Monday, November 05, 2012

Gas Lines are Not Sandy's Fault

imageGuest post by Jeffrey Tucker of Laissez Faire Books 

It's crazy in New York and New Jersey, and commentators are mystified. Hurricane Sandy was bad enough. That's a natural disaster, and we are dealing with it.

But then came the unnatural disaster in the form of the government's response. This is where the real catastrophe begins.

Check out the mess in New Jersey. The New York Times reports that "widespread gas shortages stirred fears among residents and disrupted some rescue and emergency services as the New York region struggled to return to a semblance of normalcy after being ravaged by Hurricane Sandy."

Fights, anger, lines, craziness everywhere. Emergency shipments of gasoline are pouring in. Mail trucks are stuck. Supply trucks are stuck. Ambulances need fuel and can't get it. The government is trying to get gas to the place, but is hampered by traffic jams and chaos all around.

New Jersey has these weird laws that require that gas stations pump the gas for you. Why? To save jobs? I don't know. But they are there. As a result, service station attendants are slaving, breathing in serious fumes for 18 hours a day and desperately trying to keep the peace.

The images show scenes right out of the 1970s. There are long gas lines as far as the eye can see. Tempers are inflamed. Meanwhile, generators and cars need gas. People's lives are at stake. Some have successfully found gas in Pennsylvania, but you have to have enough gas to get there.

Who can account for such bizarre things as these? Probably the greedy capitalists at work here, right? After all, the state is fielding thousands of complaints of price gouging.
Actually, gouging -- if by that you mean raising prices according to market conditions -- is exactly what will fix the problem. But producers are not allowed to do so. The price system has been abolished. Like socialism.
Gov. Christie himself has made it clear: "We will not hesitate to impose the strictest penalties on profiteers who, in direct violation of our consumer protection laws, seek to capitalize on the misfortune of others in the midst of a crisis and recovery period."

Even more absurdly, "The state had set gas prices at $3.59 on the highways last week," reports the Times.
It's serious. Last year, merchants paid huge fines for raising prices more than 10% in an emergency. This means that they cannot respond to changes in supply and demand. A disabled price system means chaos. When the price is too low, producers drop out and consumers over-utilize. Scarce resources are not being replenished, and those that exist are being irrationally squandered.

That's why price ceilings mean shortages. Gas shortages cause social disasters. We are seeing this in real-time in New Jersey. It's a man-made disaster caused by stupid government officials, elected officials, and bureaucrats.
Can it really be that observers of this situation have no clue about the cause? Can it be that fairly intelligent reporters and politicians are truly that stupid when it comes to basic economics? I fear that the answer is yes. We are dealing with a governor who either has a brain the size of a pea or is so craven toward popular opinion that he is willing to throw away all rationality just to suck up to the bourgeoisie that knows not the first point of economic logic.

Hence this lesson. There is no real distinction between responding to economic conditions and so-called gouging. A law against gouging is a law against economic behavior. Merchants need to raise prices -- not to reflect higher costs (though costs could rise), but to reflect changing conditions of supply and demand. A higher price would signal consumers to conserve. A higher price would also call forth greater supply -- without having to have the government intervene with special shipments. A higher price would also settle the crowds down a bit and stop the insane attempt to stockpile as much as possible at the low price.

Price controls are causing human suffering -- yet again. And this time, the toll is very high, even if it will always remain somewhat invisible.

I've been writing on price-gouging laws for at least a year, fully expecting something like this.
In my article called "The Day Your Life Fell Apart" from last July, I wrote:

So you hop in the car and set out for new gasoline. The storms have caused the usual anti-gouging mania. Station owners have been hauled before Congress in the past just for having raised prices in a storm -- a time when they should be raising prices. Stations fear bad PR and even laws against the practice, and so they can't properly ration supplies.
    You drive and drive, but every gas station in a 10-mile radius of your house is out of gas. In fact, after all this driving, you are nearly out of gas. You creep home and beg the neighbor for some gas, but he has the same problems: bad can, and the stored gas doesn't work right.

How well I recall getting floods of email from people telling me that I was exaggerating, that price-gouging laws are not that awful. They certainly are nothing like national price controls that lead to mass shortages. They are mere agents of consumer protection. Did I really want to unleash greedy merchants to rob people in the middle of an emergency?

Well, I might as well say it: My article, if anything, underestimated the extent of the damage caused by anti-gouging laws. If you live in New Jersey, these laws are ruining your life. If you are running a business on a generator, need to get somewhere in your car, need fuel for your chain saw, or otherwise need some power to manage your life, these laws are your enemy.

Maybe next time you will store up some gasoline? Don't think of it. Ethanol mandates have made gas difficult to store for a long time. Also in this crisis, people are discovering that their gas cans don't work right. The culprit is again government regulations.

Economic liberty is crucial to life functioning. Even the smallest intervention can cause calamity. Enough small interventions can cause the collapse of what we call civilization under certain circumstances. Markets are never more important than in an emergency, and government is never more useless, threatening and counterproductive than during a crisis. The events following Hurricane Sandy make the point very clear: Our choice is between liberty and human suffering and death.

All these regulations are like knives at your throat. Some of them have workarounds. You can hack your gas can. You can shop for gas that is not ruined with corn additives. You can prepare by storing up water and food. But in the end, as Ludwig von Mises said, there is no escape for anyone when civilization is headed to destruction.

We are rarely presented with a case that so clearly illustrates the explanatory power of economics. It turns what would otherwise seem inexplicable into something entirely predictable. The lesson we must learn before it's too late: Let the price system work.

Sincerely,
Jeffery Tucker
CEO of
Laissez Faire Books , and Primus Inter Pares of the Laissez Faire Book Club

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8 Comments:

Anonymous Barry said...

Interfering with the natural law of supply and demand produces a bad result

11/05/2012 02:04:00 pm  
Blogger gregster said...

Important post. I like it.

11/06/2012 01:14:00 am  
Blogger Dinther said...

Interesting. My immediate knee-jerk reaction would also be to stop price gauging but the articles on the subject make a clear case.

In fact, only a few years back I got incredibly pissed off about the scalping of U2 concert tickets. But it is the same mechanism.

A few days back I read that public buses would be free. Now I read they have crazy long queues for passengers.

I wonder how many busses would be on-line if private companies were allowed to charge whatever they want for the trip and how many would decide to stay off the road.

11/06/2012 09:53:00 am  
Blogger Berend de Boer said...

Hi Dinther, on buses we know the answer. As far as I know inter-city buses in NZ are not regulated.

Prices are extremely competitive, service is of high quality and very frequent.

11/06/2012 09:59:00 am  
Blogger libertyscott said...

Berend is right. Completely open market for intercity buses in NZ, excluding basic level safety for vehicles and driver training. Even unprofitable marginal routes are maintained because the operator sees value in the network effects (e.g. services to Gisborne remain because they feed into services to Wellington).

However, that's the free market, which is about profit that is somehow unrelated to servicing people.

11/06/2012 11:40:00 am  
Anonymous Paul B said...

Makes sense. Gas lines are long because people are desperate for fuel for their generators to feed their families. If fuel is available for the rich only the lines will be much shorter. Fuck poor people.

11/06/2012 06:10:00 pm  
Blogger Peter Cresswell said...

The reverse, actually, Paul.

Pricing by demand and supply means more units of the good are left available for those who value those units the most, while encouraging-and paying for--increased supplies of the goods to be delivered to the areas in which they're most needed.

That helps everyone.

11/07/2012 09:58:00 am  
Anonymous Paul B said...

Peter, your simplistic ideological argument assumes everyone has the same amount of money.

A rich family doesn't 'value' feeding their children more than a poor family; they can simply afford more. But if you extrapolate the supply/demand argument: The retailer gets more money, the rich family gets gouged and the poor family starves. Hardly better for everyone

11/07/2012 02:04:00 pm  

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