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Gouging Reality

Posted By Don Boudreaux On November 4, 2012 @ 10:24 am In Complexity & Emergence,Prices,Reality Is Not Optional | Comments Disabled

Here’s a letter to the New Jersey Star-Ledger:

By enforcing anti-price-gouging legislation, New Jersey governor Chris Christie adds to the devastation inflicted by hurricane Sandy (“N.J. Attorney General goes after price gouging in Sandy’s wake [1],” Nov. 3).

Prices kept artificially low – prices forcibly prevented from reflecting the reality that gasoline and other staple goods are in unusually short supply – discourage the extra efforts required by suppliers in times of natural disasters to bring much-needed inventories to market.  And in return for this dampening of efforts to increase supplies, New Jerseyians receive no off-setting benefits.  Quite the contrary.  At a time when being with family and neighbors is especially vital, price controls cause desperate people instead to waste hours waiting in long lines at gasoline stations and other retail outlets.

The controls also elevate the role of luck over need – need as expressed in willingness to pay higher money prices – in allocating now-more-precious resources.  Those lucky enough to get to gasoline stations early (or, now, lucky enough to have a correct digit on their license tag on days when they most need gasoline [2]) – those lucky enough to own or work at gasoline stations and other retail stores – those lucky enough to have business or political connections that can be exploited for special favors – those lucky enough to be skilled at dealing in the black-market – those and other similarly lucky people get disproportionately large amounts of staple goods now in short supply.  People less lucky get disproportionately smaller amounts.

Only someone who believes the extraordinarily dubious proposition that such luck in times of emergency is apportioned more fairly than is ability to pay higher money prices for staple goods can even begin to justify further clogging supply lines with price controls.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

The following account would have made the above letter too long, so I content myself to relate it only here:

During the summer of 1979′s massive price-control-caused nationwide gasoline shortage, south Louisiana and Mississippi used, among various other rationing schemes, the odd-even-digit-on-a-license-plate method of rationing gasoline.  (I don’t recollect if this scheme was imposed by Washington, Baton Rouge and Jackson, or local governments – or if it was a spontaneous, private reaction to a very bad situation. But it matters not; the scheme was in place.  And, by the way, it did not eliminate long queues at gasoline stations.)

One of my second cousins – an electrician living in a close-in suburb of New Orleans – was working in Pascagoula, Mississippi.  He did this very long commute daily.  His demand for gasoline, therefore, was especially high.  Never shy about using his Irish charm to bargain, he paid some of his neighbors (who, I assume, had much shorter commutes than he did) for use of their license tags on days when his own license tag would have prevented him from purchasing gasoline.

Among the many lessons to be drawn from this simple anecdote is this important one: my cousin – who, by the way, was in no way a rich man – in fact paid even in money more for gasoline than the government dictated that he pay.  And he did so voluntarily.  Indeed, he actively sought out opportunities to do so.

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[1] N.J. Attorney General goes after price gouging in Sandy’s wake: http://www.nj.com/news/index.ssf/2012/11/nj_attorney_general_goes_after.html

[2] or, now, lucky enough to have a correct digit on their license tag on days when they most need gasoline: http://www.usatoday.com/story/news/nation/2012/11/02/sandy-gas-new-jersey/1677715/

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