Not so unfathomable or mystifying

by Russ Roberts on March 30, 2011

in Energy, Man of System, Prices

In the aftermath of the tsunami, Japan is suffering from a fuel shortage.

 

H. T. writes at The Economist (which is also the source of the photo):

IT IS almost unfathomable. As seen during 17-hour drives to and from the tsunami-hit north-east of Japan this week, the country appears to have ground to a halt, hit by a mystifying shortage of fuel. Added to rolling power cuts, I predict the consequences for this quarter’s growth will be severe. From Tokyo northwards, drivers turn off their engines and park in single file for hours, waiting for their 20-litre rations. Tokyo’s police report that the theft of petrol has become widespread, with at least 40 cases of illegal siphoning from car parks around the capital. Petrol-pump attendants along the route north say that the shortages are due to the supplies having been diverted to the stricken coast. But in Miyagi prefecture, scene of much of the devastation, the petrol queues are even longer—miles longer, literally. Drivers wait all day to get to the pump. Worse, the fuel shortage means that supermarkets, convenience stores and other businesses are shut, unable to get fresh products. In evacuation centres for tsunami victims, so-called “food refugees” are joining the queue for a bowl of hot soup—these are people whose homes are still intact, but who have run out of food nonetheless.

Why, you might ask?

H. T. goes on to talk about the refinery that was knocked out by the earthquake/tsunami and the bureaucratic snafus that contrbuted to poor distribution:

Yet the Ministry of Economy, Trade and Industry (METI), which handles fuel distribution from its darkened offices in Tokyo (the lights are switched off to save energy), acknowledges there has never been a supply shortage in Japan as a whole. Refineries in western Japan have increased output to make up for the shortfall further north.

About a week ago, officials dispatched 200 lorries with fuel to the stricken areas, but another 100 appear to be waiting in reserve. Why, when they too should be hurtling up north? The biggest problem appears to be private-sector stockpiling, and flimsy half-measures by the authorities to overcome that. When the crisis hit, there was a law on the books requiring energy companies to keep 70 days of petrol in reserve. This was quickly lowered by three days, but that did not help. And there is the outrage. It was not until March 21st, ten days after the crisis, that the limit was lowered to 45 days. Yet still METI can only use “administrative guidance” to persuade companies to release their hoards of fuel. A big stick would be better.

This reveals a bureaucratic problem that the crisis has thrown into sharp relief. Japan has no system for overriding petty rules and regulations to cope with an emergency. People trying to deliver supplies to the needy complain about this in a myriad of ways—above all, in access to trunk routes which are still empty (and largely undamaged), save for a few emergency vehicles…and journalists’ cars. (The Japanese media, which tend to report slavishly what the government tells them, have been shockingly lax in reporting the food-and-fuel crisis in the afflicted areas.)

Here’s an idea. Let people buy and sell fuel freely. Evidently that is not part of the Japanese system. Shortages are actually quite fathomable–they come from a price ceiling. Prices go unmentioned in the article.

Near the end of the article comes this:

If Japan’s establishment were not so bunker-headed and convinced that it knows all the answers, it would have created a war room, brought in experts from the real world, and declared a state of emergency to get the fuel up north. Only now are supplies starting to arrive.

As our blog’s namesake once wrote–the curious task of economics is to illustrate to men how little they know about what they imagine they can design. Japan doesn’t need a war room or experts. Just a little economic freedom.

 

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{ 130 comments }

jdc March 30, 2011 at 11:17 am

H.T. at the Economist seems – for unfathomable reasons – to think that METI is not a war room. Furthermore, H.T. writes that Japan’s establishment is “bunker headed and convinced that it knows all the answers”, but isn’t that exactly what H.T. is suggesting be created with a “war room”? Very bizarre failure of economic thinking and failure of even being internally consistent.

GP Hanner March 30, 2011 at 11:20 am

jdc: exactly the reason I don’t take the Economist seriously.

Ike March 30, 2011 at 11:27 am

The Japanese should clearly take a page out of the playbook of the Nixon administration.

We proved conclusively that price freezes are the greatest way to eliminate lines for an under-supply of goods.

Ike March 30, 2011 at 11:28 am

Ha ha haha ha ha ha ha ha ha!

I tried saying that in a serious voice, and I just couldn’t do it.

Sam Grove March 30, 2011 at 11:34 am

Unconvinced, Jimmy Carter repeated the experiment.

SheetWise March 30, 2011 at 4:31 pm

Yes — but Jimmy Carter’s heart was in the right place.

(filled with lust as it was).

vidyohs March 30, 2011 at 8:51 pm

But still fearful of swimming attack rabbits, nonetheless.

muirgeo March 30, 2011 at 11:35 am

“Japan doesn’t need a war room or experts. Just a little economic freedom.”
RR

Real simple for you to say Russ but it is quite possible your solution would give results more like what we saw in Haiti. Simply because it is a complicated matter to govern millions of people doesn’t mean the default response is to do nothing. Currently there is no looting of rioting in Japan of any significance that I know of. THIS is the value of a civilized society and as well a run government as there ever was or could be.

We sit in our cozy chair safe from harm taking for granted how much safety our government has brought us in spite of all the inefficiencies of managing and “self governing” 300 million people.

Its all real easy for you to say Russ… but I’d say careful for what you wish for.

Daniel Kuehn March 30, 2011 at 11:40 am

It is easy to say these sorts of things – and what we say from the comfort of this country also doesn’t change the massive supply shock they experienced. The market won’t solve that in the near future – negative supply shocks take new investment and entrepreneurship to solve. That entrepreneurship will happen, but it won’t solve problems people are dealing with right now.

Methinks1776 March 30, 2011 at 12:37 pm

The market doesn’t have a something like a price mechanism to allocate resources?

Daniel Kuehn March 30, 2011 at 1:08 pm

Sure it does.

Market allocation is efficient, but you can’t eat efficiency. If you are on the demand curve to the south east of the equilibrium and you’re suffering, perhaps because of a major supply shock (perhaps because of a tsunami) “efficient allocation” doesn’t necessarily mean the sort of allocation you’re depending on.

It’s bad to get into the habit of thinking that if the market clears everything’s great. There may be excellent reason to prefer a non-clearing market to a clearing market.

Methinks1776 March 30, 2011 at 1:51 pm

DK, I’m totally with you. I never think things are great. I’m always at that southeast corner with regard to something.

I’m always glad to see bright, young, compassionate things like you who know best how to not only perfectly gauge human suffering but manipulate resource allocation to end it. Just warms the cockles of my cold little heart.

Daniel Kuehn March 30, 2011 at 2:00 pm

Wow. After that first paragraph I thought you were actually being sincere.

What do you get out of commenting like this every single day, methinks? I didn’t disagree with Russ on the liberalization points. I never claimed to know the things you’ve repeatedly suggested I’ve claimed to know.

Methinks1776 March 30, 2011 at 2:59 pm

I am totally being sincere! I even think you’re young, compassionate and bright.

I guess I get out of it the same thing you get out of pointing out that supply shocks suck.

You would have to know these things you have never explicitly claimed to know if you were to carry out the engineering that you have repeatedly stated you would like to carry out. I haven’t a hint of doubt in my mind that there is no malice in you, DK. I haven’t a doubt that you have nothing but the best of intentions. Also have no doubt that none of that matters. The hubris of the enterprise just grates my last nerve.

I developed a strong allergy to central planning early in life. You would decide where markets work and where they don’t and you would decide what will be allowed to clear on its own and what won’t. You’re just not sure “we’re” looking at it the right way and all – as if it’s for you to decide in the first place.

What and who is supplied should be determined neither by you nor by the Japanese government – unless you choose to supply your preferred group from your own pocket. If you think hospitals should be supplied at the expense of people not in hospital, then I have a problem with you being okay with inflicting that vision on them.

Daniel Kuehn March 30, 2011 at 3:04 pm

“I haven’t a hint of doubt in my mind that there is no malice in you, DK”

I would prefer you not have a hint of doubt that there is no claim to be able to plan complex order in me either. It’s tiring to continually reaffirm that I’m not doing this and I’m not advocating central planning and I’m not claiming to be able to have (much less make use of) the dispersed knowledge the market uses efficiently.

You don’t frustrate me because I think you think I’m malicious.

You frustrate me because you take all your boogey-men and attribute them to me for some reason.

Methinks1776 March 30, 2011 at 4:12 pm

I would prefer you not have a hint of doubt that there is no claim to be able to plan complex order in me either.

Nothing would give me more pleasure. Can you understand why I can’t when you say stuff like “I’m okay with social engineering”, for example? You want to effect this social outcome or that social outcome via policy. Maybe we should supply hospitals and grocery stores instead of allowing the market to decide what’s most important. The fact that I recognize it as a form of central planning is something you resist. But, that’s what it is, DK.

SheetWise March 30, 2011 at 4:50 pm

Please don’t stop — this has value.

I want to add one question for Methinks — do you think there’s ever a point where the state should override market mechanisms? I understand deferring to the markets as a baseline, but is there ever a time to intervene? If the price mechanism is the only method of allocating scarce resources, there are always going to be a small group of people to whom price is no obstacle. With a shortage lasting for an unknown period, this small group may choose to stockpile all available supplies at any price.

Methinks1776 March 30, 2011 at 5:05 pm

Sheetwise,

I guarantee you that nobody is willing to stockpile at “any” price.

If we had a sudden food shortage of unknown duration and you stockpiled crackers, would you not sell me a packet for $10,000,000?

Sam Grove March 30, 2011 at 5:14 pm

Are you extensively familiar with the behavior of government agents (FEMA, police, etc.) after the New Orleans flooding?

kyle8 March 30, 2011 at 5:23 pm

NO, if there are no idiot rules like the anti-market rules against so called price gouging, then shortages will evaporate just as fast as it is physically possible to ship in goods.

Why? well because people can make a big profit on mundane items. If you try to organize, facilitate, and regulate it, then you will have people still waiting in long lines for basics just like always happens here after a major hurricane.

Turns out that, nothing works like freedom, and nothing succeeds like liberty.

SheetWise March 30, 2011 at 6:28 pm

Methinks — I guarantee you that nobody is willing to stockpile at “any” price.

I’m not trying to create a black swan scenario — I think that’s what we’re witnessing.

With the press promoting “nuclear Armageddon,” and the situation not improving, you might assume that all people who had the means to relocate have relocated. What if that’s not true? What if one billionaire stood his ground — and decided to stockpile, outbidding all?

I realize that at that point the entire rule of law would have been abandoned — and there would be spontaneous justice in an advanced society — I’m just interested if you think there is ever a point that the authorities, while still in control, should intervene.

Methinks1776 March 30, 2011 at 7:30 pm

Sheetwise,

Forgive me if I’m being obtuse, but I have no idea what the billionaire is stockpiling and how that relates to people relocating (assuming they wish to – which is not something we can take for granted).

Methinks1776 March 30, 2011 at 7:46 pm

Also, why is the billionaire outbidding everyone and stockpiling whatever he’s stockpiling? I don’t understand the picture you’re painting.

vidyohs March 30, 2011 at 8:54 pm

“Market allocation is efficient, but you can’t eat efficiency.”

You would do well, youngling, to contemplate the absolute disingenuous stupidity of that statement. But, of course you won’t even consider it.

Otto Maddox March 31, 2011 at 3:04 am

“Market allocation is efficient, but you can’t eat efficiency.”

Amazing. There’s no doubt that I will eat more with market efficiency than I will with a system based on political allocations/whims and idiot politicians. Read the article’s last paragraph again.

JohnK March 30, 2011 at 1:55 pm

The market does not instantaneously provide goods with a whooshing noise, and high prices mean some people go without.

(The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. –T. Sowell)

That is obviously not fair, so we need government intervention to make it fair.

(The first lesson of politics is to disregard the first lesson of economics. –T. Sowell)

Methinks1776 March 30, 2011 at 4:31 pm

“like”. Also, “like” reductio ad somalium.

Methinks1776 March 30, 2011 at 7:33 pm

can’t take for granted.

JohnK March 30, 2011 at 11:41 am

reductio ad somalium

jcpederson March 30, 2011 at 1:38 pm

I really, really miss the like button.

Methinks1776 March 30, 2011 at 12:35 pm

Currently there is no looting of rioting in Japan of any significance that I know of.

What the hell do you call “widespread theft of petrol”?

You’re sitting in California, Muirdiot. If I were you, I wouldn’t assume you’re so safe from the same kind of harm.

Bill J. March 30, 2011 at 11:59 pm

There is no “widespread theft of petrol.” That is sensationalizing.

Sam Grove March 30, 2011 at 4:00 pm

Price controls lead to shortages.

vikingvista March 30, 2011 at 9:25 pm

Or surpluses, depending on how they are controlled.

Bill J. March 30, 2011 at 11:58 pm

The civilized society is in spite of its government not because of it. Of all the things I can see happening here, having more government management is one of the worst ideas.

vikingvista March 31, 2011 at 1:57 am

Yes.

Daniel Kuehn March 30, 2011 at 11:51 am

I think you’re using “shortage” in a different way from how most people use it. You’re using it in a technical sense – marginal benefit exceeds marginal cost and quantity demanded exceeds quantity supplied. I’m not sure that’s how these people are thinking about it. We just had a major supply shock. The market may very well be in equilibrium right now – that doesn’t change the fact that people in the south-east quadrant of the supply and demand curve whose reservation price is below the equilibrium price aren’t the ones siphoning gas, or complaining about the unavailability of gas. Economists always assume that people think in terms of our definition of “shortages”, etc. It’s not clear to me that they do. It’s not clear to me that we – as fellow human beings – should think in these terms exclusively.

It’s not clear that it would be a bad thing to have a point out of equilibrium but with hospitals and grocery stores supplied with energy as an emergency until production got back online. That would amount (in econ jargon) to a shortage in the south and a surplus in the north – but it may very well be highly preferable to a market equilibrium with no intervention and no shortages.

You mention a price ceiling too. What do you mean by that? What price ceiling is being imposed here? The biggest intervention here seems to be a mandate for certain reserve levels, which is not a price ceiling. It does seem like a dumb policy that needs to end. I suppose it makes sense given Japan’s island status, but what the hell is the point of mandating people to hold reserves if you don’t USE those reserves in an emergency???

Daniel Kuehn March 30, 2011 at 11:55 am

I think this problem with thinking too technically about shortages plagues talk about unemployment too.

Economists are convinced that to “explain” unemployment they have to explain surpluses in the labor market. Why? The unemployed don’t know whether they are to the upper right of the equilibrium point or to the lower left. They don’t know that their reservation wage is too high (this is the whole point of search theory!). The market may be in perfect equilibrium, but we still label people to the upper right of the equilibrium point “unemployed” as a social convention. This tendency to identify “unemployment” as “surplus in the labor market” is a very bad habit… it’s a symptom of the micro-obsession of the discipline since the 1970s or so. We need more macrofoundations of microeconomics.

jjoxman March 30, 2011 at 12:47 pm

Economists explain unemployment through frictions.

Um… you do know why microfoundations became so important form the 1970s? Because macro at the time was nonsense.

Daniel Kuehn March 30, 2011 at 1:20 pm

That is one explanation, yes.

Microfoundations are not in and of themselves a problem. It’s when people think that they are required to the exclusion of good macrofoundations, or when people substitute microeconomics plus some handwaving for macroeconomics that you get problems.

Sam Grove March 30, 2011 at 4:02 pm

Handwaving is what politicians are good at.

Daniel Kuehn March 30, 2011 at 4:24 pm

They are good at that, Sam – but that wasn’t what I was refering to. I was refering to the sort of people that think macroeconomic phenomena boil down to microeconomics.

SheetWise March 30, 2011 at 5:43 pm

“I was referring to the sort of people that think macroeconomic phenomena boil down to microeconomics”

Wouldn’t that be you?

jjoxman March 30, 2011 at 12:45 pm

Rationing is a de facto price ceiling in the primary market. Or did you miss the part about rationing.

The remainder of your post is difficult to understand. I really can’t make hide nor hare of it.

Methinks1776 March 30, 2011 at 12:56 pm

translation: DK thinks he can allocate resources better than hundreds, thousands, millions and even billions of market participants. He knows how we “should” think about things and what allocations are important and which ones aren’t.

jjoxman March 30, 2011 at 1:07 pm

I’m not smart enough to participate in the market on anyone else’s behalf.

Daniel Kuehn March 30, 2011 at 1:19 pm

Stick to your own thoughts, methinks. You only confuse the discussion when you try to divine mine.

Methinks1776 March 30, 2011 at 1:51 pm

Sorry, I forgot that divining other people’s thoughts is your exclusive domain.

Daniel Kuehn March 30, 2011 at 2:01 pm

I’ve never claimed that domain so it’s open to you if you want it. I’m just suggesting you don’t try it if you don’t want to make an ass of yourself.

indianajim March 30, 2011 at 2:25 pm

Thanks for the divine translation! DK will undoubtedly tell us that he of courseHAS read Hayek’s classic (The Use of Knowledge). But, augmenting your translation, it seems quite plausible that he has misjudged it; many “great” economists have made this error. Fortunately, the ease of access is increasing understanding of Hayek; anyone can just click the below and begin building a foundation for understanding economics:

http://www.econlib.org/library/Essays/hykKnw1.html

Daniel Kuehn March 30, 2011 at 2:30 pm

A truly superb essay.

Daniel Kuehn March 30, 2011 at 1:18 pm

“The remainder of your post is difficult to understand. I really can’t make hide nor hare of it.”

Let’s say you drop the rations and the reserve mandates entirely and the market is in equilibrium.

You still have a large supply shock that is going to put a lot of people to the south-east of the equilibrium point. Market efficiency will not get them gas or food in the short run, which is pretty important to the people living in the short run. Jargon users will say “there’s no shortage”. But normal people don’t use the word in the way jargon-users do and normal people will still feel like there is a shortage due to the supply shock. I’m simply saying that matters and we ought not have rose-colored glasses about what the market can do in the near term.

Methinks1776 March 30, 2011 at 1:55 pm

DK, in the absence of supply shocks, can the market ever fill all of one’s desires at a price one is willing to pay?

Daniel Kuehn March 30, 2011 at 2:02 pm

You see, Methinks, we have this thing called scarcity. It suggests the answer is “no”.

Methinks1776 March 30, 2011 at 3:01 pm

And yet….people have figured out how to survive, haven’t they? Why would this time be any different?

Daniel Kuehn March 30, 2011 at 3:05 pm

Who is suggesting we won’t survive?

Methinks1776 March 30, 2011 at 4:06 pm

So, you just don’t think we understand the obvious?

If a Japanese child complained that he couldn’t get enough food or warmth as a result of the tragedy, do you think we’d scold him? “Shut up, kid! Resources are efficiently allocated. What the hell are you bitching about?”.

Okay, DK. Okay. I don’t think that anyone nurses the fantasy that markets = Nirvana. However, I do think that while “normal” people as you call them – may very well call everything a shortage, there’s a reason for the jargon. You understand the difference between scarcity and shortage and it’s a pretty important difference.

Sam Grove March 30, 2011 at 5:11 pm

And we need very clear glasses about the very real limitations of political management of resources.

Daniel Kuehn March 30, 2011 at 5:30 pm

*like*

lamp3 March 31, 2011 at 3:25 pm

DK, are you intentionally obfuscating the interpretation of supply and demand curves?

“You still have a large supply shock that is going to put a lot of people to the south-east of the equilibrium point.”
This is not a very sensible point to demonstrate, because for every supply and demand curve graphic there always is supply and demand at the southeast region. People who wouldn’t purchase the product at whatever its price was. This state you are thinking of already existed before the disaster, it exists in America right now. The south-east portion, where demand curve is below the supply curve, for all intents and purposes, exists everywhere all the time. Do you use Apple products? Your marginal value of the 10,000th iPad 2 is probably at or below 0, whereas Apple’s marginal cost of producing that is certainly above 0. This is in the south-east portion of the supply and demand curve, but you don’t talk about that?

Assume that we clear off price ceilings and rations. Consumers in the market for fuel will face costs and decide for themselves based on knowledge about each of their situations. This is preferable to government intervention. Each individual consumer will weigh for themselves if their marginal value for that unit of fuel is greater than the market price — how much food do I have at home, will I need to go to a faraway market now, how long can I wait this out, and so on. We generally think that tastes do not change when considering these graphs. Yet when we factor in time, the marginal value of that fuel may increase over time to where a consumer does decide to purchase it, perhaps when they’re out of food at home.

Another benefit is that only those whose marginal value and thus consumer surplus is maximized will get the fuel. This may be for a variety of reasons, but it adds to reducing your “supply shock” because those that do not justify price to utility will avoid purchasing that fuel.

Compared to rationing, where it becomes impossible to obtain fuel because of lines, where even if you are willing to pay a higher price because of some emergent need, you cannot (without waiting 17 hours). The news article demonstrates this as transportation of goods and services is now being hampered by these fuel rules.

Another plus of letting markets decide efficiency would be that those who can best bring fuel into high-priced areas are rewarded for doing so. Higher prices may also induce other suppliers to bring fuel in, who otherwise would not as their marginal cost may not be less than the current rationed price. As time goes on, this reduces the issues of higher costs. Combined with consumer-side reductions in quantity consumed, and we have a two pronged way to deal with the “supply shock.”

Jeff March 30, 2011 at 2:31 pm

Yet still METI can only use “administrative guidance” to persuade companies to release their hoards of fuel. A big stick would be better.

I take shortages to mean that people want fuel, and can’t get it. This quote shows that there is fuel, sitting there, not being used. Hoards of fuel sounds like we don’t have a “supply” issue. The problem is that these companies think, well, we might not get fuel for a while, so we better hold on to what we have. If, instead of a fixed price, Japan let the price rise, than we would have more “supply”, because some (maybe not all) of those energy companies would say, hey, let’s make some money on all this fuel we have stockpiled. That’s how prices are supposed to work. Now granted, if we really had a huge shock to the amount of supply, the prices could go really really high, but I don’t think that’s what we’re seeing here. At least, not from what the cited article states. (IE, lot’s of energy companies have 70+ days of fuel stored, refineries in the west are producing more, etc).

vidyohs March 30, 2011 at 9:04 pm

I don’t know about the hoarding thing, didn’t I read above that the government “required” companies to hold reserves?

Mandating stockpiling is hardly what one could call hoarding, now is it?

Emil March 30, 2011 at 5:58 pm

One of the first lessons in economics should be that the market is never ever in perfect equilibrium

Ronald Bingham March 30, 2011 at 12:53 pm

I think this post makes it clear why Libertarianism, as practicd by Russ and DB, will never become a mainstream ideology. In the end, pragmatism rules the day, as it should. Here are the topics being discussed:

a. Building codes – most will compare the buildings in Japan to Haiti and point out that government building codes saved thousands and thousands of lives. If one wants to defend Libertarianism, they should discuss why that is not the case.

b. Early warning systems – most will say that the early warning systems (for the earthquake and tsunami) were not enough and the government should invest more to address this. What is the Libertarian response?

c. Nuclear danger – nuclear energy is heavily regulated and yet, we allow the facilities to be build on fault lines. Pragmatists will argue that we should not allow this via additional government regulation. Not clear what the Libertarian response is.

Instead, Russ is talking about the fuel shortages. Really? Really???

jjoxman March 30, 2011 at 1:10 pm

a. Building codes don’t count for crap if you haven’t got the wealth to build sound structures. Why would people want to live in poorly made housing if they can afford better? Or offices? Or have poorly made bridges?

My house isn’t up to code. It is beyond the code. My insulation is double the required width.

b. Hm… got one word for ya: lighthouse. If you don’t know what I mean, look up “lighthouse fallacy” on Google Scholar.

c. Nuclear energy is highly regulated… and it has continuing problems. So regulation is the answer? This makes the amount of sense I would expect from a statist – none.

Ronald Bingham March 30, 2011 at 3:56 pm

a. So for those renters of the world, they should research the construction quality of the building? And where does it end? Do I have to research the water that I am drinking? The quality of bridges that I drive on? The toys I buy for my children? Let’s be realistic about human nature. We know our limitations and we expect some government body to take care of these issues.

b. So if you live near a fault line, would you be interested in a program that warns you that a catastrophe is near?

c. After looking at this tragedy, most would conclude that nuclear energy is not regulated enough. Do you believe it should be deregulated?

Sam Grove March 30, 2011 at 4:07 pm

Yes, the regulations have relieved power companies from much liability for nuclear disaster. The only reason we even have nuclear electricity production in the U.S. is the Price-Anderson act which limits the liability of nuclear power facilities.
I suppose the situation in Japan is similar.

Jason March 30, 2011 at 4:38 pm

Of the issues I have with your issues, a. is the one that bothers me the most right now. I do not expect some government body to deal with researching what I’m going to buy. When I’m in the market for a good or service, what I want and what you want are different. So, yes, I research (which could include price, quality, and safety). That’s the beauty of the market: someone’s always willing to offer what I want for what I have to give. When the government gets involved, it will provide regulations that means something I don’t want and a creation of a lobby to help themselves.

Also, if we have limitations on research why wouldn’t a government body have the same problem? How could they possibly research all the goods and services out there? Tell the citizenry not to shop until they figured it all out? Doesn’t this also create a moral hazard?

Slappy McPhee March 30, 2011 at 5:14 pm

Actually, the government inspector has less incentive to make sure that the building is safe than either the owner or renter. The politician that created the department that hired the inspector has even less incentive to do so. If you cannot accept that humans act in a rational way during trade, then why place such faith in government via democracy. Those same irrational idiots, unable to decide what a safe dwelling will be, will miraculously choose the best representation once every 2 years? But after catching up on the last two years of the FEE podcasts, I do have to agree. Libertarianism and Austrian economics may have similar traits, but they really should remain separate discussions.

This appears to be an economics blog, not a libertarian one, let’s leave the subject matter to that. Just my $.02.

dan March 31, 2011 at 2:24 am

c. regulations are only added after the fact of incidents. There is no amount of regulation in the world that will absolutely make anything safe, save banning or disallowing that item altogether. But, even then, what dangers or incidents then occur because the item now banned was a better replacement for the item being used in its place? All human endeavors are trial and error. The earthquake is currently believed to have had no impact on the structures. The earthquakes aftermath of a tsunami, which was not in their crystal ball, was the decisive factor in tragedy. Regulate everything until your heart is content, imminent chaos of unpredictable events have no master. With each human error, we learn, adjust, and continue on our merry way.

geoih March 30, 2011 at 1:27 pm

I’ll take a stab at it.

a. You’re assuming that people don’t care if their buildings fall down and would let them, except the government makes them build them a certain way. Who’s to say what kinds of buildings people would build without building codes. Building codes in the US are all concensus documents developed by interested parties (often profit interested parties), then adopted by states (or not). I’m guessing that there are all sorts of building codes for nuclear power plants, but we can see how well those have worked. Buildings in Haiti were poorly built because Haiti is poor (and also completely government controlled). The wealth to build better buildings in Japan did not come from government regulations or building codes.

b. So, government building codes are good (except for maybe the ones used for nuclear power plants), but government early warning systems are bad. How are we supposed to know which government interventions are good or bad before the fact. Maybe we need more government to decide when it makes good decisions and bad decisions, and to figure out why government fails so often.

c. There isn’t a nuclear power plant built in the world that isn’t strictly controlled by the government. It’s obvious that the goverment is incompetent at making these decisions. Is your solution even more government?

The libertarian response is to stop putting your faith in a system (i.e., government) that has proven itself over and over again to be corrupt and to not work.

Ronald Bingham March 30, 2011 at 4:05 pm

a. Where did you get that idea? The added cost of earthquake-proofing a building is usually around 4 percent.

b. We try our best to elect reasonable, honest legislators who follow the rules of pragmatism. It’s not a perfect system, but its the best one available.

c. Yes, we need to further regulate the industry. Specifically, we need to make sure that no nuclear facility in on a fault line. Are you okay with building nuclear facilities on a fault line?

Sam Grove March 30, 2011 at 4:10 pm

b. We try our best to elect reasonable, honest legislators who follow the rules of pragmatism. It’s not a perfect system, but its the best one available.

Hah. The number one electoral factor is name recognition.
Elections are showcases for exhibitionist (and often sociopathic) personalities.

vidyohs March 30, 2011 at 9:14 pm

Yeah.

Emil March 30, 2011 at 6:02 pm

“The added cost of earthquake-proofing a building is usually around 4 percent.”

4% of what? Of a Haitian shack or of a nice building in a wealthy country?

vidyohs March 30, 2011 at 9:24 pm

I won’t bother with the rest of your silly crap, but this: “c. Yes, we need to further regulate the industry. Specifically, we need to make sure that no nuclear facility in on a fault line. Are you okay with building nuclear facilities on a fault line?” makes my nerves jangle.

Was the nuclear facility in Japan that is now in trouble built on a fault line? No, it was not. The fault line lies well out to sea.

The nuclear facility survived the earthquake with no real problem, only minor shaking. The nuclear facility did not survive the tsunami, which overwhelmed the retaining wall (dike) and flooded out the backup generators that should have provided power when the facility itself lost power.

The only real lesson here is not how to build safe nuclear reactors, but how to safe guard them from tsunamis with higher retaining walls (dikes). Spend a little extra money and build walls that will keep in anything and keep out anything.

Without the tsunami, no problems.

Not the answer you wanted, though, is it?

brotio March 31, 2011 at 1:51 am

how to safe guard them from tsunamis with higher retaining walls (dikes).

Rosie O’Donnell is going to safeguard nuclear power plants?

:D

vikingvista March 31, 2011 at 2:30 am

Why would someone want to build their $4 billion plant on a fault line?

Maybe there should be a government agency to keep me from eating foods that I don’t like.

dan March 31, 2011 at 2:43 am

Or, an agency that keeps you from eating foods that Your neighbor does not like? How about an agency that specifies what type of a product you are allowed to buy followed up by the fact that you MUST buy it or ultimately find yourself in jail?
OH, uh……what? They already did that? I had to buy more of something by coercion for the benefit of another who will get it for free?????? WTF???!?!?!?!?!?!?!

dan March 31, 2011 at 2:38 am

Where would you put one? In the midwest and along Tornado Alley? Wonder how the plants would stand up to a tractor being thrown into it?
What about along the Gulf states and up the East Coast? Are Hurricanes really that bad?
Close to the Mississippi? I hear Flooding can be a problem. And, from what I understand, a huge amount of water in places where it is not expected can reap hell on a Nuclear Power Plants generators.
The Southwest? Along the border states. Whats that? Drug Cartels, illegal entries, An almost lawless mexican state, Islamic books glorifying martyrs, etc.,….. sounds like a disaster watiing to happen.
Hawaii? power lines across the Pacific? uh, yeah, that’ll work? What is a Volcano?
Alaska? Earthquakes and fault lines, tsunami’s, the imminent doom of the Caribou. How far is North Korea from Alaska?
The best path is to plan for the worst case sceneario, hope for the best, learn from the mistakes. Also, damn the torpedos and have an ultimate kill switch on hand……. wouldn’t sand and cement have been the best choice this whole time? Containment, followed by removal to ‘safe’ designation.

Does anyone have a bubble suit and/or a fallout shelter? Wanna buy one?

nailheadtom March 30, 2011 at 3:22 pm

Don’t you suppose that building codes have a tendency to increase the cost of housing, making it unaffordable for the poorest segment of society? Maybe it’s better to be homeless than living in a house that can withstand 8.0 earthquake. Aside from that, shouldn’t I have the freedom to build as I see fit on my own property, regardless if the structure wouldn’t survive a massive quake? The government is supposed to protect me from the agents of other governments, not the forces of nature.

Ronald Bingham March 30, 2011 at 4:09 pm

After reading your response and that of geoih, I realized that there is an unfettered belief that the markets solve all problems and that the consumer is totally rational. If that were the case, I would probably be a Libertarian as well.

The problem is that the added cost of earthquake-proofing a building is usually around 4 percent. Given that it is so small, it is difficult to use the free market argument.

Sam Grove March 30, 2011 at 4:11 pm

After reading your response and that of geoih, I realized that there is an unfettered belief that the markets solve all problems and that the consumer is totally rational.

After reading your responses, I realize that there is an unfettered belief that government can solve all problems and that voters are reasonably rational.

vikingvista March 31, 2011 at 2:22 am

The gold standard for freedom, is functional utopia.
The gold standard for statism, is good intentions.

And that’s how they argue every single time.

Brad Petersen March 30, 2011 at 5:20 pm

Oh for crying out loud. What nonsense. No libertarian believes the market solves all problems or that the consumer is totally rational. This is simply a ridiculous straw man.

Methinks1776 March 30, 2011 at 5:28 pm

Um….I do think people are rational. I don’t think we always understand the rationale of others, but that doesn’t make them irrational.

Sam Grove March 30, 2011 at 10:59 pm

People tend to be rational based upon what they believe is reality. However, what people believe can often be irrational.

We have an educational system that has done a great deal to make it so.

dan March 31, 2011 at 2:48 am

People make decisions based on the info they have, and act as rational as they feel necessary. YOU may find it to not be rational. But, that does not mean they have not acted on their own interests. Just provide the better info and better decisions will be made. Should they not be made, then the individual, likely to not have accepted the info will discover on his/her own and act more rationally the next time.
What is irrational behavior from individuals, in generalities, if you must, that you have discovered?

vikingvista March 31, 2011 at 3:26 am

“Rational” is ambiguous. “Man is a rational animal” is true, because men ubiquitously employ some form of logic, even morons. That’s a different usage than e.g. “Spock is rational.”

Brad Petersen March 30, 2011 at 5:26 pm

I should have added that what libertarians believe in is freedom. If you want to earthquake-proof your house, go for it. No libertarian will stand in your way. But you have no right — none, zilch, zero — to force me to earthquake-proof anything I own or to build it to any code. The price — no matter how high or how low — is totally irrelevant.

Brad Petersen March 30, 2011 at 5:49 pm

Methinks, totally rational, all the time? That seems a stretch. Just having a rationale doesn’t necessarily make something rational. For example, I think most people argue their politics on an emotional level — logic and rationality be damned.

BTW, just so we’re clear, I’m NOT joining Bingham in saying that it’s irrational to refuse to earthquake-proof your home or to comply with building codes. I’m just saying that it’s absurd to contend that a free market requires consumers to be totally rational.

Methinks1776 March 30, 2011 at 6:13 pm

Brad, arguing politics is pretty costless. When people make trade-offs that actually affect their lives, I think they’re pretty rational – they get something they want for the thing they’re giving up. You don’t think so?

Brad Petersen March 30, 2011 at 6:44 pm

Methinks, yes, we are in agreement (whew!). I just don’t want to concede to Bingham that consumers must always be rational for the free market to work (though I suspect that in his mind “rational” actually means doing whatever he deems best).

Methinks1776 March 30, 2011 at 7:25 pm

Brad, it has been my observation that when people assess the rationality of others, the assessment is always based on what seems rational to the assessor individually and has very little to do with the preferences of the person whose decision is being analyzed. In other words, I agree!

vidyohs March 30, 2011 at 9:29 pm

“But you have no right — none, zilch, zero — to force me to earthquake-proof anything I own or to build it to any code. The price — no matter how high or how low — is totally irrelevant.”

Then I would assume that as a good libertarian or non-loony lefty, that should you have made the decision to not build to earthquake codes, that when along comes an earthquake that destroys your home……..you will not turn to others for assistance of apply for government aid?

I would hope that is the case.

BTW, I agree with you, just checking the details.

Brad Petersen March 30, 2011 at 10:22 pm

Good question, Vidyohs. I haven’t given it much, if any, thought, but considering what I pay in taxes every year, I might just be open to getting a little of my money back.

I’m curious, do you think we libertarians must always reject government largess — even when they’ve been paying taxes for decades?

vikingvista March 31, 2011 at 2:18 am

“considering what I pay in taxes every year, I might just be open to getting a little of my money back.”

You realize, don’t you, that politicians see that as demand for government services? Getting some of your money back justifies and entrenches the state’s schemes, and encourages them to confiscate even larger sums of your money in the future.

Nice scam, eh?

Your long term interests are best served by avoiding the government at every possible turn.

Michael March 30, 2011 at 4:24 pm

Instead, Russ is talking about the fuel shortages. Really? Really???

Yes, really. The article that sparked his interest was about fuel shortages–why wouldn’t he be talking about it?

Your questions are interesting, but their either unintentional non sequiturs or intentional red herrings. Regardless of intent, this thread isn’t the place to discuss them.

dan March 31, 2011 at 2:54 am

What’s the rational for responding to Muirgeo or others who simply assist that the rite to personal property or rewards of personal endeavors should be confiscated or forfeited in infinite amounts should there be a ‘need’ to supply for humanitarian efforts of others who do nothing or very little to secure their own ‘needs’.

John Dewey March 31, 2011 at 11:50 am

Ronald Bingham,

Ever hear of Underwriters Laboratories (http://mises.org/daily/3440)? That organization, not some government agency, protects hundreds of millions of U.S. consumers from the dangers of shoddy consumer products.

Without building codes, the insurance industry would quickly come up with a free market solution to protect the equity owners.

Mao_Dung March 30, 2011 at 1:24 pm

No, the solution to the shortages is to SWITCH ON ALL THE LIGHTS!

It is a variant of Earth Hour to celebrate the abundance that capitalism has given us even as we glow in the dark from being irradiated.

Andrew_M_Garland March 30, 2011 at 4:45 pm

Are socialist nuclear reactors safer than capitalist ones?

What form did the reactors take in Japan? Weren’t they highly planned, inspected, and regulated under Japan’s government and bureaucracy?

Ken March 30, 2011 at 11:08 pm

Of course they are! Didn’t you hear about all the deaths caused by the Three Mile Island incident and how safely the Soviets handled the minor Chernobyl incident with no deaths whatsoever?

vikingvista March 31, 2011 at 2:14 am

“Weren’t they highly planned, inspected, and regulated under Japan’s government and bureaucracy?”

Of course. Why do you think there is such public demand to take reactor regulation out of the hands of the failed incompetent government?

Anotherphil March 30, 2011 at 2:47 pm

This is Bush’s fault!!!!

vidyohs March 30, 2011 at 9:31 pm

Well, at least “he knew”.

ben March 30, 2011 at 7:14 pm

Of course queuing is a product of price ceiling. I have no idea if there is a price ceiling in Japan, brought on either by the law or social norms, but the existence of queues and hording makes a ceiling pretty much a given.

Separately, what is the point of a 70 days supply rule if that spare capacity cannot be accessed in an emergency? What other purpose can there be for spare capacity? Sounds like another ‘left boot’ problem.

Mr. Econotarian March 30, 2011 at 8:15 pm

According to:
http://www.yomiuri.co.jp/dy/business/T110325003524.htm

“As the national average for a liter of regular gasoline has topped 150 yen, the highest level in nearly 2-1/2 years, analysts are warning it could keep climbing.

In an effort to prevent gas stations from taking advantage of the ongoing crisis and engage in price gouging, oil distributors have tried to stabilize gas prices through such steps as leaving wholesale prices unchanged since last week…

If pump prices rise above 160 yen a liter, the government can invoke a special measure that will suspend a provisional gas tax of about 25 yen per liter currently in place. It is becoming a real possibility that the government will take this step to hold down gas prices, according to analysts.”

160 yen = 1.92 USD, implying $7.25 / gallon.

Steve_0 March 30, 2011 at 10:18 pm

Who wants to stop laughing long enough to seriously discuss whether US politicians would ever give up a tax in order to contribute some price stability.

Not Sure March 30, 2011 at 9:50 pm

Now, I’m not an economist, but I do know that if there is ever a natural disaster where I live, I’d rather have the option of being able to purchase a needed product available at double the pre-disaster price vs. not being able to purchase it at the pre-disaster price because there is none available.

vikingvista March 31, 2011 at 2:10 am

But wouldn’t your feelings be less scarred if nobody had access to supplies than if someone else could afford supplies that you could not? I mean, there some things worse than death. Hurt feeling are one.

In the works of the great Hatrick Penry: “Give me nice feelings, or give me death!”

vikingvista March 31, 2011 at 2:11 am

words not works

dan March 31, 2011 at 2:57 am

Stock up on toilet paper……worth its weight in Gold.

DG Lesvic March 31, 2011 at 3:29 am

That’s a lot of crap.

Eric Hammer March 31, 2011 at 12:02 pm

*rim shot*

DG Lesvic March 31, 2011 at 3:25 am

Well, let’s see, we have one side, led by Methinks, and, the other, by Daniel Keuhn, the Methinkers contending that the unhampered market would solve the problem as well as it could be solved, and the Keuhnsians that the gov might do better in some circustances than the market.

Of course I am completely on the side of the Thinkers, but have no quarrel with the Keuhnsians so long as they wouldn’t try to force their ideas on us. And that is my question for them, and for you, particularly, Count Keuhn. Would you force your prescriptions upon us, or, as we free marketeets would do, live and let live, each in whichever community he preferred, we in our free market and you in your socialist or interventionist commonwealth?

If that is what you want, have it, with our blessing, but count us out. It is only if you wouldn’t count us out but force it upon us that we would have any quarrel with you. So, which is it, do we live and let live, or go to war?

vikingvista March 31, 2011 at 10:04 am

Force? Is there another kind of government action?

DG Lesvic March 31, 2011 at 2:17 pm

Vike

Stricly speaking, only the market is government, a self-governing process, and, interference with it, with government, and not itself government but anti-government.

However, for practical purposes, we must sometimes just take the language as it is, however illogical. Hence, the state as “government.”

The free market does not exclude socialism, just forcing it on others. For it includes the freedom to opt out, as was done, without any damage to the free market, by those who voluntarily joined the Utopian Socialist communes of the 19th Century.

Surely you wouldn’t stop Daniel from doing so if he so chose.

Of course, he would stop himself, for he’s not really as dumb as he tries to make himself out to be.

But the free market cannot force anyone to participate in it. It implies the freedom to opt out, and join a commune. And, in fact, that’s just what happened in the New Harmonys and such of the 19th Century.

vikingvista March 31, 2011 at 5:37 pm

That’s stretching the meaning of “government” beyond what most people use. That’s fine, as long as you explain it. But for the rest of us, the government is the institution expected to use whatever violence is necessary to both suppress its competition, and force compliance with is dictates. It is the state. There is no government without the ability to impose itself on the unwilling.

DG Lesvic March 31, 2011 at 7:04 pm

You are equating government with the state while I equate it with the market. You are correct in colloquial terms and I in logical terms. Do we still have an argument?

vikingvista March 31, 2011 at 9:16 pm

“Do we still have an argument?”

As long as I understand what you are talking about, you can define words anyway you want. No argument.

dan March 31, 2011 at 10:15 pm

I would agree with your sentiments. You want to put theories into practice, do it to yourself and others who share your ‘wisdom’. But, those folk do not accept taking the risk of the potential consequences. They want everyone else to share in the risk and the consequences.

Economiser March 31, 2011 at 10:11 am

The problem is that Keuhnsianism, as it were, is inconsistent with Methinksibertarianism, but not the other way ’round.

It would be simply impossible for the Japanese government to maintain price ceilings for gasoline for some people if others were willing to buy and sell freely.

dan March 31, 2011 at 10:16 pm

The black market would then take over as the ‘freer market’.

Spinner March 31, 2011 at 7:16 am

What is America, number 15 in the world now? While you cry for Japan, look at Tokyo or Shanghai downtown pictures and then cry even harder for your own restricted decaying market. While at the same time we become the military strongman, we have cities that look to be 30 or 40 years behind places with freer economies and more spontaneous order. Worldwide loot and plunder taken by force is frittered away and the people who seek and create work and value (increasingly not you) always triumph in the end. A bitter taste of reality is comparing Shanghai’s Craigslist (mostly English!) and then your own city’s (comparitive soviet shithole) Craigslist. In today’s “Planet of the Apes”, are you an ape temporarily ruling by force, or are you the increasingly elusive modern western man, using your mind to mutually benefit from voluntary exchanges?

dan March 31, 2011 at 10:17 pm

Detroit is the poster city for liberal democrat economics.

DG Lesvic April 1, 2011 at 3:42 am

Vik,

I don’t define words any way I want. There are just two ways I would do so. Logically or colloquially.

As I said, my definition of government as the free market is the logical and your definition of it as the state is the colloquail, just as the definition of liberalism as love of liberty is the logical and the definition of it as the hatred of liberty is the colloquial. While in ordinary conversation, we’re pretty much bound by the practical necessity of the colloquial, for the most logical discussion we need the most logical definition.

As I recall, you have a problem with logic. During our last conversation, you refused to answer my question becaue it was hypothetical, which was to refuse to answer it because it was logical. All logical analysis of human action is hypothetical.

I hope someday to have a logical discussion with you, but I’m not holding my breath.

vikingvista April 2, 2011 at 8:54 am

I very explicitly answered your question and so much more, in spite of it being a hypothetical. But thanks for the feedback. I won’t waste my time with you again.

DG Lesvic April 2, 2011 at 6:06 pm

I’m going to hold you to that promise.

danny April 2, 2011 at 4:39 pm

The Japanese gas situation would almost certainly benefit from more market freedom at the moment. Also, it seems silly that the reserve requirement wasn’t lowered to zero by the government after the tsunami. I’m not sure how they could have a “worse” emergency.

Still, that doesn’t necessarily mean the government shouldn’t be providing emergency reserves. Their system is probably poorly designed vs just having the government purchase and stockpile reserves like the strategic oil reserve to release them into the market. To suggest that the market would provide this function of an emergency stockpile if left to itself I think is unclear at best. Being an emergency stockpiler of oil or gas as a private company would be a very risky business, exactly the kind of business “real” markets struggle to supply. In theory a well informed market could supply this, but I’m not sure that any market is capable of measuring the risk properly (especially given that when it comes time to make hay there will be negative political pressure on any firm profiting from that business model). However, the government can afford to possibly lose money on this insurance policy so they wouldn’t suffer from the liquidity issues that a private firm would probably face.

So while I agree that they shouldn’t be rationing in this instance, I don’t necessarily agree that government shouldn’t be involved in emergency planning (at least in the form of reserves and that sort of thing). Russ didn’t suggest that in his post, but some of the debate on the message board (as usual) goes way too far. I think over and over again the postings in this message board are far too idealistic. The idea that government is too involved in nearly everything is self-evident. The idea that they should have NO involvement in anything is completely unrealistic. The idea that building codes are onerous and manipulated by cronies is hard to argue with. The idea that the best option would be NO building codes is immaterial since it is such a pipe dream. Yet, if I were to simply suggest that the first step should be to shrink building codes, the maelstrom rains down immediately that I’m some sort of lefty wing-nut.

I (and I think many other posters on this site) am a little tired of the super vocal element on this board clinging to this idealism and condescendingly criticising my opinions that we need “less” government because it conflicts with their opinion that we need “none”.

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