The Phantom Menace - AKA Price Gouging

Rita has now passed us by, and the big joke of the day in Austin seems to be: "how did you weather this terrible storm?" Its a joke because we didn't get a drop of rain that can be attributed to Rita. In fact we've had fairly clear skies for the last few days. Meanwhile there are thousands of Houstonites/Houstonians/people from Houston here, many of which have little hope of getting home any time soon.

The run on gas, gas cans, and generators is one of the few outstanding reminders that yes a major storm just happened nearby (relatively speaking). The only difference is that now the people desperate for gas cans, and generators seem to be by-and-large people who really need them. All day I had people asking me if anyone had returned gas cans or generators - I work the returns desk at Home Depot. They were waiting for the people that didn't need these items to return them so they could buy them the minute they came in the door.

In fact I got multiple generators returned today, and one 15-gallon fuel tank - all of which were completely unused and unopened. They were all returned by people who overreacted - just a little - to the possibility of Austin catching the edge of a hurricane. Meanwhile the people who genuinely need gas cans and generators, because there is neither open gas stations nor power where they are going to, are combing every retail store in Austin and beyond for them.

I met a couple yesterday who had come from Orange, Lousiana, which is apparently part of the region that got hit the hardest by the storm. After trying multiple stores for gas cans that they needed to get home they decided to attempt to use homer buckets for gas storage. I personally can't tell you how good or bad of an idea that is. But driving 400 miles with your car full of 5 gallon buckets of gasoline with lids that would be difficult at best to vent does not sound like a safe proposition to me.

And in other news the attorney general of Texas has an 800 number you can call to report incidents of price-gouging, and they've promised to fully investigate any complaints made. Which means that big box retailers are going to be much better off if they don't raise prises to meet the demand for certain items when bad weather threatens. Hardware stores don't really lose anything if they sell out of gas cans, and nobody is going to be particularly upset with the store because other people bought up the items they needed.

For more on this point lets see what the Attorney General (of Texas) has to say about price gouging. From msnbc.com - This is an excerpt from a debate between Andrew Bernstein of the Ayn Rand institute and Greg Abbott, the attorney general of Texas:

GREG ABBOTT, TEXAS ATTORNEY GENERAL: I'm the very first person to step up and believe that our free and open markets here in this country are very effective at setting prices. And that's the way it works all the time except in times of crisis. In times of crisis when people are literally struggling to try to protect and save their lives, it is not a free and open market.

It's a market that is ruled in this case by complete uncertainty and people grabbing the first thing they can. And I might add, it is an artificially created market. In our efforts to go after price gougers, we found one instance down by the Gulf Coast where a gas station had 20 pumps that were available to provide gasoline for customers, but to create artificial demand and to decrease the supply, the gas station shut down half of those pumps until we stumbled upon it.

We found it and we caused them to open back up their pumps and back again the price went to the normal gas price. But we're dealing with a situation where people are having to flee by the millions from the Gulf Coast in order to save their lives. As a result normal market forces don't apply. ... It is only in these exceptional circumstances when law must step in and ensure that people will be protected.

ABRAMS: Dr. Bernstein, your response.

BERNSTEIN: I don't agree. I think that, again, don't hit the American people with more of the poison that has caused the disease. It's governmental restrictions on the market, particularly environmental laws.

ABRAMS: ... That's a nice macro argument. Let's talk specifically about what the attorney general is saying, is he's saying I'm only talking about disasters. I'm talking about a very finite short period of time, period.

BERNSTEIN: Again, what you do by diminishing the price below market levels as you are going ... you're going to increase the demand, more people are going to want the product.

ABRAMS: But everyone wants it ... in a disaster. Everyone wants it, we know that.

BERNSTEIN: First law of economics is the lower the price, the more you increase the demand. ...

ABRAMS: So you're talking broadly and you're saying that there's no merit to the attorney general's argument, which is that in a finite period in a disaster the wake of a hurricane for a short period of time, it's not a good thing for the government to occasionally step in.

BERNSTEIN: Yes, that's right. What you do is cause shortages. What that means is people who want the product and have the means to by the product cannot buy it because you've raised the demand...

ABRAMS: All right, attorney general ... what do you make of that?

ABBOTT: The argument doesn't make sense. Obviously it's a theory. It's a theory that works in a macro context. It does not work in times of emergency. In times of emergency we as a country have an obligation to help take care of those who are most vulnerable. We are dealing with real-live people, not with theories. We are dealing with people who are trying to flee a very deadly hurricane. ... And they have to get out of the hurricane's way. In order to do so, they should not be bilked by price gougers.

I wonder what Mr. Abbott would say about how "theoretical" these shortages are to the real live people driving home with literally, buckets of gas?

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I'VE ALREADY SET THE

I'VE ALREADY SET THE EXAM.
But this Catallarchy post on price gouging has all kinds of potential for exam and problem set questions.

I'm pretty sure that after 5

I'm pretty sure that after 5 minutes in the car with the aroma from that bucket of gas, you'd be reconsidering the plan. If you were still conscious.

A friend of mine used to

A friend of mine used to complain about price gouging at his local gas station way out in the boonies. He said that the prices were consistently too high and the owner could gouge because there were no competitors nearby and that no competitor would come in because the market was too small. I used to argue with him about this to no avail.

So my definition of a price gouger is someone who asks a price for his good that you don't want to pay but others are willing to. Usually while complaining that if they traveled some considerable distance (in time or space) they could find it for a cheaper price.

When they invent time traveling or cheap instantaneous travel then I will take their complaints seriously.

Those 5 gallon buckets come

Those 5 gallon buckets come with a lid that has a rubber seal, which appears to me to be solvent proof. I've stored polyurethane solvent in them for years with no leak. Plus water activated polyurethane resin mixed with the activator in the buckets and it didn't foam. If water vapor got in it would have condensed, activated the foam and the top would have been blown off. So they seem pretty safe to me. I have also placed a 1 gallon plastic gas can inside such a sealed bucket to prevent fumes precisely because I didn't like the gas fumes given off by those stupid plastic gas cans.

Now an open bucket would be a different story. Of course you should not store in a hot car. Also I am not recommending it, just pointing out that in an emergency, life or death, situation it is better than transporting the gas in a trash bag (as I've heard of).

"One of the jobs of the

"One of the jobs of the attendants is to prevent dangerous or illegal things from being done"

?

No it isn't.

Price Gouging: Raising

Price Gouging: Raising prices in the wake or aftermath of a known disaster/emergency (and occasionally in other situations) to a level that someone somewhere thinks is unfair or unreasonable.

Supply and demand are not relevant considerations if you take "price gouging" to be a meaningful term, and I don't. All that is relevant is how people feel about the rising prices, and whether or not said people feel they are being taken advantage of.

Anyone with half a wit can

Anyone with half a wit can figure out how to keep a busy attendant from seeing them put gas in a bucket. Not to mention that there are plenty of 24 hour pay-at-the-pump stations that don't have attendants around the clock. If said couple wants to put gas in a bucket they will figure out a way to do it. As for the being "sued" part, its really irrelevant. You don't know what the judge/jury would decide in such a case. Neither can you say for certain that the people in the situation will blame the gas stations for their misfortune and seek to make them pay to begin with.

Yes, Rainbough, I would

Yes, Rainbough, I would expect people to be stopped even at self-serve gas stations.  One of the jobs of the attendants is to prevent dangerous or illegal things from being done, and dispensing gasoline into unapproved containers is possibly dangerous and certainly illegal.  Any attendant seeing such activity should shut down the pump(s).

If that family's car caught fire from the gas fumes, who do you think would be (not "should be") sued?  If you said "the gas station", give yourself a cookie.

IIRC, it is unlawful to

IIRC, it is unlawful to dispense gasoline into unapproved containers.  Those buckets would not qualify.  (See?  Sometimes the system DOES work!)

Unfortunately, homo Populisticus does not win re-election by paying attention to anything said by homo Economicus, even when the latter has the former dead to rights.

Okay, here's a two part

Okay, here's a two part challenge. First, define price gouging. Your definition must meet two very clear criteria. It must unambiguously permit at least some price increases caused by diminished supply and some increases resulting from increased demand. Second, for any given price increase, it must be possible to determine unambiguously whether it consistutes gouging.

And moving right along to the second part of our contest. Find any public official who has spoken out against price gouging who has defined the term at all, much less in a way that meets the criteria stated above.

:deal:

The line between sarcasm and

The line between sarcasm and the twilight zone is fine indeed.

Price Wars: Attorneys

Price Wars: Attorneys General Strike Back
Michael Giberson Rainbough Phillips amusingly tags price gouging as "the Phantom Menace" in a post on Catallarchy. She also provides a neat insider's look at the supply and demand for emergency supplies, viewed from the returns counter at an Austin-...

Oh sure, the Home Depot in

Oh sure, the Home Depot in Austin says it is out of generators and gas cans, but I bet that hundreds of generators are stashed far away on the shelves of Home Depot stores in other states! That Austin Home Depot must be manipulating the market!!

Go get 'em, Mr. Attorney General, make Home Depot do the right thing!!!

"If the $25,330,000,000 is

"If the $25,330,000,000 is distributed as a dividend to shareholders, then there will be another $6,839,100,000 paid in Dividend Income Tax."

It's mistaken to assume that their entire net income is distributed to shareholders as a dividend. If you look at their cash statement, you'll see that they paid out $7,111,000,000 in dividends in 2004.

Also, you give a dividend tax rate of 27%. The U.S. dividend tax rates are 5% (10% and 15% brackets) and 15% (higher brackets) for individuals (same as capital gains).

So rather than adding $6,839,100,000 to your total, you should add something closer to $1,066,650,000, to make your argument more accurate.

I wonder what Mr. Abbott

I wonder what Mr. Abbott would say about how “theoretical” these shortages are to the real live people driving home with literally, buckets of gas?

Maybe he'd blame the big box stores for not stocking enough products to meet demand. "People *need* these items, yet the greedy retail giants refused to..."

:bigcry: Perhaps WE THE

:bigcry:
Perhaps WE THE PEOPLE need to wake up to true "PRICE GOUGING"...

Go to Yahoo! Finance or any other financial site & look at the Income Statements for ANY oil company (any industry is probably similar)...
here's an example, from Exxon Mobile Income Statement for PERIOD ENDING 31-Dec-04: (Numbers in '000's)
Total Revenue $298,035,000
Cost of Revenue $163,547,000
Gross Profit $134,488,000
Income Before Tax $41,241,000

Income Tax Expense $15,911,000

Minority Interest - $(694,000)

Net Income From Continuing Ops $25,330,000

If the $25,330,000,000 is distributed as a dividend to shareholders, then there will be another $6,839,100,000 paid in Dividend Income Tax.

Total Government Take--$22.75 billion (does not include other "baked-in" taxes on Payrolls, Fuel, Property, etc.)

Total Private "RICH-Profiteering" Take--$18.5 billion

Who is truly getting rich or is it just another opportunity to continue & expand "class" warfare? If you & I are busy battling each other :argue:, then WE THE PEOPLE aren't watching what they are doing :deal:.

:wall:

Do you really think that

Do you really think that stopped them from putting gas in the buckets, especially with all the pay-at-the-pump stations?

It wouldn't have stopped me.

"The argument doesn’t make

"The argument doesn’t make sense. Obviously it’s a theory. It’s a theory that works in a macro context. It does not work in times of emergency. In times of emergency we as a country have an obligation to help take care of those who are most vulnerable. We are dealing with real-live people, not with theories. We are dealing with people who are trying to flee a very deadly hurricane. … And they have to get out of the hurricane’s way. In order to do so, they should not be bilked by price gougers."

That is an argument right out of the mouth of a villain in Atlas Shrugged. The anti-capitalist mentality parodies itself.

I think the major problem

I think the major problem with price-gouging laws is the perception of how great the gouging will be. For a predictable disaster like a hurricane, price gouging is likely to be fairly small because supplies can also be shifted from elsewhere. If people realized that part of the dynamic, there would be less support for anti-gouging laws in the first place. However, both supporters and detractors of the laws play up the fact that gouging will deter some consumers while not adequately explaining that it also shifts supplies and hence the increases would be much more mild than people believe.