Monday, November 12, 2012

Government Response to Scarcity: Make it Free

So, someone decided to make gas free in areas affected by the big northeastern storm, but needless to say, they ran out.  Connecticut, New Jersey, and New Yorkers can report price gouging at telephone numbers and websites. Chris Cristie, recent recipient of the Cato's Friedman Prize, is pursuing these cases as well. 

Arbitrageurs are the criminals in this drama. This is bad because people should be able to pursue their own advantage openly, frankly and honestly, as opposed to poseurs, those doing good by spending other people's money on other people, usually only temporarily because it's hard to sustain.

 Now, why would this instinct against arbitrageurs be so common? Consider the case where someone is offering a high price because they are taking advantage of the customer's ignorance, not because supplies are tight and the new equilibrium price is higher. That's the intuitive feel of gouging, that the bad price isn't an emergent phenomenon, but a personal one. The solution is to promote competition via entry, which exist mainly in the form of safety and fairness regulations. A system to prevent gouging might lower the prevalence gouging, but still not be as good as one where people would occasionally be gouged, but competition and high prices would allocate resources more efficiently, and the higher prices would increase supplies from less urgent uses and areas.

The same could be said for all sorts of financial regulations. They only help the Goldmans of the world. The sad thing is that the primary help offered by government, regulations and rules, discourage entry and competition. This is why I am in favor of shrinking government: it is generally counterproductive.


Anonymous said...

I am sure there are thousands of generators sitting just 100's miles away from NJ, but given the anti-price gouging laws they will not be transported to NJ and sold to the residents of NJ in need. The NJ residents I have talked to would be willing to pay 200$ and up more for light and heat.

But the government enforced sense of "fairness" ensures all will remain equally miserable.

I drove down from CT to NJ to give my sister my generator. Passed dozens of gas stations all displaying "fair" prices protected by State Troopers.

JoshK said...

At first I couldn't figure out how there could be gas lines. You'd think that prices would just rise until there was equilibrium and then more suppply would get out there to lower the prices.

Then I realized that we have a law in NJ limited gas price increases to 10%/month.

Anonymous said...

Only the government would think it could repeal a law of economics.

This is a great little demonstration of what government interference does. And right under the noses of the NY Media.

Equally Miserable.

Governor Cristie is not aqquiting himself well in this mess.

Anonymous said...

You think this is bad? Government promoted feminism plus government created disgenic incentives for the lower class have aligned to create a catastrophe for the human race.

Unanimous said...

A small government can still make lots of bad rules. Making rules is a small proportion of governement expenditure.