Accusations of "price gouging" are a bad rap

I didn't have time yesterday to bring up the great conversation that John Crudele of the New York Post had with Jim Tisch. It's an understatement to call the latter "a major businessman."

I'm quoting the article in full because Tisch is simply great from start to finish.

OIL & GAS BARONS COMPLAIN ABOUT BAD RAP

September 20, 2005 -- JIM Tisch called me the other day because he wanted to defend capitalism. He was annoyed that a column of mine accused the oil and gas industry of overcharging consumers — of gouging.

If you don't know the Tisch name then you haven't been in New York very long.

The family has been a success in all sorts of enterprises from hotels, to tobacco, to the media and natural gas pipelines. One of Jim's uncles is owner of the Giants.

The Tisch name is on schools and hospitals.

With money-making credentials like that, I thought Jim earned the right to defend free enterprise. Here's what he had to say during an interview in his office.

Me: So you called me the other day, Jim, and complained that I was picking on oil companies and gasoline station owners for gouging customers. You don't agree?

Jim: First of all, I don't know what price gouging is. I don't know that price gouging has ever been defined.

Me: All right, price gouging is 'making excessive profits.' Let's define it as that.

Jim: What are excessive profits?

Me: Excessive profits are profits that are well beyond what is considered conscionable.

Jim: By whom? There are many industries where the price of a good can vary dramatically.

Look at the airline industry. You can be sitting on a plane and one guy is paying $100 to go to California and the guy sitting in the middle seat - next to him - is paying $1,000. Was the guy paying $1,000 subject to price gouging?

Me: Yeah, but gasoline prices are now about $3.25 a gallon. They had been about $2 a gallon and the price of oil is essentially the same.

Jim: No, no. That's not so. Gasoline prices are about $3 a gallon now in New York City, up from about $2.50 or $2.60.

Firstly, let me give you my view on price gouging. Price gouging is a term used by politicians.

Me: But was the increase in the price of gasoline justified this time?

Jim: In a pure economic sense, yes, because justification is how much the market will bear.

Me: So that's in the strictest, free-market sense?

Jim: I'm a free marketer. But do you complain when Bloomingdale's raises the price of shirts?

Me: Well I don't need to buy a shirt but I do need to fill my tank.

Jim: Can you take public transportation? Look what happened.

Hurricane Katrina struck, a whole bunch of refineries got shut down in the Mississippi and Louisiana area, Colonial pipeline that hauls gasoline and other products up north was shut down.

Me: But prices were going up even before Katrina.

Jim: No, no, no!

So there was a severe, severe supply constriction. Prices went up and you know what happened, gasoline consumption went down.

There was a report that some New York State authority reported 6 percent less traffic than last year. People were responding to prices.

Me: Does Loews or Tisch have any business in oil?

Jim: We have two main interests. Number one, we are in the offshore oil and gas drilling business. And, number two, we are in the interstate natural gas transmission business.

Me: But you are arguing here mostly in the interest of capitalism.

Jim: I am arguing solely in the interest of capitalism, free markets and freedom of choice.

I defy anybody to give me a definition of price gouging and I submit to you that it's a term used by people, especially politicians, who are frustrated by unexplained increasing in prices.

Me: Jim, thanks.

Tisch knows his economics, and he knows what he's talking about when emphasizing the sudden refinery constraints (when so many think oil companies are "taking advantage of the situation"). Bravo!

My previous related entries:
The power of markets
Rising oil costs: still nothing to worry about
What to do about the price of oil?
Nobody can afford "high-priced" gasoline?