ChipBeck Posted November 2, 2012 Report Share Posted November 2, 2012 Gentlemen, Well, wonder of wonders. After a natural disaster there is a severe gasoline shortage in New Jersey and New York. I am assuming here that most of our members have read my white paper on the reasons that gasoline prices are much higher than need be and supply disruptions are impossible to fix. The governor of New Jersey, Chris Christie, who surely knows better, has threatened to prosecute and jail any gas station operator who sells fuel at prices more than 10% higher than those that existed before this crisis. John Wayne once said that life is hard, and it's harder when you're stupid. Well Chris Christie is stupid, seriously stupid. With power out in many areas, tank farms damaged, two of the areas major refineries completely shut down, and with many service stations trying to keep their doors open and employees paid without any fuel to sell, the brain trust in that state capital thinks that an increase in prices more than 10% is price gouging and small businessmen guilty of that offense should be put in jail. The cost of doing business also skyrockets during a disaster but somehow those businesses are supposed to keep retail prices the same as when supplies are unlimited, transportation unfettered, and conditions are normal. Really?!?! Fuel is available and could be in the gas tanks of New Jersey and New York residents if it were not for the counterproductive posturing of politicians more interested in scoring political points by taking cheap shots and threatening the only people who can solve this problem. Like many areas of the country, New Jersey requires all service stations to sell a boutique blend of gasoline that is not used in surrounding areas and has made it illegal to sell any other type of gasoline. Both Gov. Christie and Barack Obama acknowledged this week that this requirement is one of the reasons that fuel is not being shipped into the affected areas and they both made pronouncements suspending the blend requirement. But as of right now there is no fuel flowing into the affected areas and it may take weeks for oil companies to receive written acknowledgment from all necessary governmental agencies before they will risk ruinous prosecution for the unforgivable crime of shipping the wrong blend of unleaded fuel into New Jersey. As they have previously in many areas of the country these idiotic boutique blend requirements put every area requiring them in serious jeopardy every time there is a supply disruption or natural disaster. It has happened time after time but our political leaders refuse to learn these obvious lessons of history. When these blend requirements are effectively killed by getting written acknowledgment into the hands of oil company distributors there still will not be any fuel flowing to the affected areas because of New Jersey's "Price Gouging" laws. The higher shipping rates necessary to lure supply trucks from other areas of the country in addition to a myriad of other higher costs that would be incurred in diverting fuel into these areas would certainly result in fuel prices exceeding New Jersey's 10% price increase cap. Tens of thousands of New Jersey residents would certainly rather pay $10 a gallon and be able to pull in and buy fuel right now and get on with their lives than sit in a line for six hours with a 5 gallon limit. But the state of New Jersey has made it illegal to ship higher cost fuel into the state. Without these moronic laws and Gov. Chris Christie's very public threatening of both oil companies and service station operators, Adam Smith's invisible hand would be well on its way to solving New Jersey's fuel shortage already. Every New Jersey resident willing to pay substantially higher prices from service station operators who took extraordinary steps to ship in high-cost fuel would not be sitting in the lines for cheaper fuel and thus would make it easier for everybody to buy gasoline. But when the market is prevented from working by elected officials who substitute their own political self-interest for the economic self-interest of business and the basic needs of their constituents, the results are predictably disastrous and that is what we see playing out today. The free market is the only system that will keep all products available at a price at all times, will allocate scarce resources in the most effective and efficient manner possible, quickly solve supply disruptions caused by accidents and natural disasters, and bring prices back down to normal levels as soon as possible. Any political interference in the market mechanism will make every situation much worse than it needs to be. I have dealt with supply disruptions that shut my fuel stations down for over a week. I sold the limited amount of fuel I had left at prices more than double what they had been before the disruption. When customers complained I told them that my cost of operations were not going down, that my property taxes were not being reduced, my employees still expected to be paid, State, County and City taxes still had to be paid, and I am expected to stay in business without any source of supply because of the idiotic actions of government regulatory agencies. Complain to them because I don't want to hear about it. The Arizona State Atty. General threatened to prosecute me for price gouging even though there is no price gouging law in Arizona. Imagine that. I was threatened with prosecution for breaking a law that does not exist. Talk about political posturing. Well, New Jersey does have a price gouging law and New Jersey residents are paying the price for that statutory stupidity. I suppose we genuinely do get the political leaders we deserve as all of these men and women were voted into office. There is no substitute for education and economics are no longer taught in our schools. There are only two ways to allocate scarce resources. 1-With a price or..... 2-With a line. If the market is allowed to work prices will rise high enough to reduce demand to match the supply and new supplies will flow into the effected area lured by those high prices. The shortage will quickly be eliminated and prices will start to fall back to normal levels. Those people willing and able to pay the price can buy the fuel they need, when they need it, without waiting. If the market is not allowed to work and prices are kept at below market rates using the coercive force of law, demand will greatly outstrip available supply and long lines will form resulting in a loss of productivity for the entire community. No new supplies will flow into the effected area because the cost of doing business there is higher, shipping costs are higher, logistics are more difficult, and after paying these higher costs the retail price dictated by those Price Gouging Laws would result in lower profits or more likely a loss. Now, only those people willing and able to stand in a line for hours can buy a limited amount of gasoline. Is that better??? The shortage will last much longer because new supplies are not drawn in by temporarily higher prices. Time is money and the overall cost of trying to keep prices artificially low is much higher than the cost of letting the market work. John Wayne was right. Life is hard. It's harder when you're stupid. If I've offended anybody here I'm sorry but my blood was literally boiling when I heard Gov. Christie in one breath threaten to prosecute any service station operator or fuel distributor who dared to let the market mechanism work, and then that crybaby whined and moaned about how badly New Jersey needed supplies of gasoline. How can a smart, articulate guy be so completely clueless. Chip Link to comment Share on other sites More sharing options...
David Hawkins Posted November 2, 2012 Report Share Posted November 2, 2012 Sorry man but Price Gouging is Price Gouging no matter how you slice it. If a Hurricane is coming, do you think that it is OK for Home Depot to double the Price of Ply Wood when you need it to board up your Windows? I applaud that Mayor. Link to comment Share on other sites More sharing options...
JeffJ Posted November 2, 2012 Report Share Posted November 2, 2012 Totally agree with Chip. It's not price gouging, it's supply and demand and the ability to get more supply to furnish the demand. My cousin is a truck driver who hauls fuel. He said there is no way in heck he would even make that trip right now for multiple reasons. One big one is personal safety, the other is the blend issue Chip discussed. They legally cannot get fuel in there right now until all the governmental crap is taken care of. And yes, there are much higher costs to get the fuel there right now due to the non functioning refineries. The costs would be increased for the trucks, but the service stations can't pay for the trucks because they cannot raise the prices of the fuel. I totally understand where Chip is coming from. The fuels shortage will continue for multiple weeks if the govt. does not pull their heads out of their tails. The US Govt just waived the Jones act which barred foreign flagged vessels for carrying fuel between US ports, so that should help. One of the pipelines has been able to start flowing fuel into the region from the Gulf Coast refineries, but this all still will not replace all the fuel that came from the two closed refineries in the north east. The price has to be allowed to increase somewhat to get the needed supply in there until the refineries can be repaired. Link to comment Share on other sites More sharing options...
clark17357 Posted November 2, 2012 Report Share Posted November 2, 2012 I, too, agree with Chip. His post speaks not only to how an economist would see it (how scarce resources should be allocated) but also to how a businessman sees it. If a fuel station's profit is based on pumping "x" gallons per day at "y" cents per gallon profit, you can see the businessman's dilemma when pumping "x-90%" a day. Chip is a good man who has been through more hardship than most of us and what he says is the hard truth. Jim Link to comment Share on other sites More sharing options...
twobjshelbys Posted November 2, 2012 Report Share Posted November 2, 2012 I think I posted Chip's original essay here a while ago. It's an important read Link to comment Share on other sites More sharing options...
Sherri Leicht Posted November 2, 2012 Report Share Posted November 2, 2012 Big reason for the "shortage"......no power to the refineries or the pumps Link to comment Share on other sites More sharing options...
David Hawkins Posted November 2, 2012 Report Share Posted November 2, 2012 Big reason for the "shortage"......no power to the refineries or the pumps and no way to get to many of the Stations to get them the Gas they need. Link to comment Share on other sites More sharing options...
IngotSilverSnake Posted November 3, 2012 Report Share Posted November 3, 2012 Price gouging is when a business inflates the price of a product without incurring additional cost. I think Chip is right. If any business incurs additional costs in a disaster, they have the right to charge prices commensurate with their costs. Runaway government regulation of everything is the root cause of most of our problems in this country. The ridiculous patchwork of goverment mandated gasoline blends is just one example. Remember that when you vote on Nov 6. Link to comment Share on other sites More sharing options...
1 Alibi 2 Posted November 3, 2012 Report Share Posted November 3, 2012 Price gouging is " SEARS " selling a $ 1300.00, ( mfg. suggested ), back-up generator for $ 2700.00 . And in New Jersey................................... . Trenton, NJ – Tonight, Governor Chris Christie took action to prevent a fuel shortage and ease the problem of extended wait times and lines at gas stations by signing Executive Order 108, declaring a limited state of energy emergency with regard to the supply of motor fuel and implementing odd-even rationing for gasoline purchases in 12 New Jersey counties. Odd-even fuel sales will take effect in the following counties at noon on November 3, 2012: Bergen, Essex, Hudson, Hunterdon, Middlesex, Morris, Monmouth, Passaic, Somerset, Sussex, Union, and Warren. . "As New Jerseyans continue the long process of recovering from Hurricane Sandy, it's imperative that our families have secure, reliable access to essential supplies like fuel. Right now, the impact of the storm, particularly the continuance of widespread power outages, has created the disorderly sale of gas – including long lines, out of operation stations, and stations facing shortages,” said Governor Christie. "This system will ease the strain on those gas stations still operating, while we work to bring more online for the public to access fuel, in a manner that is fair, easy to understand, and less stressful.” . Once in effect, all retail dealers of motor fuel will be required to only sell motor fuel for use in a passenger automobile bearing license plates, the last number of which is an even number, on even numbered days of each month. Likewise sales will only be permitted to passenger automobiles bearing license plates ending in odd numbers on odd numbered days of the month. Specialized plates – or those not displaying a number – will be considered odd numbered plates Link to comment Share on other sites More sharing options...
jerseygator Posted November 3, 2012 Report Share Posted November 3, 2012 Lots of gas in Cranbury. No gouging here... I think the stations that were lucky to be open from day one were making a killing on quantity sold. They'd sell all their gas by early evening. And a truck was there first thing the next morning. Link to comment Share on other sites More sharing options...
patrickshelby Posted November 3, 2012 Report Share Posted November 3, 2012 I think everyone agrees basically here. Price gouging is not acceptable. Price gouging is not what happens with fuel in NJ. People from the government as not very efficient nor quick at doing what they should... Is that a surprise? Link to comment Share on other sites More sharing options...
lawdude Posted November 3, 2012 Report Share Posted November 3, 2012 Supply and demand. In the case of gasoline in affected areas, supply is low and demand is probably higher than usual what with people topping off their tanks and public transportation being down. As mean as it sounds, if prices are allowed to rise, two things happen. Link to comment Share on other sites More sharing options...
stpracer43 Posted November 3, 2012 Report Share Posted November 3, 2012 I can see it both ways... let the free market (S&D) run its' course, but at the same time I see how folks will think it's price gouging as well. The fuel in the stations tanks is already a given cost. The retailer incurs NO more additional costs by already having that fuel when the disaster occurs. The retailer could choose to sell the fuel at the existing price for whatever profit margin it would normally generate. But at the same time, the retailer is well aware the next resupply of his tanks is likely going to cost more...and he'll have to charge a higher price for that fuel to cover his NEW incurred costs. Or he can sell his current fuel supply at a higher price to cover his anticipated future costs. He simply passes on his costs ahead of the fact versus passing on the cost when he actually incurs it. Retailer may see it as necessary, consumer may see it as not. I suspect some of the initial resupply loads would have already been produced at a given cost prior to the disaster, and thus see NO new incurred costs. The only additional cost I could possibly see might be the cost to deliver the fuel (overtime for the drivers, extra fuel costs to operate trucks, etc). Sure the disaster may increase demand immediately, and at some point the already produced supply becomes exhausted. Certainly makes sense to me that after a disaster the production cost of fuel would likely increase and therefore have to be bought and sold (by retailers) at a higher price to consumers. Retailers are generally in business for their own livelihood. They can choose to buy & sell any products for whatever price they want. Personally, for me it would be a matter of conscience whether I raised the price of a product immediately after a disaster in anticipation of yet to be incurred future costs. Opinions vary. Keith Link to comment Share on other sites More sharing options...
mywickedshelby Posted November 3, 2012 Report Share Posted November 3, 2012 Chip Beck probably knows more about this topic than any of us........and has certainly forgotten more about it than I ever hope to know..... but the above explanation has little if any thing to do with the gasoline situation here in Jersey........ if you cut the State in half at the I-195 point.......75% of all the gas stations north of I-195 are without power. they have plenty of gas......but without power, there is no way to pump it..........many of these stations are not equiped to be powered by generators......... with millions of residents without power as well, millions of generators are going 24/7........and millions of folks needing to replenish their own supply for these generators each day.... millions of folks needing this gas each day.....75% of the stations closed due to no power....and you see the impossible strain being put on the stations that are open.... so until the power is restored.........and the number of gas stations with power dramatically increases.......there will be lines....and long ones at that..... the situation has little to do with supply from outside NJ......or the lack of gas in NJ......it is directly related to the small number of stations with power trying to meet the demand of the millions who need it........ mywickedshelby reporting with boots on the ground here in New Jersey.......back to you......... Link to comment Share on other sites More sharing options...
ilmor Posted November 3, 2012 Report Share Posted November 3, 2012 I believe in free markets and agree that Christie is wrong. He's acting more like a liberal than a conservative in this instance, which surprises me. Link to comment Share on other sites More sharing options...
WJinLV Posted November 3, 2012 Report Share Posted November 3, 2012 If you think youre being gouged, than exercise your right not to patronize from that gas station in the future. Sometimes there is nothing else you can do. In the aftermath of Hurricane Andrew 20 years ago, I was living in an apartment in south Florida, the landlord informed me that rent would go from $550/mo to $1200/mo starting the next month. Completely illegal, and I couldnt afford it. He didnt care as the 5000 newly homeless residents were calling every day and would pay that rent. We reported it to the State, and were told it would be over a year until the case was heard due to the backlog created by the hurricane. Nothing I could do except suck it up or move, so I moved. Link to comment Share on other sites More sharing options...
2007_Shelby_GT Posted November 5, 2012 Report Share Posted November 5, 2012 Agree about the difference between "gouging" and "supply and demand" beyond that, it's nice to see Chip Beck check in! (So, is Heath still working on those side-scoops?) Sam Link to comment Share on other sites More sharing options...
jerseygator Posted November 6, 2012 Report Share Posted November 6, 2012 Chip Beck probably knows more about this topic than any of us........and has certainly forgotten more about it than I ever hope to know..... but the above explanation has little if any thing to do with the gasoline situation here in Jersey........ if you cut the State in half at the I-195 point.......75% of all the gas stations north of I-195 are without power. they have plenty of gas......but without power, there is no way to pump it..........many of these stations are not equiped to be powered by generators......... with millions of residents without power as well, millions of generators are going 24/7........and millions of folks needing to replenish their own supply for these generators each day.... millions of folks needing this gas each day.....75% of the stations closed due to no power....and you see the impossible strain being put on the stations that are open.... so until the power is restored.........and the number of gas stations with power dramatically increases.......there will be lines....and long ones at that..... the situation has little to do with supply from outside NJ......or the lack of gas in NJ......it is directly related to the small number of stations with power trying to meet the demand of the millions who need it........ mywickedshelby reporting with boots on the ground here in New Jersey.......back to you......... Good to see you reporting from north Joisey... Link to comment Share on other sites More sharing options...
Sherri Leicht Posted November 7, 2012 Report Share Posted November 7, 2012 Chip Beck probably knows more about this topic than any of us........and has certainly forgotten more about it than I ever hope to know..... but the above explanation has little if any thing to do with the gasoline situation here in Jersey........ if you cut the State in half at the I-195 point.......75% of all the gas stations north of I-195 are without power. they have plenty of gas......but without power, there is no way to pump it..........many of these stations are not equiped to be powered by generators......... with millions of residents without power as well, millions of generators are going 24/7........and millions of folks needing to replenish their own supply for these generators each day.... millions of folks needing this gas each day.....75% of the stations closed due to no power....and you see the impossible strain being put on the stations that are open.... so until the power is restored.........and the number of gas stations with power dramatically increases.......there will be lines....and long ones at that..... the situation has little to do with supply from outside NJ......or the lack of gas in NJ......it is directly related to the small number of stations with power trying to meet the demand of the millions who need it........ mywickedshelby reporting with boots on the ground here in New Jersey.......back to you......... Exactly Michael! Same thing happened here after Ike. Plenty of gas in the tanks but no power to pump it as Houston was without power for over a week and up where I am, 2 weeks. Glad u came thru Sandy with few problems :-) Link to comment Share on other sites More sharing options...
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