more on A question for non USA IPers5 bucks a gallon for gas?

[David Farber <dave () farber net>]

Begin forwarded message:

From: Russell Nelson <nelson () crynwr com>
Date: August 31, 2005 10:31:57 AM EDT
To: dave () farber net
Cc: Chris Kantarjiev <cak () dimebank com>
Subject: Re: [IP] more on A question for non USA IPers5 bucks a  
gallon for gas?


For IP if you wish, Dave.


> From: Chris Kantarjiev <cak () dimebank com>
> Date: August 30, 2005 5:35:50 PM EDT
> To: dave () farber net
>
> Yes, the US needs higher gas prices. We're getting them now (and
> the storm in Louisiana isn't helping). It's not clear how well
> we'll handle them - will the increased prices fund alternative
> transportation or just line the pockets of the oil companies?

Argh!  This paragraph represents two errors in economics, both of them
worthy of writing about.

First, it is extremely risky and injudicious to say that an entity as
large as the United States economy "needs" anything.  It hubris to
come to a conclusion like this without having full knowledge of all
activities that need gas, and .... nobody has that.  Not you, not me,
not Congress, not Wall Street, nobody.  The closest thing to full
knowledge of the state of the economy's need for gasoline is the price
of gasoline.

In other words, Chris, the only piece of information you could use to
say that the price is too low is ... the price.  Doing so would be
faith-based economics.

Second, the way that change happens in a free-market economy (which I
realize the USA only approximates) is that people make more or less
money.  Could be more money than before.  Could be more money than
something else.  Either way, when somebody makes more money, that's a
signal for other people to start to compete with them.

It's more than a signal, though.  It's also a reward.  We want people
to look at the state of the world, and do their best to anticipate
future conditions.  Government planning offices try to do this too,
but there's little reward for being right and no penalty for being
wrong.  E.g. look at all the railroad right of ways that were publicly
owned and sold off (the Rutland in Vermont's Champlain Islands and New
York's North Country).  Now those are in great demand for recreational
trails.  Did any government planners suffer from this mistake?

If private citizens anticipate future conditions, and spend their
money accordingly, the ones who were correct will have more money.
Success breeds success, and failure failure: those who were wrong lost
their money and their chance to be wrong again.  You couldn't do
better than this if you were a wise, knowledgable and beneficial
dictator.

A perfect example is yesterday's run-up in the price of gasoline.
Retailers are guessing that they'll have to spend more to buy their
next tanker of gasoline.  The ones that raise their prices too much
won't sell as much gas and won't make as much money.  The ones that
raise their prices too little will find that they've sold out of gas
without having enough left to buy more.

--
--my blog is at     blog.russnelson.com         | with some experience
Crynwr sells support for free software  | PGPok |     you know what  
to do.
521 Pleasant Valley Rd. | +1 315-323-1241       | with more experience
Potsdam, NY 13676-3213  |                       |     you know what  
not to do.


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