Can you elaborate? Does he want to remove the anti-"gouging" laws?
Quite the opposite, he's a somewhat populist moderate Republican. He plans to prosecute people guilty of increasing their prices more than 10% during the crisis to full extent of the law.
Restricting price changes during a crisis (or any time really) is a fantastic way to create shortages, delay the arrival of needed or substitute resources, encourage hording, and so on.
* The gas stations without electricity aren't to get electricity any fast because the price of gas is higher.
* Gasoline shipments aren't going to come any faster.
* New gas stations aren't going to pop up as entrepreneurs move into the area to capitalize on increased demand for gas.
A disaster isn't necessarily a 'market force.' No one is going to get supplies into a disaster zone faster because they are trying to turn a quick buck. Especially since it isn't like they can setup shop and expect the increased prices to persist.
If you can sell gas for $10/gal then it becomes worthwhile to get a generator and start pumping gas.
If you can't sell gas at a premium you won't bother.
You could say the same for anyone with a truck that has a bulk tank. If they could go house to house selling gasoline at a premium you can bet good money people would be trucking in thousands of gallons of fuel for generators. But that's price gouging so everyone goes without...
There will probably be a ton of political pressure and publicity ('bad publicity' from the perspective of a business caught gouging) in an effort to make an example of those retailers that attempt to take advantage.
http://nj.gov/governor/news/news/552012/approved/20121027c.h...
No, not at all. All of the gas is in the hands of people who bought it. The supple constraints are not problems of incentives, they are problems of physics. Roads are down, plant is not working, traffic, security, etc.
The reason anti-gouging laws exist is because jacking up prices has no benefit. It just keeps the poor people from having access to resources. 10 gallons of gas to a rich guy is not making the country or the economy better off, than if the gas is given to a poor/normal person, the day after a hurricane/earthquake, etc.
The Feds are going to be on the Hook for $6-7B to fix NY and that's going to be paid by everyone in the country. Most people aren't going to benefit from that, except for the local people in NYC. But we do that as a country to make sure all of the right incentives are in place over the long run, not just opportunistically in the short run.
Neither allocation is optimal; it is indeed unfair for all the gas to go to investment bankers. But that doesn't make it efficient or even fair for all the gas to instead go to the people who can get to the station earliest and wait in lines the longest.
Equally importantly, when you fix prices instead of allowing them to float, you enable hoarding. People get gas who don't need the gas, because they're risk averse and overestimate the likelihood that they'll use up what they already have. So gas quickly runs out everywhere. If you leave the fixed price in place for long, eventually all the value that would have been captured by the station owners instead gets captured by the grey market (and the deadweight losses involved in transferring gas to that grey market).
It's obviously not good social policy to allow gas station owners to charge $100/gallon for gas during a disaster. But it also seems pretty silly for prices to be capped at 10% of the pre-disaster spot price. Gas could easily float up to $10, $15/gallon (ie: the price of gas in Europe), motivate stations to find creative ways to supply that suddenly lucrative market, dampen the consumer urge to fill their tanks to 100%, and not bankrupt anyone (Americans famously overestimate the impact of gas prices on their daily lives).
http://en.wikipedia.org/wiki/Opportunism
Opportunism is not dealt with by economics (assumed != existent), except obliquely. It is the providence of political economy, law and economics, and other areas that focus on the political Institutions that allow "rational-choice" econonmics to actually be logically rational. Some of these ideas are variants of: "I've got your back" in a disaster, so you can trust people to do the right thing, to avoid lord-of-the-flies.
While I appreciate your analysis, its important to keep an eye on the sandbox in which the black box sits. With 3m people without power, and with people losing their homes, no electricity, no cell etc, its more valuable to society to avoid over-generalizations of "rich people" are more important than "poor people" when all of the ATMs are broken, the surveilance cameras don't work, and the police stations are flooded, etc.
Thats just common sense and street smarts, really. Its not really a political or economic argument in the traditional sense (especially the partisan sense). Its more of a point about when the shit hits the fan, you preserve the fabric of society first. Sort of like the 80/20 rule. Having a "basically functional" market is better than having a "perfectly functioning" one but especially is better than having the market looted or burned down (etc). That being said, hording and etc are equally anti-social. Often times what you see is that the quantities will be limited (to say, 8-10 gallons of gas, etc). For this very reason. Those are fair and good points to raise.
The amount you are willing to bid on something under duress is not the way to construct a proper-functiong market. Its important to seperate the short-term from the long-term, in this regards. In certain cases, its rational to obviate the market, into hierachy. see, for example: http://en.wikipedia.org/wiki/Hold-up_problem . This is precisely why firms are distinct from N-dimensional outsourcing arrangements, even under free-market capitalism, under ideal conditions.
So you can attack the problem from perfect conditions or imperfect ones. You may or may not like anti-gouging laws, but an plain vanilla analyis using under-graduate economics is naive to several critical factors.
In fact, I don't believe we should abolish all price caps. I simply think the cap we've chosen is foolishly low. We have empirical evidence that a dense western urban area can survive on prices >300% higher than what they are in NYC now, and yet we've capped price increases at 10%. Fixing prices on a good whose intrinsic value is rapidly increasing, as gasoline's value clearly is in NYC, amounts to declaring a state-managed fire sale on gasoline. How can that possibly be a sensible response to a crisis of scarcity?
If you want to think about it from the other direction: price fluctuations in the gas market of 10% or more are not altogether uncommon, and empirically they do little to alter people's behavior. The 10% cap therefore amounts to a declaration that the market will not be allowed to alter people's behavior, despite the obvious fact that people are not behaving optimally --- and you can look at any gas station near NYC to verify that.
Finally, I just think you made a very flimsy argument upthread: that "jacking up prices", as you put it, serves no objective purpose. Well, no. Not true. At all. The knowledge that rising prices aren't an intrinsically bad thing will help in all sorts of situations where we have actual judgements to make in our lives.
I'm sure there are elements of macroeconomics that don't apply in disasters, but all I'm talking about is the law of supply and demand, and how a 10% cap on gasoline price increases causes problems with it. I feel like basic supply and demand remains meaningful the day after a hurricane.
The logical flow of this argument, with respect to the HN thread is as follows:
1) Opportunistim is predictable and adverse, so it creates distortions, as resources are allocated ex-ante to mitigate its impact.
2) Laws exist to minimize opportunistic behaviour, to minimize the distrotions and resources allocated to minimizing its impact.
3) Per (2), the existence of these laws is incrementally efficient.
4) Anti-gouging rules (2) when observed empirically, are not evidence that the market is broken.
5) Rather, these laws are on the books to make markets work better. Directionally.
[(4) was the original claim, starting this sub-thread]
You're most interested in "correctly" specifying the parametric details of (4). But while this is a valid line of inquiry, its not central to my larger point (5). Good arguments exist that the less change there is the better. Also, the precision of the tools normally used begins to decline.
The analytical toolkit one needs take the debate further is beyond a basic (textbook) understanding of supply and demand. While "supply and demand remains meaningful", it does so in a certain place, under certain contraints and assumptions. All of which are now <edge case> variants. The pre-sumption of equilibrium becomes questionable, externalities dominant, etc.
To wit: The edge case of supply and demand is, classicaly, the boundary of the firm. Inside the firm, supply and demand does not apply. Resources are allocated more efficiently by fiat than by negotiation.
So, in the same way that internalizing resource allocation into a firm is not a problem during the normal course for firms, its not per-se problematic to temporarily suspend or modify market trading terms in an emergency, and even to do so under the (correct) rationale of "efficiency".
Jacking up prices gives distant suppliers an incentive to divert resources towards the disaster-struck area, reducing shortages.
Jacking up prices discourages people from buying goods that they don't really need, making them available to people who really do need them.
On the other hand, if prices are not allowed to increase, people have an incentive to hoard the scarce goods that they anticipate will become scarce. This of course creates those very shortages. And the hoarded goods go unused while the people who really need them are unable to buy anything.
There is a lot of evidence that other economic systems do ruin societies (communism, socialism, command economies, crony capitalism, etc) but generally capitalism is credited with being the most successful system for producing wealth and lifting people out of poverty.
In the short term, strict capitalism would say that a wealthy businessman makes better use of that tank of gasoline than someone who is desperately hoping to transport their family out of a flooded house to stay with relatives in another city. That social burden created by the loss the family man endures doesn't carry a dollar amount, so a system based strictly on capitalism can't recognize that it has become poorer than if the resource had been shared in some other fashion.
How much gas do you think someone needs to transport themselves to another city? Imagine gas prices doubled so that someone had to spend $120 instead of $60 to fill their tank. Are you really trying to tell me that $60 is all that separates a functioning society from 'ruin'?
During a shortage, the high prices don't last forever, they only last as long as the shortage persists. Arguing as if the high prices are an ongoing problem for the poor or the rich doesn't make sense. In any case, it would be much better for the government to give the poor person $60 to purchase the more expensive gas (or the ice, or the food, or whatever was most critical for that person) rather than artificially manipulate market prices.
Thoughtless adherence to an academic principal ruins societies.
it would be much better for the government to give the poor person $60 to purchase the more expensive gas
Why do you think that doubling the price will level supply and demand? It would take at least an order of magnitude, and the seller would have to conduct an auction in the presence of a representative sample of buyers in order to determine pricing. Also you're arguing for setting up an effective social program in the middle of an emergency. It's far more practical to suspend the free market for a week.
Unfettered capitalism in an emergency creates a divided, third world community of normal and desperate. If you want to argue anything, argue that.