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Bill Lockyer: Economic Ignorance Personified

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.

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About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research.

Comments

  1. Scott in CA says:

    The idiot is running for governor next year against Arnold. He’s trying to make points from the loonie Left who believe that oil companies are out to screw us all. And yes, his ridiculous quest to put warning labels on french fries shows you his seriousness as a politicians. I don’t think even my fellow Californians are dumb enough to elect this guy.

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  2. Herb says:

    Well, well, well, here we go again.

    Mr Lockyer has every right to investigate the oil companies for profiteering. While he and I may not be “economics wizards” we seem th have the good common sense to know when we are getting it put to us. Thats more than the economics gurus, who do not hesitate anyone who disagrees with them, have,

    The one thing that is apparent here is that microeconomics theory is just that “Theory”

    As for “supply and demand” that to, is not to bad, however we do not control the supply side and the oil companies do. As a result, they create supply problems and can then jack up the prices which is precisely what they did in the 70’s on gasoline and then on jet fuel in the mid 80’s. I don’t care a bit about one thinks about it, I witnessed it with my own eyes and saw someone clean up on the jet fuel.

    Reality is, the oil companies would put it to anyone for a quick buck, and someday when people get wiser, they will see that for themselves and throw their high priced economic theories out the window. But then again, some people never learn and can be counted on to defend the oil companies and their theories.

    And PONY is not PONEY.

    Please keep the derogatory names to a minimum.

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  3. ken says:

    Steve, you are a nut. Lockyer is California’s Attorney General and sworn to enforce the laws of the State. His press release says he is going to investigate for ‘illegal profiteering’ by oil companies. Lockyer, like the rest of us law abiding citizens, has no problem with oil companies making legal profits. You, apparently, also approve of illegal profits.

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  4. ken says:

    Steve, just another point. The very threat of an investigation by Mr Lockyers will perhaps help those thinking about acting outside the law instead make the right decision.

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  5. Steve Verdon says:

    As for “supply and demand” that to, is not to bad, however we do not control the supply side and the oil companies do.

    No Herb, at best the oil companies have some control over supply. Making statements like the one you made above reflect poorly on you. Conspiracy theories and kooky world views do not win people over to your side.

    Do the oil companies have market power? Yes. Do they use it to drive up prices whenever and wherever they can? Again, yes. However, this does not mean that any and all price increases are the result of oil companies. Supply has been greatly curtailed. Expecting price increases is not unusual. And contrary to many whacked out theories, the oil companies did not cause Katrina.

    As a result, they create supply problems and can then jack up the prices which is precisely what they did in the 70’s on gasoline and then on jet fuel in the mid 80’s.

    Right…the Iran-Iraq war had nothing to do with it. Same thing with OPEC curtailing oil production. It was all because of the oil companies.

    Reality is, the oil companies would put it to anyone for a quick buck, and someday when people get wiser, they will see that for themselves and throw their high priced economic theories out the window. But then again, some people never learn and can be counted on to defend the oil companies and their theories.

    This is true for any company I’m afraid. All (investor owned) companies would love to be monopolists and charge monopoly prices. It is because of statements like this Herb that makes me wonder if you really aren’t a socialist or a communist. Your rhetoric is actually trending very much in that direction and taken to its natural conclusion leads to such views.

    Steve, you are a nut. Lockyer is California’s Attorney General and sworn to enforce the laws of the State. His press release says he is going to investigate for ‘illegal profiteering’ by oil companies. Lockyer, like the rest of us law abiding citizens, has no problem with oil companies making legal profits. You, apparently, also approve of illegal profits.

    I think the notion of illegal profits in instances of voluntary exchange is pretty stupid. If this makes me a nut, then fine. It is precisely those high, and that is what we are talking about, profits that will induce entry into the market. Now new refineries wont be built, but the refineries that do exist, but are offline will be brought back online quicker by their owners to try and capitalize on the high prices. Forcing prices back down will simply slow down this process.

    Steve, just another point. The very threat of an investigation by Mr Lockyers will perhaps help those thinking about acting outside the law instead make the right decision.

    This is just stupid.

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  6. Steve, you mean you are not a nut?

    Damn, another bet I’ve lost.

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