Hating Economics
Over at Tech Central Station Arnold Kling has a weighty explanation of why most people hate economics. It is a rather deep article on the subject but in the middle he has a very concise exposition on the function of gas price fluctuations after hurricane Katrina.
No one sets the price of gasoline. If they could, oil company executives would charge $10 a gallon or more. However, because of competition, they have to charge an amount that will allow them to sell the gasoline that they are able to produce. After Katrina, they were able to produce less gasoline, so that at $2 a gallon they would have run out. They raised their prices to the point where they could not raise them further without losing most of their business to competitors.
If an oil company had decided magnanimously to sell gasoline at low prices, it would have run out of gasoline. If enough companies had done so, there would have been so little gasoline left that by October the public would have been at the mercy of those few suppliers that held any inventories. If gasoline had cost $2 a gallon in September, the shortage in October might have pushed the price up to $5 a gallon.
Could the function of prices be made more clear? What is going to be the ultimate result of interference in the market by the gas cap law here in this state?