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09/14/01: Excoriator, also
Posted by: grundle2600@hotmail.com (grundle)
"You don't NEED a freakin' Superbowl ticket. You NEED food and shelter. You will DIE without food."
Absolutely.
Which is why, when price controls on tickets (in the form of anti-scalping laws) cause a shortage of tickets, then no one will suffer any terrible tragedy from it. But when price controls cause a shortage of food, people can die from starvation. Thus, the more important something is, the more important it is that we don't have price controls on it.
Here are a couple real world examples of price controls causing a shortage of food. You can find plenty of others if you do a google search.
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http://www.ocregister.com/commentary/columns/seipcon060301.s html
The American Revolution.
In 1777,
Pennsylvania froze commodities used
by George Washington's continental army to try to help the
troops as well as the local population. "The prices of
uncontrolled
goods, mostly imported, rose to record heights," the
Heritage book says. "Most farmers kept back their produce,
refusing to
sell at what they regarded as an unfair price. Some who had
large families to take care of even secretly sold their food
to the
British who paid in gold."
The result was that Washington's continentals "nearly starved to death" at Valley Forge. The Continental Congress then adopted a resolution, which read, "[R]esolved, that it will be recommended to the several states to repeal or suspend all laws or resolutions within the said states respectively limiting, regulating or restraining the Price of any Article, Manufacture or Commodity."
When the controls were removed, prices soared to "80 times their pre-war level for a short period before settling down to a level just greater than the pre-war average, where they remained for the next decade," the Heritage authors write.
Washington's army then could buy provisions and won the War of Independence.
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http://www.cato.org/dailys/06-20-01.html
Early twentieth century economist Henry Bourne documented the effects of price controls on France in the years following the French Revolution, when city residents found it difficult to purchase grain. The grain shortages were not due to any agricultural problems; Bourne noted that 1793 France was a prosperous agricultural nation capable of feeding itself. Instead, the threat of famine was due to internal procurement and distribution problems created by the government. For example, agents for the city of Paris, the military, and the government competed with each other in trying to purchase grain. This created local shortages where none had existed before, and led to social unrest.
The city of Paris, in an effort to appease the public, decided to subsidize flour. This prompted bakers from neighboring towns to travel to Paris to purchase flour, creating even more shortages in the city.
The French Convention, which governed the nation at that time, tried to address the problem by establishing maximum prices for grain and instructing farmers to supply it to local markets. As one might expect, farmers did not cooperate with the new law. Markets were empty of grain; further shortages developed; official tallies of grain supplies failed to find and keep track of stocks; urban riots continued.
The Convention passed another law later in 1793 extending maximum prices to other essential supplies. Those price controls, in combination with government requisitioning and corruption, created chaos in the French economy. Merchants responded by reducing the quality of their goods and the black market blossomed, Bourne noted. “It was the honest merchant who became the victim of the law. His less scrupulous compeer refused to succumb. The butcher in weighing meats added more scraps than before…other shopkeepers sold second-rate goods at the maximum [price].... The common people complained that they were buying pear juice for wine, the oil of poppies for olive oil, ashes for pepper, and starch for sugar.”
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09/14/01: ouijum
Posted by: grundle2600@hotmail.com (grundle)
"the only flaw i see in your reasoning, is the fact that it assumes that people who can afford the higher prices will pay for whatever it is they want, even if they don't need it."
Some people would still buy it, and some won't. As the price goes higher and higher, more and more people will decide not to buy it.
"Whereas the people who can't afford it have to go without."
True.
But if the price control was in place, then the price of the good would be affordable, but the good itself would be unavailable. Low food prices are of no use if the store shelves are empty. Many African countries have legislated cheap food for their people, and the results have been disastorous.
"this doesn't mean
that prices will shrink, because if the gas station managers
(or whoever it is selling the product) see that people are
willing to
pay more for product X, they will leave prices where they
are."
The recent price spikes for gasoline were very short lived. As soon as people realzied that there was no real shortage, they were no longer willing to pay such high prices. Price spikes like that can never last long if there is no real reduction in supply. And competition between different suppliers also helps to keep prices down.
Remember in 1999, when gas was less than a dollar a gallon? That's because supplies at the time were especially high. Higher than normal supplies led to lower prices. Gas station owners weren't being "kind" or "generous." The only reason they charged such low prices was because of the supply/demand situation.
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09/15/01: Illinois_Stan
Posted by: grundle2600@hotmail.com (grundle)
I disagree with your idea entirely.
During times of crises, there are certain consumer good that are desperately needed. Higher prices will encourage businesses to get more of these items to sell to the people who need them.
Your idea will prevent this from happening. This will lead to shortages, and will only harm consumers.
I don't know if you read the various examples that I gave in my posts, or the articles that I posted. But it is apparent that you don't seem concerned at all about the negative effects that price controls have on people.
Your response is an emtotional one. You don't seem at all copncerned about the effects that price controls have in the real world.
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09/15/01: Excoriator
Posted by: grundle2600@hotmail.com (grundle)
I liked your criticism of a planned economy. It was nice to hear you say those things.
I disagree with your claim that we have "centralization of wealth" or a "monopoly" in these consumer items. For example, if there's a disaster area and lumber is needed, and the price of lumber skyrockets, then *many* people from all over the country will respond to the higher price by fillling up their trucks with lumber to take to where it's needed. Many of these people are just individual people operating on their own - a one man operation.
Prices communicate information. A higher price is like a a distress signal - "We need more of this particular thing. Send as many as possible."
Also, during disaster, the price spike will eventually lead to a price collapse. The higher price leads to increased supply. The increased supply will eventually lead to a lower price. These price spikes are usually very short lived, as was explained in the article on the American Revolution that I posted in thread 8.
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09/15/01: Parca, I'm very puzzled. Please explain.
Posted by: grundle2600@hotmail.com (grundle)
"grundle is merely worried about his wallet."
Wrong.
I don't own a business.
If there was some type of disaster in my city, I would be against price controls, because I want to make sure that the things that I need to buy will be available. And I would gladly pay a higher price, as opposed to having government price controls that caused the items to be unavailable.
I am very puzzled as to why you claim that my opposition to price controls is because I am "worried about my wallet." Please explain why you think that my opposition to price controls is based on me being "worried about my wallet." I am very curious to hear your explanation.
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09/15/01: Excoriator
Posted by: grundle2600@hotmail.com (grundle)
The number of forests that lumber can be harvested from is very high. The number of stores that sell lumber is very high. The number of suppliers and the number of sellers are both very high. It would be impossible for any one person or any one buisness to end up in possession of all of the lumber.
On top of that, there are also forests and lumber sellers in many other countries. If the price is high enough, the lumber can be shipped overnight from any country in the world.
There's no way that anyone could ever have a monopoly on lumber.
In addition to that, that are other materials that can be used as lumber substitutes. So even if someone did get a monopoly on lumber (which itself would be impossible), he'd still have to compete with these lumber substitutes.
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09/15/01: a general comment about this topic
Posted by: grundle2600@hotmail.com (grundle)
Those who claim that my concern here is money are mistaken. Money itself is simply a tool to make it so that we don't have to use the bartering system. And prices are simply a means of communicating information about supply and demand.
My concern here is not money. Instead, my concern here is making sure that in times of disaster, needed supplies will get sent to where they are needed as quickly as possible, and that people realize that scarce resources should not be wasted. That's what this is all about.
Money is simply a tool. Prices are simply a means of communicating information.
The real issue here is making sure that needed supplies get to where they are needed as quickly as possible, and to make sure that resources are put to their most efficient use.
I'm really amazed at some of the response in this thread, as well as in past threads on this subject, where people got angry and mad at me, as if I have somehow done something evil. I haven't. Instead, I'm simply explaining human behavior and the field of economics. The things that I have said in this thread are basically the same things that you'll find in just about any standard economics textbook. All I'm doing is communicating information.
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09/15/01: Nukemind
Posted by: grundle2600@hotmail.com (grundle)
"Grundle, surely you would concede that, at times, price controls can be useful?"
Yes, I can think of a few. For example, if people had to leave an area because of a coming hurricane, and the only way out was one private road, and there was no other road out, then yes, price controls would be useful. This is a situation where there's only one supplier. Also, since the supply of the good cannot be increased, price controls won't have any negative effect on supply. So yes, in this case, price controls would be a good idea. (Actually, even here, price controls could cause some harm. Super high prices would encourage people to car pool, which would reduce the chance of a traffic jam. If price controls encouraged people to drive one person per car, and this caused a traffic jam, then that could actually end up being harmful.)
"Also, where is the supply drying up? The flow of oil hasn't been impacted by this."
Yes. You are correct.
That's why, in my original post, I said:
"When I first heard that people were paying $5 a gallon for gas a few days ago, I knew that this would be a very, very temporary thing, because there was no interruption in the supply of gas. People were falsely worried about there not being enough gas. These people panicked because they don't understand economics."
You said:
"Here in northern California
there needs to be rent control too. The market doesn't
dictate prices like you say Grundle. By that reasoning rents
here should
be dropping like flies. They aren't even moving that much.
Too much greed my friend is not a good thing and hurts
people more
than it helps."
I have commented on the housing situation in northern CA many, many times.
Look. Here's what's going on.
Houston, Texas is the only major U.S. city with no zoning laws. Developers there can build as much housing as they want.
During the early 1980s, there was a big oil boom, and lots of people moved to Houston. There was a big demand for housing.
The housing industry responded by building a huge amount of new housing. For example, during one year, 1982, they built 60,000 units of new housing.
Because of this, Houston had a huge supply of housing. Rental vacancies remained in the double digits for many years. Landlords were desperate to attract tenants. So the landlords kept their apartments in great shape, and they kept the rents low.
The result of this is that Houston has a very large supply of decent, affordable housing.
Northern Califrnia has the exact opposite situation. They have some of the toughest zoning laws, density destrictions, and anti-development laws anywhere in the U.S.
Let's say that a developer in northern California has a 10 acre plot of land. And he wants to build an apartment complex with 1,000 units of housing, to rent them out for $500 each.
But the zoning laws won't allow it. Instead, he's only allowed to build 20 units of housing, in the form of single family homes on one-half acre lots. Well, that keeps the supply of hosuing low. So the price for each of these houses may be a million dollars.
In fact, it's often happens that the government will not allow any housing at all to be built. Instead of building 1,000 apartment units, nothing gets built at all.
Every time any developer in northern California wants to build any new housing, there are always people who try to use zoning laws, desnity restricitons, anti-development laws, etc., to block the contruction. That's why housing in northern California is so expensive.
There are plenty of developers who would love to build lots and lots and lots of new housing in northern California, just as they did in Houston. This would drive prices down. But the government won't let the developers build the housing. So housing is very expensive in northern California.
Rent control makes rental housing affordable for those who are actually able to find it. But rent control also makes it a lot harder to find housing.
Let's say that there's 3 guys who want to rent an aprttment. And each of them can pay $600 a month rent.
Now, because of the restrictions on development, housing in northern California is scarce, so the rent is high. Let's say that there was an apartment whose rent would be $1,800 a month. So the 3 guys would share the apartment.
But now let's say that the apartment is rent controlled. The rent controlled rent is $600. So one of the guys rents it for $600. The other two guys now have nowhere to live.
In New York City, rent control has caused landlords to abandon thousands of apartment units. These buldngs are sitting on very valuable real estate, but rent control has made the buildings worthless.
Rent control also encourages people to hold on to apartments for long periods of time, even though it otherwise isn't the best place for them to live. Plenty of old people stay in the same rent controlled apartment for decades, simply because of the super low rent. Rent control is a great deal for people who already have an apartment. But it's a lousy deal for anyone who is trying to find an apartment.
Anyway, if the goal is to use the free narket to drive down housing prices in northern California, the way to do that is by increasing the supply. And that means reducing the number of regulations against the construciton of housing, and making the density restrictions less strict. The high price of housing is a signal to developers to build more housing. It's only because of government regulations that this housing is not getting built.
And here's something that I find especially interesting: the people who complain loudest about the lack of affordable housing in northern California are usually the same people who complain every time a developer tries to build new housing. These people get the governemnt to block the contruction, and then they complain about the lack of affordable housing. This is one of the most hypocrtiical things that exists within the left wing political movement.
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09/15/01: Illinois_Stan
Posted by: grundle2600@hotmail.com (grundle)
"Gee, I guess this will mess up the "information" aspect of price gouging, won't it, grundle?"
No.
There was no real shortage of gas. Instead, certain *specifc* gas stations had a shortage because people panicked, because they don't understand economics.
Since there was no real shortages, prices came back down very quickly.
And, in fact, the vast majority of gas stations never raised their prices in the first place.
Now, if every gas station had started charging $5 a gallon, and continued doing so for a long period of time, then this would indicate a real, genuine interruption in supplies.
If you really want to criticize someone, I suggest that you focus on the customers who panicked and thought that they had to buy gas right now.
By the way, the price that a gas station charges isn't just based on what it paid for the gas that it's selling now. Instead, it's also based on what the owner of the station thinks he will pay for his *next* gas. When he saw lots of people all suddenlty rushing to his station to buy gas, he thought that something bad was going to happen to his source of gas, and this likely caused him to think that his next wholesale purchase would be at a higher price. All of this is due to the people who panicked and all rushed in to buy gas. Demand went up, so prices also went up.
Demand at those particular gas stations skyrocketed, so the price at those particular gas stations also skyrocketed.
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09/15/01: Illinois_Stan, also
Posted by: grundle2600@hotmail.com (grundle)
At the vast majority of gas stations, there was no rush of customers piling in to buy gas. So prices never rose at these stations.
At a small number of gas stations, there was such a rush of customers. That's why these particular gas stations raised their prices. But once all these irrational customers filled up their tanks, there was no more rush, so prices at these stations went back down.
Also, remember in 1999, when gas was selling for less than a dollar per gallon? That's because supplies were higher than normal. Higher supplies led to lower prices.
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09/16/01: Illinois_Stan
Posted by: grundle2600@hotmail.com (grundle)
"The owner of at least one Citgo station was quoted in the local paper as refusing to raise his prices, even though his supplier suggested that he do so, because he did not want his customers to think that he was a price gouger."
"I think he did the right thing."
I understand why you feel that way.
I think that during times of crises, business owners who avoid raising prices do so because they are trying to promote goodwill, and I actually agree with that position, to a certain degree. But, I can also see the point of business owners who do raise their prices. Both sides have good arguments.
Also, I understand completely why liberals feel that business owners who jack up their prices are acting immorally.
When liberals support laws to outlaw "price gouging," it reflects their attempt to say to society: "We care about you. We will protect you. We won't let business owners take advantage of you." I understand their intents. The liberals definitely have good intentions.
However, I still believe that government policies that outlaw such price increases ultimately cause more harm than good.
Furthermore, I still believe that if a customer is willing to pay a higher price for something that he really wants, as opposed to not being able to obtain it due to government price controls, the customer should have the right to spend his money as he pleases.
I don't think that drugs and prostitution are necessarily moral, but I still think that they should be legal, and I am able to understand that governemnt attempts to outlaw them actually cause more harm than good. I hold the exact same opinion regarding "price gouging."
You know how water tends to flow to the lowest point? Well, consumer goods tend to flow to where the money is. Prices are a signal that tell the goods where to go, and how fast to go. When you order somethinbg from amazon.com, standard shipping takes several days. But if you want it faster, you have the option to pay extra money for faster delivery. During times of crises, higher prices help to direct the goods to where they are needed, as quickly as possible.
I understand why liberals want to outlaw "price gouging." I understand their point of view. I just happen to believe that such laws cause more harm than good.
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