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 overutilize. 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.