Obama goes back to Bush playbook and declares war on “price gouging” oil companies

"I’m concerned about higher gasoline prices. The government has the responsibility to make sure that we watch very carefully and investigate possible price-gouging, and we will do just that." — George W. Bush, 4/17/2006

Congress is vowing to take actions that it believes will reverse runaway crude and gasoline prices. Oil rose above $136 a barrel on Monday – more than double what it cost a year ago – and gas hovered around $4.07 a gallon.” – CNN, 6/24/2008

"We are going to make sure that nobody is taking advantage of American consumers for their own short-term gain." – Barack Obama, 4/20/2011

gasprices21Whenever the price of gas spikes the call goes out from Washington to investigate price gouging. Unfortunately, this leads to one of the great intellectual challenges of capitalism: Defining price gouging. Problem is no one can separate “taking advantage of consumers for short-term gain” from what is usually called profit taking.

To quote Collateral Damage Sr.: "In a society that has a free market fetish, if not a religion, what is price gouging? Is nine percent profit gouging the price? Or 15 or 50 percent? At what price point does profit change into gouged profit?"

Well, here are a few samples from people who have tried to split that particular hair.

First, former Rep. Bart Stupak, (D-Mich), from 2006:

When we were doing the Energy Policy Act last fall, in the town of Midland, right by my district there, gas went up 90 cents in one day. Now, is that not gouging?

If you take a look at it, from September 2004 until September 2005, refineries have increased their prices 255 percent. Isn’t that gouging?

I mean, I think we all know what gouging is. What we need is a federal standard so we can hold the oil companies’ feet to the fire and make sure we know what factor goes into every gallon of gasoline, so at least the American public will have some transparency and get a fair shake on what goes into a price of a gallon of gasoline.”

Next up:

New York State law prohibits price gouging during a state of emergency. The law specifically provides that, in order to prevent any party from taking unfair advantage of consumers during an abnormal disruption of the market, the charging of "unconscionably excessive" prices is prohibited.”

I like that one the best because it is by the former Attorney General/Governor of New York, Eliot Spitzer. Did he wonder about price gouging as he paid all those ladies of negotiable morality?

And finally this one from the very accurately named blog, Neutral Source:

There is no objective definition. Economists–who specialize in price theory and the behavior of markets and can study these things ad nauseum–have no definition for it, either. In fact, economists have avoided the term as if it were a social disease. A review of all the microeconomics textbooks on Neutral Source’s bookshelf reveals that none have as much as an index entry.”

Price gouging, like porn, is in the eye of the beholder. One thing everyone agrees on about it is that it is always committed by someone else.

For businesses price gouging is "when my competitor gets away with charging more than I thought to charge."

For the general public, price gouging is when a company that I don’t work for or have investments in is charging me too much. Profits are when my company is making enough money to not lay me off.

Actually addressing this problem would involve fundamental changes in our system that are much needed but which no one is willing to actually contemplate. Instead we will get more of this Kabuki Theater. The next act will come when the oil companies declare their quarterly earnings. This will be followed by bi-partisan denunciation of  their “excessive profits” and a number of bills will be proposed which will go nowhere.  Then the oil companies will attempt some sort of PR move to show that they are really nice guys and that will be that.

 

Krispy Kreme finds “depression era” price for coffee doesn’t pay

Last fall Krispy Kreme tried to grab some market share in the Northwest by rolling back coffee prices to “Depression era” levels. The “New Deal” marketing effort cut prices from for a small from $1.45 to a nickel, mediums went from $1.65 to a dime and larges from $1.75 to 15 cents. It was A) a nice thing to do in this economy and B) KK figured that it made fiscal sense for them because they make most of their money from donuts not java.

11515Drink-Coffee-Poster At first things went well, very well. In March sales of Lutheran gasoline (mocha) were up 229 percent over pre-price cut. Melissa Allison, who covers coffee for the Seattle Times (that’s gotta be like having the philosophy beat in ancient Athens), says cheap joe may not be enough. Turns out people weren’t buying the baked goods needed.

Today Gerard Centioli, CEO of Icon LLC in Seattle, which co-owns (with Krispy Kreme) 12 stores in the Northwest and Hawaii, tells Allison (does she ever get confused about which of her names goes first?) that two of the stores now require you buy something baked in order to get the coffee deal.

"They were experiencing a level of coffee-only purchases which will cause us to either require a purchase or discontinue the program. If the test becomes permanent, we will develop marketing materials to communicate the change to our guests.”

Still a heck of a deal. Now all we need is a good five cent cigar to go with it.

Why houses are losing their value to society as well as investors

Prof. Biggest Big Brother CollateralDamage has written (and the Washington Post has published) a fine article about how the value of houses has declined in ways beyond the price tag.

But the experience of owning a home, that cherished ideal of Americans for two centuries, no longer engendered the regularity, good conduct and economy the Victorians had thought it would. Outright greed took hold. Ordinary homebuyers proudly spoke of “flipping” houses: buying a home — maybe not even living in it — and soon thereafter selling it for the quick profit. Others borrowed against their homes — to finance still other purchases. As Presidents Bill Clinton and George W. Bush urged higher homeownership rates, real estate operators pushed subprime loans, no-document loans and hidden adjustable rates on the gullible and the avaricious. Virtually anybody could and had to own a home.

He stays away from snarky opinion and actually includes facts and stuff like that. I hope this sort of thing doesn’t gain popularity among the public.