What I see is a set of photos of the government giving water to people.

I see a photo of people rowing away from a wal-mart store with water. But there is no evidence that they did not just steal the water from the store. I certaintly see no evidence that Wal-Mart was induced to providing the water to them by higher prices.

Would you please explain how the photos are proof of your theory that higher prices lead to an increase in the supply of bottled water.

What I see is an example of the government doing good work for storm victims.

Would you care to explain how this demonstrates your theory.

That is another explanation. But it really only works in a world of one florist. When there is so much competition, you don't want to invoke motives.

I was really being facetious.

Unfortunately, explanations like that appear on comment boards all the time.

I was wondering if Walmart is just doing something I used to do when I drove a bread truck [about 40 years ago]. I used to take extra bread on my truck when a storm was predicted because for some reason every time women see a snow flake they go buy a loaf of bread and a carton of milk. I'd load up the stores, at least the ones where I had schmoozed the store manager into giving me the shelf space.

The idea is that if you run out you've lost sales. You never want to run out, my boss always said that was the worst thing you could ever do.

Seems like WMT is just anticipating demand according to anticipated changes in the weather and sending its trucks where the bad weather is expected to be. They are not only making sure they don't lose sales by running out, they are enhancing the value of their customer good will by reassuring them that when the storm comes WMT will always be well stocked. People will go to WMT first if they know they will find what they want when they get there.

Do you disagree, Spencer? If you don't then isn't Russ Roberts correct, or am I missing something?

By the way, during Katrina, which was more helpful, WMT or the government?

""This is my problem with the analysis presented by too many economists to
argue that gouging storm victims is good economics and teaching their students that gouging is good economics and behavior to emulate.
Posted by: spencer | Dec 13, 2007 8:20:56 AM

And for the muirducks, Gils, and STRBs of the world, what Methinks says below is very appropriate to reinforce. And I will add to what Methinks says by pointing out that WMT gained the "competitive advantage" by the genius of Sam Walton who reorganized and restructured retailing to deliver quality goods to people at low prices. Government did not make WMT, WMT made WMT, and did so so successfully it is challenged not by the efforts of other retailers, but by the stupidity of socialist and their spawn that want to destroy an excellent business.

"What you describe as "imperfect competition" is known as "competitive advantage". One of WMT's competitive advantages is its size – it's such a large buyer that it can negotiate lower prices for wholesale purchases, pass the savings on to the its customers and undercut its competitors. Another advantage is its distribution system. If it can get more product to areas expected to experience a sudden demand surge (due to storms, etc.), it will have more product to sell.
Posted by: Methinks | Dec 13, 2007 9:27:15 AM"

Patrick Sullivan I will take your bet for any amount of money you are willing to bet that the Wal-Mart in Chehalis WA you referenced did not raise the price of bottled water.

Which is not responsive to my question. I asked about the bottles of water IN THE BOAT. Wal-Mart couldn't have GIVEN AWAY their water since no one could get to the store.

You literally do not understand what you're writing about. I agree with the other posters that you explain a lot about the CIA's follies.

Spencer, you seriously misunderstand the the supply/demand curve. The curve is as basic as economics gets and is generally covered on the first day of Econ 101, right after the class goes over the syllabus for the semester. The fact that you don't understand this elementary concept reflects poorly on the CIA and even more poorly on the investment management industry.

Supply/demand says nothing about competition and it is not an "analysis" of a competitive system. The supply/demand curve simply makes the observation that consumers will demand more of a good at lower prices than higher prices and that suppliers are willing to provide more of a good at higher prices than at lower prices. This is true regardless of how competitive the market is. You can layer more complexity for an individual good by measuring the elasticity of demand, but that doesn't change the basic concept.

the traditional supply-demand curve analysis no longer applies. It is a misapplication of theory.

So, what you're saying here is that consumers are not willing to buy more of a good at lower prices and vice versa and that producers aren't willing to supply more at higher prices and vice versa. In other words, price doesn't matter. Upon reflection, does that make sense to you? If I offered you oranges at $5/orange how many would you buy? How about if I offered you oranges at $0.25/orange?

Actually, I'm saying the private capitalist system does a better job then the one you describe. But it is not the simple perfectly competitive model that modern economics insist on applying to everything.

Frankly, Spencer, as a former analyst, I'm surprised that this comment comes from somebody who was also an analyst – particularly one who covered retail. But not too surprised. Ignoring any sundry government regulations that may apply for a moment, a retailer like WMT is a price taker and operates in a perfectly competitive environment. What you describe as "imperfect competition" is known as "competitive advantage". One of WMT's competitive advantages is its size – it's such a large buyer that it can negotiate lower prices for wholesale purchases, pass the savings on to the its customers and undercut its competitors. Another advantage is its distribution system. If it can get more product to areas expected to experience a sudden demand surge (due to storms, etc.), it will have more product to sell. There are two ways for a retailer to maximize profit: higher margins, which are possible only on differentiated goods and selling more units of undifferentiated goods. WMT's distribution system allows it to more quickly redirect its inventory of goods to areas with higher demand, selling more units and maximizing its profit that way (since it sells undifferentiated goods). The extra supply of goods in high demand areas means that prices don't rise. If, for some reason, WMT and other retailers aren't able to get the the additional goods to the stores to meet the additional demand, prices for the goods will spike in that region. That's not "gouging". That's just "the way it is". If I have an extra gallon of water that I may need for myself later, I am willing to part with it only for a very high price because I may not be able to replace it any time soon. In other words, I'm taking a risk of running out of fresh water by selling it to you. If you're buying that water from me, you're going to have to compensate me for the additional risk.

Although you insist that Russ Roberts is wrong, I don't actually see where you disagree with him.

Russ Roberts is saying that better storm predictions give retailers a heads up about where demand will spike, allowing them to better supply those areas and keep prices from spiking. You're saying that WMT redirects inventory flow from lower demand to higher demand areas. Better weather forecasting allows WMT to do that more efficiently. You're basically saying the same thing. Aside from your general hatred of anyone who actually understands basic economics, what is your problem with Dr. Roberts' post?

I didn't see Russ say that the world works in the model of perfect competition. That model is wrong on its face because the world does resolve to equilibrium. If you listen to the Podcast with Pete Boettke he even states that it's not perfect and why it's not. Not to mention the Big Box stores take away the ability of the individual entrepreneur to exercise arbitrage. It's not a matter of what a price is before an event takes place, the price of a good is about the subjective value of the individuals who value it.

If I need water and there is none because there was a shortage then who does that really help other than the early buyers who may not have valued the water as much as I did? Price allow individuals who truly value those goods at a higher value to obtain those goods. There are also risks that are run by individual entrepreneurs who go into an area that is hazardous.

The amazing thing about the system in which we operate is the fact that the Big Box stores have seen that they can help their customers by providing the goods they need at a lower price. That is what they are about, they take away the arbitrage and profit opportunities of those individuals or companies who would charge a higher price.

The question is would you rather have the opportunity to buy a good that you NEED, even if at a higher price, or not have the opportunity because they were mandated to keep prices low by law and running out of the good? Because that is what happens…just ask the people who ran out of gas in TX when they were Fleeing Hurrican Rita. Or ask the people who needed generators in NC in 2000 when they got snow and had no power for weeks and the Big Box stores weren't acting quickly enough. Good thing the policy makers and people like yourself insist on pre-disaster prices, you know…so they don't get ripped off oh and don't have the goods they need.

Just as an aside I will also bet they did not run out of bottled water either.

Because modern technology has changed the system the traditional supply-demand curve analysis no longer applies. It is a misapplication of theory. It is a massive over-simplication. I understand that theory is suppose to be a simplification but economics teachers are suppose to be teaching both a way of analysis and an
accurate description of the world.

This is my problem with the analysis presented by too many economists to
argue that gouging storm victims is good economics and teaching their students that gouging is good economics and behavior to emulate.

Actually, I'm saying the private capitalist system does a better job then the one you describe. But it is not the simple perfectly competitive model that modern economics insist on applying to everything.

WMT and other big chains can do this complex job of increasing supply without raising prices because it is much more a system of
imperfect competition than a system of perfect competition where the individual firm is always a price taker and has no impact on the slope or shape of the supply curve.

Wal-Mart has the economic power to strongly influence the shape and slope of the supply curve and consequently the perfectly competitive analysis of supply and demand curves does not apply.

I've also been frustrated. I just figured out the problem, at least I think I have. I'll post on it in a sec.

Natural disasters are not a time for retailers (or anyone else) to exploit innocent victims.

The standard procedure is for governments to enforce anti-gouging laws. It's unconcionable that retailers would redirect traffic, thereby profiting from artificially high prices brought about by the disaster.

How dare they present themselves as community minded retailers, when all they did is prevent a shortage by taking a profit.

I think some sort of central planning by the government on product distribution is clearly necessary. Along with profit caps on corporations trying to exploit demands that exceed the forecasts of the central committee, I think we can build a model which assures none of its citizens will ever fear natural disaters in the way they have in the past.

""So, were you one of those CIA economic analysts in the 80's that had estimated the Soviet Union's economy at 75% the size of the U.S. when it turned out to be 25%?""

I let it slide because I had other arguments to put out there. Thanks to you for laying it out.

It becomes a matter of priorities and this is where the costs of moving "inventory" to a desired point comes into play, that increase that Russ wrongfully assigned to inventory sitting in a stockroom waiting for that rainy day, but also the correct increased cost he assigned to WMT that WMT has to pay to put that inventory where it wants it.

Either way Spencer comes off as looking for minute details upon which to pick nits and doing so because of a spencer agenda, not because it matters a hill of beans.

Trucking firms do not make money on trucks sitting around not on the road carrying loads. But of course you know this.

So, were you one of those CIA economic analysts in the 80's that had estimated the Soviet Union's economy at 75% the size of the U.S. when it turned out to be 25%? Were you one of those investment analysts in the late 90s that said that if the investment banks could sell paper at a 60 multiple, then that must be its economic value?

For crying out loud, all that Russ said was, "Carrying inventory costs money." spencer turned that into a rant that Russ "just made up the bit about carrying inventories at (WMT) stores out of thin air."

The basic point is that inventory does cost money. WalMart most certainly does have inventory–$33 billion of it, over 20 percent of their balance sheet. So what, it's largely in-transit rather than warehouse inventory–it costs the same amount of working capital to support it. It's not costless to maintain. It's not costless to shift or manage or certainly to replenish due to unexpected contingencies. Those facts make spencer's accusation of Russ not knowing what he's talking about total horsesh*t.

Then, what pushes his comments beyond horsesh*t into leftist horsesh*t is his apparent refusal to understand that WalMart would be justified in increasing their prices as a result of an increase in inventory costs; WalMart would be justified in increasing their prices if they so no jump in their inventory costs, but their competitors did. WalMart would be justified in increasing their prices if nobody saw their costs increase, but overall supply came down anyway (an economically unrealistic scenario, but spencer must be no stranger to those in the CIA and investment management world.)

Folks, this was not a "great exchange." It was a frustrating exchange along the lines of the pot calling the kettle black when spencer was accusing Russ of holding onto his "priors" while manufacturing evidence.

I think your model of what Walmart does may be wrong. It isn't really diverting trucks as much as it's diverting what's *in* the trucks. [I suspect that they actually do divert trucks -- the "walmart to the rescue" image that portrays on national TV is worth far more than its cost of doing it. But, I digress....]

His point, I think is that the stream of goods changes in response to local needs. So, snowmobiles get put on the truck to Oklahoma and not to Maine. It's the same truck, just carrying different things.

""It seems the view above is backward. WMT is ALL storeroom and no showroom. It stocks inventory across all its stores. Warehouse-style retailers do carry extra inventory, just not in non-retail distribution centers. *Flow* is just inventory on wheels.
Posted by: foxmarks | Dec 12, 2007 8:17:17 PM""