“There is an isomorphism between immigration, outsourcing, and free trade in general. In each case, overall economic efficiency is increased, due to the law of comparative advantage. There are distributional effects, to be sure, but no nation has been able to demonstrate an ability to use trade restrictions of any sort to reduce overall poverty. Redistribution implies that trade is a zero-sum game. [Those who believe immigration is just a redistribution program imply] that immigration works like a tax on low-income workers and a subsidy to high-income employers. Of course, in any sort of competitive market, employers do not profit from lower costs but must instead pass them onto consumers. But why let a little economics get in the way of a folk-Marxist story? Immigration, like all other forms of trade, is positive-sum game. All forms of trade restrictions hurt the economy. Immigration restrictions may change the composition of the least-well off. Overall, however, by weakening the economy immigration restrictions are likely to produce more poverty rather than less. I am not a passionate supporter of open immigration as an economic policy. I do not think that the gains are huge. But I am angry any time an economist misleadingly describes trade as a “redistribution program.” At that point, you forfeit your identity as an economist and instead become a demagogue”. — Economist Arnold Kling, responding to George Borjas reference to immigration as “just another redistribution program”
Apr25th2006
HP,
As an expert on the market, do you believe any price gouging is going on right now?
G
I am definitely no expert on the market, but I do feel confident in saying that in a capitalist economic system there is no such thing as ‘price gouging’, see here for more.
So what do you attribute this increase in prices to?
Fundamentally, I attribute it to the lack of supply.
We have always made it very difficult (through environmental regulations, for example) for oil companies to open up new supplies of oil (Arctic, Mexico, Florida, Canada, etc) and we have always made the current amount of oil cost more by regulating what type of chemicals (gas regulations, for example) need to be in it. Hence, the price of oil, without demand dropping, is going to keep going up and up.
Add to this the fact that we just had natural disasters that have stopped, or limited, the amount of oil being supplied, and we have the area of the world that has the most oil currently under economic and political turmoil, and you get today’s current gas prices, and the reason those prices are so dynamic day-to-day.
This is the reality of the situation and to assume that the oil companies are somehow ‘greedy’ today, but weren’t ‘greedy’ yesterday, is to make absurd statements. Oil companies, like all other companies, always want to maximize profits, they always want to get the most return for their investment, and this doesn’t change from day to day or company to company. What does change is the economic circumstances of the time, and based on this, and consumer choices, you get either really good profits or really bad ones.
Btw, if you are especially interested in oil prices and the economics therein, I recommend you add EconBrowser to your blogroll. The site is run by James D. Hamilton, Professor of Economics at the University of California, San Diego (where I go to school), and is highly regarded as an expert on the economics of oil.
HP-
You know there is such a thing as the demand curve.
Why no mention of the increased global demand of oil. The number of cars in the world has increased dramitaically the last 20 years as has industrial production and power consumption while our energy efficiency standards remain relatively unchanged the last 20 years. The amount of oil consumed globally has increased exponentially the last few years with China and India now consuming much more oil.
The supply issues you mentioned are real, throw in a lack of technological innovation. Lack of new refineries being built to even refine any new oil hitting the market from new sources. The Halliburton bungling and corruption of the pipeline reconstruction in Iraq which has basically three years later left 80% of Iraqi oil off the market.
However, to ignore the impact of the increase in demand of oil gives an incomplete understanding of the market forces creating these astronomical prices.
As far as the oil companies, you rightly say that their responsibility is to maximize the profits for their shareholders. The most effective method to maximize profits is to increase prices since there volume is not as flexible and is not unlimited. They can effect these price increases by limiting demand, by making the goods they are selling somewhat limited. This is in the best interest of the shareholders, however it flies in the face of whats best for the population. However, it is perfectly legal and a part of their responsibility as a public company to do this. So gouging is not an issue per se. What is an issue worth investigating is collusion. Are Exxon-Mobil exceutives meeting in a back room with Shell executives and Conaco executives and working together to fix the prices charged to service stations are they working together to limit supply we already know that OPEC is one big monopoly that should be illegal.
Hey Michael,
You are completely right, I should have worded my above statement to say supply has not kept up with (dramatically) rising demand, which would have made the demand issue more clear.
I do agree that if there is collusion going on, then that should definitely be investigated and prosecuted. But it is my understanding that the oil industry is competitive enough to where the chances of that succeeding are very small. In the past, price collusion has tended to be undercut by one company breaking the deal and taking a larger market share. When the profits and stakes are as high as they are in the oil industry, it becomes that much harder to have a successful collusion. But again, if it is happening, prosecution should definitely take place…
Btw, for those of you more interested in this, I found this somewhat dated article by Charles Krauthammer that does a good job of summarizing our whole oil mess, the article can be found here.
Maybe it’s time to repeal some those taxes levied on gasoline.