A Case in Point Against Price Controls
[Thanks to matrix.millersamuel.com for the photo of a past US price control situation.]
For those who are still upset at the oil companies, please look at this example closely. You will see the workings of a shortage caused by price controls close up and personal.
Even the Chinese themselves are aware of the cause of the problem:
" 'The crux of the problem is the state-owned enterprises... you see the remaining contradictions of the state sector in the market economy,' said Joseph Yu-shek Cheng, political science professor at the City University of Hong Kong.... Underlining the key role of pricing in the shortage, shipping companies in badly hit Zhejiang province said they had no problem securing supplies if they were willing to pay above-market prices to independent traders.... With current retail prices most plants only break even when crude is around $65 a barrel or lower, so soaring markets have forced many independents out of the market.... But a Sinopec official told Reuters on Tuesday that its largest refinery will switch off a crude unit in November and process 3 percent less crude than the previous month, sending a signal to Beijing in a move that could worsen the shortage." [Why should they continue to lose money?]
It looks for now like the US population gets it and is not crying out very loudly for price controls here. But even if the price at the pumps goes above $4.00, we should simply look here in China to see why this is not price gouging.
What is the cause of the rise in price? Turmoil in oil-producing countries and exploding demand from developing nations. Both are temporary situations, and as supplies catch up to demand, prices would be expected to return to their normal level just as they have in the past. Another factor is the devaluation of the dollar, otherwise stated as the excessive increase of the American money supply over its usefulness in the marketplace, due to central bank intervention in the credit markets.
This last is where we should direct our anger, if my suspicion of such mismanagement is borne out by the evidence. But this is a subject for a separate post.