I think it’d be a good idea if those involved in the selling of gasoline made available the option to purchase surplus gas. By that I mean make it so that the consumer can purchase more gas than he currently needs. The consumer would do this, most likely, to lock in a certain price. Personally, if I knew of a reputable gas retailer that was selling gas for $1.50 and was offering a card for surplus purchases at a slightly higher price ($170?), I’d buy a few hundred gallons.
If I could lock in prices on certain products at Walmart by placing them on a card, for later use, I’d do so.
I also like the idea of being able to put X dollars on a card and that card paying me interest based on how long it’s held and how much money I put on it. It would be similar to a banking system. I could buy a Walmart card for $1,000 and Walmart might offer me $1,100 in one year, but not in federal reserve notes, but in Walmart dollars or store credit.
If such schemes became popular, do you think it would reduce malinvestments since the retailers would have a better idea about what consumers will want in the future?
The purchasing of surplus, actual products would seem to reduce malinvestments the most, since retailers could more closely approximate the future buying trends as opposed to simple cash investments via gift cards. However, these gift card investments have the added versatility of allowing the business to avoid economic changes and not be locked into providing X product.
I’ve heard of some gas stations doing this, but that was a few years ago, I’m not sure if it caught on or if it stuck. I want to say it was in the Minneapolis/St. Paul area, but could be mistaken.
Actually, even in the case of gas stations, you’re not actually purchasing “extra” or “surplus” of anything, you’re simply buying a futures option, which is to say that you’re speculating that prices will rise still higher than the price which you’re locked in on your card. I think the problem is a lot more complicated than what you put forth, but that said, I do think there might be some merit to it - there could conceivably be a market for this thing (although I think mainly for commodity products like gasoline).
Keep in mind that however this works, the business has to treat it as a liability, a cash gift card is no different. Sure, they get the cash now, but they carry a liability until they’ve discharged the obligation either through expiry or through a purchase. I’m not at all convinced that this would reduce “malinvestment”, you may be talking about something else unintentionally, when you say “malinvestment,” in which case we’d need to clarify, because malinvestment proper is a function of central bank inflation distorting price signals and not of merely inaccurate forecasts.
Thank you for the info on malinvestment. Much appreciated.
I guess the gas card idea sounds good to me because I’d really like to have that option. I tend to think in those terms. I imagine various ways to conduct business and then try to find an underlying principle and extrapolate that into logical outcomes. Call it the long-hand way of thinking, i.e. the simpleton way.
When most people think stock market they think - convoluted. People much more easily grasp my idea. Think of it this way: Joe Six-Pack comes across two products. One product is a gasoline card and the other is a US Oil Fund ETF. Which is he most likely to purchase? It’s like a street level Wall Street - much less bureaucracy and much more ease of purchase.
When I mentioned purchasing surplus gas, I meant to say that the gas card holder is buying more gas than he currently needs. The gas can be kept at the gas station and he can pick it up later. The card balance is like a receipt. I guess the question there is about storage capacity. Is the gas station going to actually store the purchased gas or are they simply going to keep the gas in the distribution pipeline, not actually owning it as yet. However, doing so might be risky since prices can rise. They wish to store it. I don’t know.
One thing I know for certain, if someone offered a gas card and I could purchase a few hundred gallons of gas at maybe 10-15% above current rates and I am given a reasonable amount of time to use it, then I would jump at the chance. A lot of if’s in the scenario, but I’d like to see this option become available.
I think it could reduce malinvestment only if it becomes a common practice in the market, since buying future options is a form of saving, it could give business managers information about the time preferences of the consumers (more accurate than fake interest rates). But it would have to be a widespread practice so that it cold provide accurate information, and for that to happen people would have to further lose their confidence in banks so that they would be more likely to save through buying this cars than through putting their money in a savings account.
Of course if gas stations did offer this and many of us took this options because we thought gas prices would rise and we were right. That would be somewhat of a malinvestment and a number these gas stations would go out of business
Nah, they’d just kick up pump prices. Also, I’m sure terms would become less attractive as prices fell. If gas dropped from $5 to $1 in 6 mths, you’d probably have to pay quite a premium. They might ask for $1.50/gallon or even more if they really didn’t feel confident. They could stop gas card sales altogether. They could also offer gas card repurchases.
That would be a “plain” option, not futures option.
In any case, I doubt retailers would do it, at least on a minimally-significant scale. As david_z puts it, the distorsion created by inflation shows that the prices will keep rising, which really kills any speculative or hedging interests.
Since we have an inflationary monetary policy, you think businesses won’t speculate? How does one gain unless one speculates? Also, the nominal price of gas has dropped, not risen, in the last few months.The distortion of inflation most assuredly obfuscates market information and is an added risk factor, but man will still act under such circumstances so as to profit. Yes, whenever there’s an increased volatility in a sector, businesses in that sector may become less speculative.
If you had a few extra thousands dollars lying around and you saw a gas card offer from a reputable business, what terms would induce you to purcahse the card? What if they offered you 500 gallons at pump price plus 10%? Would you or anyone reading this be willing to buy a few hundred extra gallons at pump price plus 10%? What terms would it take to entice you to “speculate” via gas credits or a gas card?
Has anyone heard of gas stations or anyone along the line of oil and gas distribution hoarding gasoline? Also, what about so-called gouging laws?
Example:
Gas Station A fills his station’s capacity w/ gas that costs him $1.50/gallon
Gas Station B fills his station’s capacity w/ gas AND also warehouses 10 times that much at another location or via another arrangement at $1.50/gallon
Wholesale gas prices climb to $2.00
Gas Station A buys another station full of gas when his $1.50 gas runs out and pays $2.00/gallon.
Gas Station B, instead of buying at $2.00/gallon, decides to tap into his reserves, which cost him $1.50/gallon (plus storage costs minus volume discount. Let’s say it puts average cost at $1.60 by the time all is sold)
Gas Station A sells the new gas for $2.25
Gas Station B continues selling their “old gas” but they now sell it for $2.19.
If the difference between $2.19 and $1.60 is considered excessive profiteering and gouging, would it still be applicable even though Gas Station B is charging less than their competitors? Can Gas Station B profit from it’s risk-taking and foresight or do the laws discourage or even outlaw this type investment?
I guess I’m a sucker for obsessive self-criticism:
“The method of imaginary constructions is indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can prevent a man from falling headlong into these abysmal depths.”
Human Action, Mises
P.S. Could someone that actually goes to school provide a link that covers things like properly citing works and references? I don’t mean advice only for formal settings, but coverage of things like forum posts as well. I’m a high school dropout, so I don’t have too much training in that area. [:$]
Speaking of speculation, let me ask you which accurately predicted market outcome would be of most use, all other economic factors remaining equal:
Gas will be $10/gallon for all of 2009
or
Gas will be $1.50/gallon for all of 2009?
If I could predict one of those outcomes accurately and you knew my accuracy would be 100%, which prediction would be of most use?
Our current monetary policy actually spurs more speculation rather than less. The loss or distortion of market data would seem to almost insist upon greater levels of speculation. Speculation implies some loss or lack of knowledge on part of the actor. To act with less knowledge is to act less profitably. The more I know the more profitable I will be. Right?
If you new gas were going to $10/gallon that would mean crude pirces are going way up as well. Buy oil you’d make a 250% profit at least. 1.50 per barrel not much you could do if you were a trader you could short oil but obviously no as much of a vhange from current prices so you would not see as big of a return