Friday, December 02, 2005

Let the Market Work: Gas is $2.129 Per Gallon

This past Wednesday night we had an opportunity to drive around the northwest part of Milwaukee, and found gas selling at $2.129 per gallon (for basic unleaded).

This is down sharply from highs well above $3.00 per gallon in the wake of Hurricane Katrina.

This is what happens when you let markets work. Some “exogenous shock” disrupts supply, and the price goes up. But then the system adapts. People use less gas in response to the high price, and suppliers have a huge incentive to get refineries back online so that they can sell at the higher price — at least for as long as it lasts.

Anti-business liberals are quick to charge “manipulation” and “price-gouging,” but if the oil companies could manipulate prices to above $3.00 per gallon, why don’t they simply continue to do so?

It’s inherent in a free market that if you have a stock of something, and the price spikes sharply upward, you get to make a very large profit on what you had in stock. This happened to the oil companies.

But it equally follows that if you have a stock of something, and the price goes down, you are going to lose money on your stock — or at least realize less than the normal profit you need to stay in business.

Let’s see how much attention the media give to the radically reduced oil company profits that we are going to see.

Ironically, a lot of this bitching about oil company profits comes from liberal yuppies living in places like Milwaukee’s East Side. They bought houses 25 or 30 years ago for (say) 50 or 60 thousand dollars, and those dwellings are now worth two or three hundred thousand dollars.

When they sell, are they going to want a “fair” profit or a “normal” profit?

Are they going to take into account the fact that many people can’t “afford” to pay two or three hundred thousand dollars for a house?

No, they are going to sell for what the market will bear.

And they are going to continue to bash business for doing the exact same thing.


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