Kill it Dead

Why Waxman-Markey is an atrocious idea.

Gas, Hurricanes and Managing your Inventory

This is a marvelous post from Tennessee blogger Rich Hailey about reports of spiking gas prices in the path--and areas surrounding it--of Hurricane Ike. It's simple econ 101 but most people don't know it so they don't get it:

It's been more than a few hours, and shortages are already here.

So the price of a gallon of gas is skyrocketing, even at stations, like Pilot, that have enough gas to get through the interruption without going dry. So why are they raising their prices? Aren't they gouging?

Nope. If you've been out in Knoxville at all today, you've seen long lines of cars at gas stations. You've seen people filling up cars, trucks, motorcycles, lawnmowers and gas cans. They are in a panic mode, and they're buying more gas than usual. Even though Pilot has enough to get through the crisis at normal levels of sales, there's no way they can sustain sales at the rate they are going. So what do they do? They raise prices. By raising prices, they discourage people with brains from buying more gas than they need. They discourage people from driving more than they need to. In effect, they are encouraging conservation by using market forces rather than governmental coercion.

And it will work.

Consider the opposite case, where gas prices remain low, and everybody fills every container they can get their hands on with gas, and the stations run dry for the next three days. What happens when an ambulance needs to gas up? What happens when a fire truck needs fueling? What happens when you have an emergency and you need fuel but can't get any because everybody and his brother is hoarding it?

There are two ways to ration a short supply of a commodity. You allow the market to price it accordingly, and those who really need it will buy it, or you let the government come in and set the price. As a small government supporter, I favor the former. We're still dealing with the fallout of Nixon's wage and price controls from 40 years ago.

Anyway, that's what happened. Bulk storage facilities were acting to minimize the price of fuel and got caught short when the supply was interrupted. Barring major damage from Ike, supplies should be flowing again in a couple of days, and prices will resume their freefall.

The comments, for the most part underscore the basic point well. Something worth noting is this as it refers to 'motive':

I follow your explaination up to a point and the point is when you start ascribing altruistic motives to the gas companies - like helping us to conserve and saving enough gas for the ambulances and fire trucks. They just got the opportunity to sell their product substantially over cost and they pounced on it.

I look forward to the day that some technological advance is announced and the gas companies realize they can't sell all the product that they have on hand.

Gas station owners aren't acting altruistically, no. They are exhibiting the first and most profound of Adam Smith's observations: we directly benefit from the choices of others made in their own self-interests.

In this instance, the gas station owner has raised prices in anticipation of a supply shortage, in part at least, to maintain inventory. That act discourages what Hailey rightly describes as consumers engaging in "buying more gas than they need" and ultimately the more rational choice of conservation.

Am I living in the 80's?

Do we still subsidize corn growers out the wazoo? Or did I fall asleep and wake up twenty-years later to find there just isn't enough corn to go around?:

A recent study conducted by the Center for Agricultural and Rural Development at Iowa State University (which receives funding from grocery manufacturers and livestock producers) reported that U.S. ethanol production could consume more than half of U.S. corn, wheat and coarse grains by 2012, driving up food prices and causing shortages. The study estimates that booming ethanol production has already raised U.S. food prices by $47 per person annually. In Mexico, protests have already erupted over the high price of corn tortillas, a staple food in the local diet.

When is a Presidential Candidate an Idiot?

When an idiot is running for President. Or, when his name is John Edwards. Much like Hugo did earlier in the week, Edwards proves his lack-of economic sense with these comments from Thursday:

Democratic presidential hopeful John Edwards says a wave of mergers in the oil industry should be investigated by the Justice Department to see what impact they have had on soaring gasoline prices.

During a planned campaign stop Thursday in Silicon Valley, Edwards planned to berate the oil industry for "anticompetitive actions" and outline an energy plan he says would reduce oil imports "and get us on a path to be virtually petroleum-free within a generation."

"Vertically integrated companies like Exxon Mobil own every step of the production process - from extraction to refining to sale at the pump, enabling them to foreclose competition," says an outline of Edward's energy plan provided to The Associated Press by his campaign.

Nincompoop...Oil companies margins haven't changed much at all over the years. If anything, they've shrunk some. Yet apparently oil companies are just setting prices arbitrarily with no regard for the market.

Yeah, right.

I didn't think much of Edwards in the '04 campaign--he came across as too much of a slick-talking empty suit and his but one uneventful term in the Senate did nothing to dispel the sense that he didn't know enough to handle the job. Stupid stunts like this one only underscore that same sense three years later.

Perhaps Bob Shrum is on to something...

A Broken Record

I keep saying it and nobody cares. For a second time in a matter of months, Big Oil has said it:

“It is true that gasoline prices move with oil prices, but ... demand continues to go up. Even with gas prices over $3 per gallon, demand continues to go up. That's really quite surprising,” James Mulva, chairman and CEO of Houston-based ConocoPhillips, said during an exclusive interview on TODAY.

“The issue is providing supply. We are running our refineries at capacity ...

That of course is not all he said, though it is the salient point.

In an effort to quell the rumours before they start, all I can say about the real possibility raised by the near identical nature of our rhetoric, that I am in fact James Mulva is this...you won't see us together at parties!

Let me Cry for You

Gas prices jumped more than 18 cents over the past two weeks to a national average of $2.79 a gallon of self-serve regular, a national survey said Sunday.

Let me cry for you...gas is currently $3.43 at it's most expensive spot in town and has been over $3.00 a gallon for weeks.