I can’t believe I had to write this up, but there were a surprising number of people who thought it was a right-wing myth to claim that it was the price controls causing gas lines, rather than the hurricane. An excerpt, and note that I make a point about stockpiling beforehand that I haven’t seen anybody talking about:
When a disaster strikes, causing supplies to drop and a panic demand for purposes of hoarding, we want market prices to skyrocket in order to provide the right incentives for everyone. Higher prices encourage conservation on the part of consumers: Rather than filling up the minivan, the soccer mom—seeing a posted price of $7/gallon, perhaps—may think, “Well, let me just buy eight gallons right now to get us through the rest of the week, and we’ll see if the price comes back down as things return to normal. I can carpool with the other moms in the neighborhood to take the kids to school; we don’t all need to be driving this week.”
At the same time, the high price would give incentives for people outside the region to ship in more gasoline. There are all sorts of individuals doing this in the “black market” via ads on Craig’s List and other sites; this news story talks of the police arresting a New York man who drove to a Home Depot 80 miles from his house, where he loaded up 150 gallons of gas in (allegedly unsafe) containers to bring back to his neighbors. If the retail market price were allowed to rise, then professional companies would have a much larger incentive to do the same thing, but on a larger scale and more safely.
Pre-Storm Stockpiling Would Have Been Higher, Too
Some critics have objected to the above type of analysis, claiming that in the immediate aftermath of the hurricane, the transportation infrastructure (such as bridges and ports) was so severely damaged that the local gasoline supplies were effectively fixed. Thus, these critics say, the price controls served a useful social purpose, in preventing a few gasoline retailers from getting rich at the expense of their unfortunate neighbors.
Yet this is a very shortsighted analysis, and fails to appreciate the versatility of a truly free market. Suppose for the sake of argument that Hurricane Sandy completely isolated New York City from the outside world for a few days. Even so, theexpectation of anti-gouging rules made the New York residents worse off.
Think of it this way: Meteorologists had given several days’ warning that the “Frankenstorm” was going to be a big one. Residents were stocking up on flashlights, batteries, bottled water, and so forth “just in case.” If we actually enjoyed economic liberty in this country, then the gasoline retailers in the area would have thought, “Hmm, if this storm is as bad as they’re saying, we might be cut off for a few days, and the subways might be flooded. The market in that scenario might bear a price of $7/gallon or even higher. So it makes sense for me to carry a much bigger inventory than I normally do. If the storm is a dud, then I’ll be out a bit of interest I could have earned on my capital, while it’s tied up in the massive inventory that I have to gradually unwind. But if the price does happen to skyrocket, I’ll make a killing.”
Thus, even the amount of gasoline on hand when Hurricane Sandy struck, was itself lower because people in the industry knew full well that the knee-jerk government response is to crack down on “gouging” in such situations. There was not as much incentive to build up large stockpiles in the week before the hurricane hit, as there would have been had retailers believed they actually owned their property and could charge their customers what they wanted for it.