Originally Posted by mikesouth

this is what my good friend neal boortz had to say about it and guess what
He is DEAD right

When you hear the words "price gouging" uttered by somebody .. even if that somebody is the governor of a state .. you know that you are listening to someone who (a) has a limited understanding of the basics of free-market economics; or, (b) is a politician more interested in pandering to ignorance than in leading.

That describes Atlanta yesterday.

Yesterday afternoon I drove to the WSB studios to participate in a joint AM 750 WSB / Channel 2 fund raising venture. On the way I saw that cars were lined up on the streets waiting to get into gas stations. The panic was on. Word had spread throughout the metro area that there was going to be a fuel shortage. Everyone, it seems, was filling up everything they had that could hold gasoline.

The panic, of course, created that shortage that previously was only a rumor. Even when there is no shortage of gasoline, there is simply no possible way to keep the underground tanks at every service station full if everyone is going to try to fill up their car at the same time. There simply aren't enough tanker trucks on the road to do the job. When rumors create a panic and creates a demand that the marketplace can't meet, it's time for the mechanisms of the free market to take control.

There has never in the history of the world been a better way to allocate scarce resources than to simply allow the law of supply and demand to take its course. Whenever government steps in to interfere, shortages occur and chaos often reigns.

The way to handle the gas panic in Atlanta yesterday was to RAISE PRICES! It's not price gouging. It's the law of supply and demand at work. Today there will be people in Atlanta who might not be able to drive their own cars to work, to doctors appointments or to buy groceries who would otherwise be driving if gas stations throughout Atlanta had raised their prices in response to the increased demand and limited supply.

Let me explain:

As the panic spread, and the demand increased, the prices at the pumps were pretty much unchanged ... for a while. As a result people decided to top off every vehicle they owned .. .no matter how much gas remained in the tank. The predictable result was that stations soon ran out of fuel. The word spread, and more people hit the streets to fill more cars. Today people in Atlanta will find that many gas stations still have their pumps shut down. Throughout the night tanker trucks were busy trying to replenish the stations, but there simply aren't enough trucks to meet this demand. Another supply problem.

So .. what was the solution? For the politician the solution may have been to pander to the electorate by talking about imposing fines on gas station operators who "overcharge", whatever that means, consumers. The real solution, though, was to increase prices in response to the increased demand and limited supply. This is what the uninformed and the political class call "price gouging."

Let's take a look at what would have happened if the free market had been allowed to do what it has always done so well -- when left alone -- and that is to allocate scarce resources. If gas prices had risen strongly yesterday (as they in fact did at some stations) then people would have given a second thought to filling every car they own. If the prices were, say, $5 a gallon, consumers would have purchased what they thought they might need to get through the next few days, and would have started making plans for conservation., Certainly few people would have been shuttling back and forth filling up every car they owned. As a result, the gas that one consumer didn't pump into his second or third car because the price was so high would have been gas available for someone to put into the car they actually needed to get to work.
Keeping the prices artificially low encouraged over-consumption and hoarding.

The truth is that when Georgia's Governor Sonny Perdue signed an executive order late yesterday afternoon threatening heavy fines on gasoline retailers who, as he said "overcharge" customers, he became a part of the problem and not a part of the solution. His statements were a signal to the people that there was a crisis in gasoline supplies, and to get out there and fill up everything they could while he held the prices down. Today Atlanta drivers will experience the results of the governor's actions.

This whole price gouging nonsense was also front and center last year when four hurricanes ripped through Florida. Entrepreneurs abandoned plans to rush needed supplies and commodities to South Florida when politicians started pandering to voters with dire threats of fines and even jail time for evil price gougers. The marketplace simply wasn't allowed to respond properly to increased demand .. and shortages resulted.

Here's an example I used yesterday. Hotel and motel rooms. In the aftermath of the hurricane -- especially Hurricane Charley -- there was a huge demand for rooms for displaced hurricane victims. So, here come the politicians with their laws restricting what motel owners could charge for rooms. The result was that fewer families could find a place to stay. Here's why: A family of four arrives seeks shelter at a hotel where rooms rates are being held down by anti-price gouging laws. They decide to get two rooms when one would do. One room for mom and dad, the adjoining room for the children. Along comes the second family of four, only to find that there are no more rooms. Sorry, out of luck. Now, if prices had been allowed to rise with the demand that first family might have decided to make do with one room instead of two. That would have left a room available for the next family to arrive.

This is a problem borne of economic ignorance. Our hideous government schools do a pathetic job of teaching the very basics of free market economics. The ignorance of the public is then exploited by politicians for votes and support.

And thus it will ever be.