OnPoint by Keith Ng

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OnPoint: On Price Gouging

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  • Sacha, in reply to Ben Winters,

    and to then target cash assistance for those in genuine need and affected by that price increase?

    Funny how that part is usually not done, eh.

    The objections to Crampton's neolib wet dream have been more than adequately canvassed above. For you to say: "for each litre of petrol not used on help, the gas will, on average, be redistributed to other uses of even higher value" just shows you haven't been paying attention. Higher value does not always equal what rich folk can afford to spend money on, in the real world let alone one in crisis.

    Ak • Since May 2008 • 16771 posts Report Reply

  • Sacha, in reply to Dismal Soyanz,

    You do know that not all economists are indentured to the government, right?

    Uh, I believe you raised 'the electorate' specifically. I'm open to politics meaning other stakeholders too and interests larger than that of the state. It's often shareholders we hear about rather than citizens anyway.

    Ak • Since May 2008 • 16771 posts Report Reply

  • Dismal Soyanz, in reply to Ben Winters,

    Practically speaking, how is that information going to be disseminated? There are no phone lines/limited mobile coverage, no power, no internet access.

    And just exactly how are going to arbitrage? You can't arbitrage between petrol stations unless you own a minitanker and the station owner trusts your dodgy scrawled note that this is the real mccoy.

    Wellington • Since Nov 2010 • 294 posts Report Reply

  • Ben Winters, in reply to Dismal Soyanz,

    Dismal

    If you need to get across town to check on your family, you will do it, whatever the cost.

    I agree - but you might not do it in a car if petrol is very costly - you might be more inclined to hitch a ride, or borrow a bike, or walk an hour. But you wouldn't walk 2 hours. The advantage of using price is that people will self-select in their withdrawal from the market up to the point where demand and supply meet.

    The alternative is that this withdrawal is via willingness to queue or by top down government fiat - and the essential argument here is basically Hayekian: that the pricing system will do a better job on average of selecting the more from the less needy because it uses information about time and place better than queues and charity or government officials can. This process is, to me, the core of the argument, but it is lost in arguments that use words like gouging. When petrol is scarce we want people who can walk or hitch a ride to walk or hitch a ride, so that people in need get the key resource. Pricing helps find them.

    Auckland • Since Feb 2011 • 14 posts Report Reply

  • Sacha, in reply to Ben Winters,

    You really don't have the faintest idea do you of the difference between want and need; of can and must. Maybe come back when you've done some living beyond a textbook or an Act party branch meeting.

    Ak • Since May 2008 • 16771 posts Report Reply

  • Ben Winters, in reply to Dismal Soyanz,

    Dismal

    Practically speaking, how is that information going to be disseminated? There are no phone lines/limited mobile coverage, no power, no internet access.

    Mobile phones worked throughout the crisis in many parts of Christchurch, if spottily.

    And just exactly how are going to arbitrage? You can’t arbitrage between petrol stations unless you own a minitanker and the station owner trusts your dodgy scrawled note that this is the real mccoy.

    What is so hard to believe about people who have mobile tankers using them in a crisis to buy petrol in Kaikoura or Ashburton or Dunedin and driving them into Christchurch? I don't personally own one, but they exist. Is it really so hard to believe willing buyer cannot find willing seller in those places?

    Auckland • Since Feb 2011 • 14 posts Report Reply

  • Ben Winters, in reply to Sacha,

    You really don’t have the faintest idea do you of the difference between want and need; of can and must. Maybe come back when you’ve done some living beyond a textbook or an Act party branch meeting.

    Oh I see. You're the type to get personal and call names.

    Auckland • Since Feb 2011 • 14 posts Report Reply

  • Terence W,

    There is nothing irrational about hording in shortage – quite the opposite. If people anticipate future shortage then hording now is an obvious response.

    Ok - I'm not completely up on the news here. But isn't the fact of the matter that petrol isn't actually going to run out? and that within a couple of days supplies will be flowing again? If this is the case, then - assuming people are aware of these facts - hording strikes me as irrational behavior. And, just to be clear, in saying this I'm not saying that people are bad for behaving irrationally; I'm sure I would too under the circumstances.

    YesWeCanberra • Since Mar 2008 • 41 posts Report Reply

  • Dismal Soyanz, in reply to Ben Winters,

    Over short distances (and especially if there the road is stuffed), walking is the obvious choice. But over longer distances, I am pretty sure that I would pay whatever it cost (up to whatever cash I had on me). And this is where we part company. You say people will self-select. I would contend that the self-selection becomes extremely narrow.

    If the only difference between me and my neighbour both wanting to get across town to check on family is the size of our wallets, then obviously the richer will win out. That will not select the most needy.

    The only way of justifying the pricing argument is to say that it would cut down on inessential travel. That I agree it would do. But the extent to which it would have to rise to deter the many who believe that their travel is essential to help others or even simply to leave would need to be much more than double methinks.

    Wellington • Since Nov 2010 • 294 posts Report Reply

  • Ben Winters, in reply to Sacha,

    Sacha I actually specifically addressed the point about people in genuine need - far better to target assistance to them so that they can get the resource they need, than to misprice the resource and produce a shortage. Surely you can understand the possibility that those in genuine need may be more, not less, likely to go without when supplies have completely run out?

    Auckland • Since Feb 2011 • 14 posts Report Reply

  • BenWilson, in reply to Keith Ng,

    But the *source* of that inequality isn't in the pricing of goods, but in the income distribution.

    That's not the only source of inequality. It could come down to who is lucky enough to get to the shop first.

    Auckland • Since Nov 2006 • 8592 posts Report Reply

  • Sacha, in reply to Ben Winters,

    You're the type to get personal and call names.

    I'm the type who gets bored of arguing the indefensible. The notion of setting up an elaborate system to juggle petrol supplies around an earthquake-stricken region and somehow "target assistance" to the needy - purely to preserve an ideological insistence that markets are best - is beyond nutty. You're wasting oxygen.

    Ak • Since May 2008 • 16771 posts Report Reply

  • Dismal Soyanz, in reply to Ben Winters,

    Mobile phones worked throughout the crisis in many parts of Christchurch, if spottily.

    Seriously, you are suggesting that people would use their battery power on finding out where the cheapest petrol is?

    What is so hard to believe about people who have mobile tankers using them in a crisis to buy petrol in Kaikoura or Ashburton or Dunedin and driving them into Christchurch? I don’t personally own one, but they exist. Is it really so hard to believe willing buyer cannot find willing seller in those places?

    You are assuming that the arbitrageurs also have knowledge about where the high price locations are; that they are confident that they can get into those areas (safely); and that potential buyer has access to the relevant information as to quality of the product. Sounds like a big ask to me.

    Wellington • Since Nov 2010 • 294 posts Report Reply

  • Sacha, in reply to Dismal Soyanz,

    suggesting that people would use their battery power on finding out where the cheapest petrol is

    I'm sure it would all be worth it so that Hayek, Rand, Brash and others of our betters could rest easier knowing that the invisible hand is shafting the right folk unimpeded.

    Ak • Since May 2008 • 16771 posts Report Reply

  • Russell Brown, in reply to Ben Winters,

    What is so hard to believe about people who have mobile tankers using them in a crisis to buy petrol in Kaikoura or Ashburton or Dunedin and driving them into Christchurch? I don’t personally own one, but they exist. Is it really so hard to believe willing buyer cannot find willing seller in those places?

    Find where, exactly? Not at branded service stations, one would think. Perhaps at the local primary school? How many people actually have mobile tankers? How many would wish to act in this way?

    If it were so easy to just get in petrol from Ashburton, why wouldn’t the large companies who do that every day just, y’know, do that? Even if they could only do that tomorrow, rather than today, and your fantasy freelancer can do it half a day quicker, does that leave a viable window of opportunity for your freelancer to find customers willing to pay his price, and sell all his stock?

    I’m glad you came along Ben, for the sake of argument. But your argument seems to exist solely on a Hayekian fantasy plane.

    Auckland • Since Nov 2006 • 18968 posts Report Reply

  • Dismal Soyanz,

    Doh.

    I just realised. The minitanker availability is a non-issue because

    Hoarders = arbitrageurs

    Problem solved.

    Wellington • Since Nov 2010 • 294 posts Report Reply

  • Keir Leslie,

    Why not? An arbitrageur need know only two things: a) the going rate for petrol in Christchurch, and b) the rate in a nearby town. These are discoverable even in a crisis. The arbitrageur would also need the means to get petrol from A to B. Why can’t supply start arriving within an hour, or a day, of the quake from someone who happens to have the necessary equipment? Surely you’re not arguing supply isn’t relevant to solving a shortage?

    Right. Let's say we buy 30,000 (that's a tanker about) litres of petrol in Timaru for $2, right. Oh, wait. It's not that easy, is it? You probably can't just buy 30,000 litres of petrol in Timaru if there's a shortage in Christchurch and the fuel companies are trying to get petrol there as fast as possible. I also doubt that BP sells to trade. So that's the first problem. The second problem is transport. You have to comply with the various regulations on petrol transportation, and I bet you that if you fuck up a hazardous goods shipment on SH1 at the moment you will get your head to play with. Then you've got to sell it safely and effectively, again complying with the various safety regulations, which, yeah, won't be too easy.

    Honestly, wtf?

    Since Jul 2008 • 1376 posts Report Reply

  • Matthew Poole, in reply to Keir Leslie,

    The second problem is transport. You have to comply with the various regulations on petrol transportation

    Actually, that's not a terribly onerous limitation. Petrol is not a highly-controlled transportable substance. Had I renewed it (I didn't because of cost and a lack of need), my one-day 'D' endorsement course and subsequent endorsement on my licence would've allowed me to transport any quantity of petrol up to the weight restrictions of my licence provided the transporting vehicle was appropriately placarded and could safely contain and segregate the petrol from anything else I might've been carrying. Hell, I could legally fill a small truck with 20L jerry cans of petrol and transport it that way, again provided there was suitable placarding on the truck.
    The options for transport are numerous, the limitation is more supply than anything else. As observed, good luck finding a commercial quantity of petrol available for purchase.

    The pit from whence crawl… • Since Mar 2007 • 3909 posts Report Reply

  • Ben Winters, in reply to Keir Leslie,

    I prefer a can-do attitude. Maybe you are right but I reject the general proposition that there is no way supply can be arranged at short notice by the enterprising. An argument for decentralised decisionmaking is that new ideas can unexpectedly emerge. The example works for 1000 litre loads. Or 100 litre loads as well.

    Why is it so hard to believe people can get gasoline from where it is cheap to where it is expensive at short notice?

    I don't know what the regs are. Other regs seem to be suspended under crisis, Orion got its resource consent for a new line in 30 minutes. I am not denying regs and safety are important but it doesn't change the underlying proposition that higher prices will encourage people to work out ways to solve a shortage. If the regs really turn out to be insurmountable, then - fine - only the demand side argument is left for the benefit of higher prices.

    Auckland • Since Feb 2011 • 14 posts Report Reply

  • Keir Leslie,

    I prefer a can-do attitude. Maybe you are right but I reject the general proposition that there is no way supply can be arranged at short notice by the enterprising. An argument for decentralised decisionmaking is that new ideas can unexpectedly emerge. The example works for 1000 litre loads. Or 100 litre loads as well.

    In other words, this is an article of faith. There's no empirical basis for this belief, just a nebulous preference.

    Since Jul 2008 • 1376 posts Report Reply

  • Ben Winters, in reply to Dismal Soyanz,

    Seriously, you are suggesting that people would use their battery power on finding out where the cheapest petrol is?

    You being disingenuous.

    No I'm not suggesting that. As I said, gasoline coming from Kaikoura to Christchurch, not Merivale to Dallington, or whatever. If prices spike, no phone calls are required - doubtless the media will report $4 petrol. But if it takes a phone call or two to arrange hundreds or thousands of litres of new supply of the precious stuff, it is a good deal.

    This is not complicated.

    Auckland • Since Feb 2011 • 14 posts Report Reply

  • Ben Winters, in reply to Keir Leslie,

    Keir there are something like 700,000 people in the South Island. The proposition that <i>none</i> of them have the means to move supplies of petrol an hour down the road at short notice is self evidently ludicrous.

    I can assure you there is no religion that has as an article the ability of people to move large quantities of flammable liquid at short notice.

    Auckland • Since Feb 2011 • 14 posts Report Reply

  • giovanni tiso, in reply to Russell Brown,

    Hayekian fantasy plane

    T-shirt.

    Wellington • Since Jun 2007 • 7386 posts Report Reply

  • BenWilson, in reply to Ben Winters,

    The proposition that <i>none</i> of them have the means to move supplies of petrol an hour down the road at short notice is self evidently ludicrous.

    Yes, there are many petrol companies operating there, and getting petrol to Christchurch on short notice is exactly what they are doing. They already have all the infrastructure set up, every aspect of the business worked out, all the contacts etc.

    Yes, probably some entrepreneurs could get more gas down there. It would have fuck-all impact, the distribution of gas is big business, with economies of scale. Gas stations are set up to crank large numbers of customers through efficiently. They're everywhere.

    The main thing causing queues was not rationing. It was a massive spike in demand. The rationing simply meant more people could get some gas. If they were prepared to queue for hours, that meant they really wanted it.

    Auckland • Since Nov 2006 • 8592 posts Report Reply

  • Ben Winters, in reply to Russell Brown,

    I’m glad you came along Ben, for the sake of argument. But your argument seems to exist solely on a Hayekian fantasy plane

    Russell, this is not difficult stuff. As you are no doubt aware another key resource in a disaster is ice. A couple of years ago a hurricane hit the east coast of the US, some kids bought 500 bags of ice in disaster-free Goldsboro and drive an hour to Raleigh, and sold it for a hefty mark up.

    http://www.econlib.org/library/Columns/y2007/Mungergouging.html

    (They were duly arrested and charged with gouging).

    Now petrol is more difficult than ice. But, really, can nobody anywhere solve the necessary problems at short notice? I wouldn't bet on it. Even if in this particular case they can't, the general proposition that higher prices encourage supply, in and outside a crisis, really shouldn't be that hard to see.

    Auckland • Since Feb 2011 • 14 posts Report Reply

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