Bill Lockyer, California’s Attorney General and all around fool (it was Mr. Lockyer who implicitly advocated the rape of Ken Lay) has come up with another way to show that he has absolutely no understanding of economics. Mr. Lockyer is going to investigate oil companies for profiteering.
As Prof. Hamilton suggests, let’s first start with the assumption that gasoline is $4 in Georgia and is $3 in CA. If you were in the business of refining gasoline what would you do? Retool quickly to capitalize on the price differential? This is what the market mechanism does. It allocates resources depending on scarcity. If the gasoline is relatively more scarce in Georgia than in California then the price in Georgia will be higher and thus attract more resources to that region. The effect is to raise the price in California and lower the price in Georgia. This is elemenatry microeconomic theory, something that Bill Lockyer apparently failed utterly when he was in college (or even worse skipped the course . . . which, IMO, should immediately disqualify him as the State’s Attorney General and he should be asked to resign immediately).
In short, the outcome of prices rising in California as a result of shortages in Georgia and other areas is the price of having a national market economy. Is it profiteering? I guess it could be viewed that way depending on how one defines things like excessive profits. But it is the pursuit of those profits that will add impetus to restoring pipelines, refineries, and electrical service to those Gulf states affected by the Hurricane. It is the very same motive that induces people to open a gas station and sell gasoline even in normal times. Short circuiting this mechanism with idiotic investigations not only drains resources that could be used for something productive, but it could mean a longer time getting the refineries back in operation which would mean a longer time period with people paying higher gasoline prices in Georgia. In short, Bill Lockyer wants to punish the people who live in areas affected by high gasoline prices.
Update: Just thought I’d add that if Lockyer is well aware of the above then his actions are nothing short of venal and cynical. It undermines the very resilience of the market system for mitigating adverse shocks. Granted it does this by “spreading the pain”, but this strikes me as a good thing for society not a bad thing.
