Gas prices: the unseen hand of providence.

[Rain Monkey]

President Bush sounded nervous when he said that price gouging would not be tolerated.

Is he afraid that we will realize that market forces are not always the purest expression of the will of God.

Or is he anxious that someone will discover that price fixing has been redistributing wealth from our pockets at the gas pump and to his largest campaign contributers?

[Gomezticator]

Once again, the only two things gouging us at the pump are a) the limited supply that can be pumped for the world and b) the overwhelming, excessive fuel demands of the United States in conjunction with the demands of the world. The price had been hovering on a supply/demand tightrope before the year's past rise in prices and before Katrina.

[Rain Monkey]

If you stayed in Econ 101 passed the first day you would be aware of the conditions for market failures. These include the manipulation of markets by well connected cartels. The treatment of non-renewable resources as limitless. And the treatment of external costs as for free.

Also, the market does not address the wide variety of human needs that fall outside of the scope of "the most efficient allocation of resources among those who have the ability to pay."

When I asked my Econ professor why world hunger did not seem to drive demand for food he responded with the single statement I remember most clearly from that class: "The desires of people who lack the ability to pay are irrelevant to market forces."

[Simon]

If you stayed in Econ 101 passed the first day you would be aware of the conditions for market failures. These include the manipulation of markets by well connected cartels. The treatment of non-renewable resources as limitless. And the treatment of external costs as for free.Hehe, that's a cute little zinger. You sure made the world a better place by saying it.

I've never seen any evidence for cooperation between oil companies or for any of the other stuff you claim is occurring. I also have never heard of the two other things you mentioned as being mentioned as causes of market failure, and looking around the wikipedia page on market failure (http://en.wikipedia.org/wiki/Market_failure) I couldn't see them.

[Gomezticator]

The (BWAHAHAHAHAHA) manipulation of markets by well-connected cartels?!

I don't see any Saudis pointing a gun at MY head and telling me to drive to work, nor anyone else's.

If we stopped using so much gas and driving so much, the market value of gas would decrease, and OPEC would have to drop the price. Since people use it like water, you're lucky OPEC doesn't charge $100 a barrel. It's not like they couldn't. You're gonna drive no matter what, right? No one's making you drive, but you feel you must. Why? Is a Saudi oil baron pointing a gun at YOUR head?

BTW, I passed Microeconomics easily. However, the fact that I didn't take MACROeconomics clearly ::snicker:: came back to bite me in the ass on this one. Oh, the perils of my shortsightedness!

[Rain Monkey]

Well, I was hoping someone else would jump in on this thread and explain market failure, monopolies, public goods, and externalities. But since I brought it up, here goes (with plagiarism from several dusty textbooks):

Market Failure: malfunction in the market mechanism resulting in misallocation or unproductive use of resources; an inefficiency.

Four major causes of market failure:

(1) Non-competitive behavior: The ideal market is one where no supplier or buyer can control the market they operate in. But because of the economies of scale, and what ecologists refer to Gause's Law of competitive exclusion, every market niche tends toward monopoly over time.

(2) Public goods: No firm can make a living by producing clean air. Every (living) person requires clean air. In a sufficiently polluted world a market for clean air would develop. Public goods are those amenities that are held in common.

(3) External costs or benefits: Many firms can reduce costs by discharging waste fumes to the air, or sludge to the waters. The loss of value resulting is a cost external to the transactions accounted for. Treated as free, external costs or benefits tend to be over-consumed.

(4) Imperfect information. The ideal market is one where both buyers and sellers have perfect information about the goods or services, and from that information they act in rational self interest. The producers incur the marginal cost of additional production as long as the selling price exceeds that cost. Buyers gain a benefit greater than the purchase price, referred to as the consumer's surplus, or else they choose not to buy.


Now, my points above are based on the fact that for years now we have all been schooled in the church of Ayn Rand. That not only is greed good, but that it is the only true good.

(But just go to any public school and try to say something that is even accommodating of lust).

For years the United States Government has been providing the security force to keep the oil flowing. This cost has been external to the transactions. That is to say, if we had to pay at the pump for the oil companies to protect their own foreign interests, then the price of gas would have climbed sooner and alternatives to petroleum based agriculture and urban planning would have responded to market forces.

Instead we subsidize the oil industry with military forces and foreign policy expenditures, and have protected both the oil and auto industries from alternatives.

I have no evidence of price fixing. But nobody has looked for it either. The same conditions that Enron set out to create in the electricity markets have serendipitously befallen the oil markets. Enron didn't get caught because someone was watching what they were doing, they got caught because they ran out of money in short-term cash flow and that resulted in an inspection of the books and insiders squealing like rats looking to cut a deal.

The lesson of Enron was that one crooked corporation was capable of buying every last politician, and their opponents.

[Simon]

Well, I typed out a long response, but I lost it all when I hit backspace when the text window wasn't highlighted. Anyway, the heart of it was that this (http://www.ftc.gov/reports/gasprices05/050705gaspricesrpt.pdf) proves you're wrong.

"In no other industry does the FTC maintain a price monitoring project such as its project to monitor retail gasoline and diesel prices... The vast majority of the FTC's investigations have revealed market factors to be the primary drivers of both price increases and price spikes... The World Price of Crude Oil Is the Most Important Factor in the Price of Gasoline. Over the Last 20 Years, Changes in Crude Oil Prices Have Explained 85 Percent of the Changes in the Price of Gasoline in the U.S."

You were wrong when you claimed price fixing was a problem in the gas industry, you were wrong when you claimed no one investigates it, and you apparently didn't even do superficial research before making either claim.

[Gomezticator]

Thanks, Simon. I get a little tired of hearing that baseless argument all the time and appreciate some facts that refute it.

Again, the more gas WE USE, the more value petroleum has and the more the owners of said petroleum (OPEC) need to charge for it. This idea of gas companies gouging consumers is a red herring to the real culprit, which is our own excessive usage of fuel and our motor vehicles. Read Eli Sanders' article (http://www.thestranger.com/seattle/Content?oid=22834) in this week's Stranger about the excessive fuel usage of pleasure boats.

Hate the prices? They're only going to go up. Quit driving if you can't take paying for it.

[Lucius Bolivar]

There's always biodiesel.