Re: Supply and Demand Does Not Justify Price Gouging

On 2 Sep 2005 05:14:50 -0700, mapant@xxxxxxxxx wrote:

>royls@xxxxxxxxx wrote:
>> On 1 Sep 2005 07:30:15 -0700, mapant@xxxxxxxxx wrote:
>> Supply is also restricted. Both conditions must be in place.
>
>My point is that price of gas does NOT have to depend on supply. The
>gas can be sold at the price it cost to produce (plus a reasonable
>profit).

How?

>It can be sold first come first served regardless of demand.
> The price does not HAVE to go up when supply does not meet demand.

Why would its owner agree to sell it to the first comer rather than
the high bidder?

>> It is not actually the "product" that is getting expensive. It's the
>> unproduced natural resource, the oil in the ground. Oil sellers have
>> to pay more economic rent for access to that resource.
>
>That is a fundamental point that we disagree on. I believe that the
>oil doesn't have an inherent price or value.

There is no such thing as an "inherent" price or value.

>When we buy a gallon of
>gas, we should be paying for the human resources (man-hours) that go
>into extracting, refining, and other overhead in bringing it to market
>and to the consumer who consumes it.

We are. But we are also paying economic rent to those who control the
natural resource.

>> >The price of gas has almost
>> >doubled over the past year or so, but the cost to pump oil out of the
>> >ground, refine it, and bring it to the market has remained the same.
>>
>> No, the royalty cost (economic rent) to pump it out of the ground has
>> in many cases risen greatly.
>
>Again, the oil has no inherent value. It's price should be
>compensation and profit to the people who extract and bring it to
>market.

?? And the people who control the resource in the ground are going to
give it away for free why, exactly?

>> Well, what has Bush done about bringing the cost of residential land
>> in line with its true cost to produce (i.e., $0)?
>
>Although I didn't mention it in my original message, I make a
>differentiation between consumables like food and oil that are the
>sustaining lifeblood of an economy, and things like money and land that
>are assets, which are like the "metric" of the economy, whose values
>are arbitrarily set by a supply and demand.

?? What is arbitrary about supply and demand? How do you imagine
that food and oil can be the lifeblood of an economy, but the land the
food is grown on and the oil pumped from is just an inert "asset"?

>> Think: land costs nothing at all to produce, yet it commands enormous
>> prices. Why? Likewise, no one produced the oil in the ground, yet it
>> is rapidly becoming more and more valuable. The concept of economic
>> rent is necesary to any understanding of these phenomena.
>
>I have thought about this already.

To little effect, though...

>As I have stated before, in order
>to realize a healthy economy that benefits all fairly, the price of an
>item should be determined by how much human resources were used to
>extract or create the product and bring it to the consumer to be
>consumed.

But no economy has ever worked that way, nor could it. Payment of the
economic rent of natural resources is needed as an aid to efficient
allocation. It is also unavoidable.

>> Depends what you mean by "produce." The folks who extract, refine and
>> sell oil have to pay more and more for the oil in the ground, which no
>> one produced, and which got there at zero cost. The economic rent
>> they pay for access to that resource is part of their cost of
>> production.
>
>By produce I mean how many man hours went into bringing it to the
>consumer. How much money went into the paychecks of all the people who
>created that product and brought that product to the consumer. The
>price should be determined by that.

The economic rent of natural resources exists. It cannot be wished
out of existence. If the rent is not recovered by the public, it will
be appropriated by private interests, one way or another.

Sorry, but you are still very far from understanding this issue.

-- Roy L
.

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