let’s have a law that protects our consumers, and the state does not have a law.”
But the Guv is going to insure that we suffer the unintended consequences of this phantom menace based on his “belief.” No one can deny that we are harmed when the price of something (such as gasoline) goes up. When that happens we have to give up more of other things to get that something. That hurts.
What is not well understood, however, is how the higher price acts as a signal that will mitigate the suffering. In response to the higher price consumers immediately begin to reduce their consumption of gasoline. Firms immediately begin to bring more gasoline to where it is needed. As the late, great Professor Hayek said here:
“The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same constant or “normal” level.
I have deliberately used the word “marvel” to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do. But those who clamor for “conscious direction”—and who cannot believe that anything which has evolved without design (and even without our understanding it) should solve problems which we should not be able to solve consciously—should remember this: The problem is precisely how to extend the span of out utilization of resources beyond the span of the control of any one mind; and therefore, how to dispense with the need of conscious control, and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do.”
Of course, in the recent case of rising gasoline prices many people may think they know the cause. But they don’t. And the only thing they will have to “marvel” at is how the government further gouges us by not letting price signals guide our behavior.
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More on Government Gouging
Our governor has signed the letter to the FTC requesting an investigation into “price gouging” and “excess profits.” Here is what Lynne Kiesling has to say:
“Remind me to add that [excess profits] to the list of economic non-concepts, right behind “price gouging” and “windfall profits.”
“If you are analyzing price effects along a vertical supply chain, and you have a capacity bottleneck in the middle of that chain, how can you expect historic relationships between the price of the initial input and the price of the final product to persist? That is incredibly naive and reflects a lack of understanding of how vertical supply chains work.
Of course the price of crude oil and the price of gasoline are going to become more disconnected as your refining capacity becomes the binding constraint. Furthermore, when a natural disaster exacerbates that bottleneck, you should expect a further deviation from that historic relationship.
More work for the FTC, which routinely investigates claims of “price gouging” when one politician or another raises the populist hue and cry. The FTC has studies stretching back for almost two decades that show no evidence of anti-competitive outcomes in gasoline markets.”
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Government Gouging in Action
Hawaii has attempted to deal with price “gouging” by capping the amount that gasoline refineries can charge for their product. Now it is estimated that Hawaiians are paying 51 cents more per gallon at the pump than they would without their government’s “help.”
The long term effects of this misguided government gouging are going to be even worse. There is no incentive on the part of refiners to improve or expand their facilites. And there is certainly no incentive to increase the supply of crude oil to the Islands. That means future prices at the pump will be even higher.
This silly cap encourages illegal behavior. There will be tremendous incentives to engage in fraud rather than innovation. Refiners have a limited amount of product and pump prices are much higher than fundamental economics would indicate. Look for some side payments and favors from gas stations to refiners as ways to increase their supply and thereby the profits of both.
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Economic and Political Realities about the “Living Wage”
Check out this new site. It contains accurate information about the economics and politics of the so-called living wage. This acorn needs to be squashed.
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Maybe What We Really Need Is Minimum Journalism Standards
The Albuquerque Journal again reports uncritically (subscription) the findings of a camp following whore.
This time it’s Olivier Uyttebrouck who uncritically reports what an “economist” says:
“Workers who would be affected by the proposed minimum wage average 31 years old, said Robert Pollin, a University of Massachusetts at Amherst professor.”
And:
“Of workers who earn less than $7.50 an hour, 27 percent are ages 15-19 and 73 percent are 20 or older, he said.”
Let me expose these misleading statistics by way of an example: Suppose we have 4-20 year olds and 1-70 year old working below the proposed $7.50 per hour threshold. Their average age is 30! Does that give a clear picture of that population? If we switch one of the 20 year olds to 19, then 80 percent of the population is over 20. Does that give a clear picture of the population?
What really gets me about local reporting on the minimum wage is that not one reporter (that I know of) recognizes that the vast majority of the economics profession concludes that “living wage” ordinances are harmful to the workers they are purported to help.
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Wasting Energy in New Mexico III
Governor Richardson wants to waste our energy. He is being quite blunt about that.
And while he is at it, he will hurt those who need help the most.
Good grief! Won’t we ever get it?
Even in a Crisis Reality Is Not Optional
Russell Roberts has a great article here. Some excerpts:
“Understanding the emergent phenomena economists call a market is the essence of the economic way of thinking. In contrast, the human brain seems more accustomed to what might be called the engineering way of thinking where human action and human design work together. If I’m dissatisfied with the size of my kitchen, I make a plan and by following the plan, if it’s a good plan, the result is a bigger kitchen. A person who sits around hoping for a new kitchen without design or action is going to be disappointed. Or if I notice the leaves falling from the trees, I don’t hope that they’re going to clean themselves up. I have to plan to rake them and then do the actual raking. Changing my thermostat to alter the temperature inside my house is another such example.
But the engineering way of thinking doesn’t work with emergent phenomena. Trying to change emergent results is inherently more complex than building a bridge or expanding your kitchen or even putting a man on the moon. Understanding the challenge involved is to begin to answer the old question that asks why we can put a man on the moon but we can’t eliminate poverty. Putting a man on the moon is an engineering problem. It yields to a sufficient application of reason and resources. Eliminating poverty is an economic problem (and by the word “economic” I do not mean financial or related to money), a challenge that involves emergent results. In such a setting, money alone—in the amounts that a non-economic approach might suggest, one that ignores the impact of incentives and markets—is unlikely to be successful.
Thomas Sowell likes to say that reality is not optional. But we oh so want it to be. We want to change outcomes without consequences with the ease of adjusting the thermostat on the wall of our house. We want to dial incomes upward and gasoline prices downward. We want to blame Wal-Mart for the fact that its employees earn below the national average. We want to blame China (or Mexico or Japan or India) for our trade deficit. We want to blame or honor the occupant of the White House for whether new jobs are high-paying or low-paying. This worldview that flies in the face of reality and that ignores the inherent complexity of the real world is the bread-and-butter of journalism and the breeding ground for unintended consequences.”
Following a cogent explanation of the confusion of well-meaning opponents of Wal-Mart (that you should read), Roberts goes on:
“As I write these words, New Orleans is in chaos. A number of oil refineries have been knocked out of commission by Hurricane Katrina. Gas prices have spiked upward. Politicians are threatening suppliers with legal action for “price gouging,” raising prices at a time of crisis. Politicians from President Bush on down are asking drivers to drive less or “only when necessary” as if that phrase had meaning. These politicians evidently believe that begging and lecturing citizens can perform the role that prices do in creating and sustaining order, an order where I never have to think twice or even once about whether gasoline will be available at the corner for my vacation or drive to work or to take an emergency trip to the hospital.
But reality is not optional. You cannot have a sudden reduction is gasoline available to the market and low prices at the same time. There is no dial for gasoline prices. The result of these threats is easily predicted—suppliers are already rationing. Drivers are worried about shortages and in the face of threats to punish ‘gougers.’ They are right to worry. As a result, lines are forming in some cities, and gasoline retailers are closing early in the day, out of gasoline, the same results we saw when explicit rather than implicit price controls were put in place in the 1970s.
Friedrich A. Hayek, in The Fatal Conceit, wrote that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Unfortunately, when politicians try to dial down prices to preserve order, they only worsen the problem. We would do well to remember the emergent nature of prices, especially in times of crisis.”
I recommend you read the entire article.
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Grand Old Profligates
I am not surprised that Steve Moore shares (subscription) my view of the already profligate GOP’s response to the New Orleans tragedy:
“There’s an old adage that no one in Washington can tell the difference between $1 million and $1 billion. Seldom has that Beltway learning disability been more vividly demonstrated than in the weeks since Katrina.
When President Bush announced last Thursday that the feds would take a lead role in the reconstruction of New Orleans, he in effect established a new $200 billion federal line of credit. To put that $200 billion in perspective, we could give every one of the 500,000 families displaced by Katrina a check for $400,000, and they could each build a beach front home virtually anywhere in America.
This flood of money comes on the heels of a massive domestic spending build-up in progress well before Katrina traveled its ruinous path. Federal spending, not counting the war in Iraq, was growing by 7% this year, which came atop the 30% hike over Mr. Bush’s first term.”
It gets even worse:
“Rapacious trial lawyers are already on the hunt rounding up Katrina’s victims to unleash a barrage of multimillion dollar lawsuits. Now they have been empowered by Congress to finance these lawsuits against taxpayers … with taxpayer dollars.”
Wasting Energy in New Mexico II
The Governor also wants to form a “task force” to investigate price “gouging.” No such task force that I know of has ever successfully found a problem. The reason that “gouging” cannot exist is that consumers have alternatives. But we don’t have alternatives to the coercive, idiotic, wasteful policy of our government. Isn’t it time for a task force on government gouging?
Winthrop Quigley had a good article recently on so-called price “gouging.”
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Fantastic
Music to my ears; and it gets even better.
