07 Nov 2012

Econ 101 Works! Price Controls Cause Gas Lines

Economics, Oil, Shameless Self-Promotion 102 Comments

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.

102 Responses to “Econ 101 Works! Price Controls Cause Gas Lines”

  1. Daniel Kuehn says:

    I think you are right on the economics, but the data (as usual) isn’t quite as decisive as the theory.

    After our strong storm here over the summer that knocked out power for a couple days, we didn’t have any price caps (at least not that I heard of), and we had gas lines. Obviously not as long as NJ.

    Why?

    Inelastic demand with all the generators, Relatively fixed short run supply, and probably also some price stickiness due to what gas station managers felt was fair.

    All your expectations arguments around holding a stock I think make a lot of sense. For this and lots of other good reasons I oppose the anti-gouging stuff. But some people I think go too far in praising what price increases can actually deliver.

    All this is just to say I’d strike that line “rather than the hurricane”. Lots of good points here – especially the expectations thing, which I think a lot of people ignore.

    • Bob Roddis says:

      1. What were the prices pursuant to that alleged regime of no anti-gouging laws? $10 a gallon? Do we know for sure that there was REALLY a free market in gas (you lover of all CAPS)?

      2. Have you found that elusive post-Keynesian who understands Austrian theory yet?

      http://tinyurl.com/adfkbgo

      • Daniel Kuehn says:

        LK is one. Rosser certainly. I haven’t really polled PKs.

        I’m fairly confident they’ve got a better grip on it than you do .

        • Bob Roddis says:

          $36 for an article? That’s predatory price gouging. I’m calling the attorney general.

          http://www.tandfonline.com/doi/pdf/10.1080/08913819908443538

        • Major_Freedom says:

          I’m pretty sure Roddis knows more than LK, since he’s been trying to teach LK of his errors concerning Austrian economics.

          • Daniel Kuehn says:

            LK has been trying to teach Roddis his errors…

            see how your logic is either:

            1. Circular. or
            2. Easily used against you

            That’s not a very good position to be in either way, MF.

            • Major_Freedom says:

              I meant Roddis has been trying to teach LK about LK’s errors.

              The “his” is LK.

              • Daniel Kuehn says:

                *as proof

              • Lord Keynes says:

                Tell me, M_F: is it your belief that :

                (1) Hayek’s equilibrium structure of wages and prices has nothing whatsoever (as in zero) to do with neoclassical/Walrasian GE theory?

                (2) the law of demand can be false, yet still this would have no impact on the notion of a market-clearing equilibrium structure of wages and prices?

              • Major_Freedom says:

                (1) Hayek’s equilibrium structure of wages and prices has nothing whatsoever (as in zero) to do with neoclassical/Walrasian GE theory?

                I don’t know what you mean by “nothing to do with”.

                Hayek argued that he had to start where the mainstream view of markets was already at, as a mental tool, so that he could show other economists how central banking affects the economy away from what the market process would have resulted in.

                At any rate, I don’t look to Hayek for ABCT. I look to Mises. After all, Mises taught ABCT to Hayek.

                I don’t think Hayek was a particularly clear thinker.

                To answer your question, “having to do” with X does not mean one holds X.

                Many of my convictions for example “have to do with” Kant, but that doesn’t mean I hold Kant’s writings as correct.

                (2) the law of demand can be false, yet still this would have no impact on the notion of a market-clearing equilibrium structure of wages and prices?

                I don’t regard the law of demand as potentially being false. I hold it as apodictic, even in the face of cases in which within particular zones of demand curves, the quantity demanded does not go up when the price falls, nor when the quantity demanded falls when the price falls.

                For Giffen goods, as an example, these are goods in which the valuation of the good is itself a function of the price of the good. This don’t contradict the law of demand. They are like grapes of lesser quality being in less demand than grapes of higher quality, for the purposes of making good wine.

                To answer your question, if the law of demand suddenly disappeared tomorrow, then of course it would have an impact on pricing, since real world pricing today depends on that law.

              • Lord Keynes says:

                “I don’t know what you mean by “nothing to do with”. “

                Problems with English comprehension, eh!

                “nothing to do with” =

                is the notion of Hayek’s equilibrium structure of wages and prices

                related to
                connected with
                derived from
                dependent on

                neoclassical/Walrasian GE theory?

                Since you say “Hayek argued that he had to start where the mainstream view of markets was already at, as a mental tool,” this suggests you do in fact concede that Hayek – as everyone knows – worked with GE theory and took up Walrasian GE ideas.

                Roddis’s claim that the notion of Hayek’s equilibrium structure of wages and prices has “nothing to do with ‘market-clearing Walrasian price vectors’” is manifestly false.

                http://mikenormaneconomics.blogspot.com/2012/11/matias-vernengo-on-austrian-business.html?showComment=1352079298519#c7617435052728682495

              • Major_Freedom says:

                Both of you are going too far.

                Yes, Hayek started with the idea of GE as a mental tool to show other economists how market intervention deviates the economy away from what it would have been on a free market. In this sense, Hayek’s discussion had SOMETHING to do with market clearing Walrasian price vectors.

                But you are going too far in saying that Hayek’s arguments somehow logically depend on, or are argumentatively derived by, Walrasian equilibrium. In the strict logical sense, Hayek’s argument really doesn’t have anything to do with Walras’ work.

                To Hayek, “equilibrium” is what would prevail on the market. It is not Walras’ price vector.

                I am sure if you asked Roddis where Hayek even came up with the concept of “equilibrium” in the first place, he’ll say “Walras”. In this sense, the sense that I “conceded” to you, Hayek’s discussion does “have to do with GE.”

                I mean, Keynes’ theory “has to do with” middle age mercentilism in the sense that that is where his ideas are rooted, even if he had different conceptions of what mercentilist states should do, and even if he didn’t even call his theory mercantilist.

              • Lord Keynes says:

                In this sense, Hayek’s discussion had SOMETHING to do with market clearing Walrasian price vectors.

                But you are going too far in saying that Hayek’s arguments somehow logically depend on, or are argumentatively derived by, Walrasian equilibrium. In the strict logical sense, Hayek’s argument really doesn’t have anything to do with Walras’ work.

                The assertions in bold directly contradict one another.

                You have violated a basic law of logic: you have asserted that “p” and “not p” at the same time.

                Which is it?

                Then you contradict yourself again when you say “Hayek’s discussion does “have to do with GE.”

                Impressive, really.

              • Matt Tanous says:

                “The assertions in bold directly contradict one another.”

                No, LK, you are ignoring the distinction that is made. Hayek pointed out a theory that was based in equilibrium as a concept. He used the dominant example of this concept for his examples, which happened to be Walras’s.

                If, however, you replace that with any other conception of equilibrium – such as, for example, Mises’ ERE – the theory still stands.

                So while Hayek’s explanation had something to do with Walrasian GE, the theory is completely independent of it.

              • Major_Freedom says:

                Those statements do not contradict each other, LK.

                Religion “has to do with” astronomy (since religious stories are historically derived from observational regularities in the stars), it doesn’t mean that religion logically depends on astronomy.

                More examples:

                Nazism “has to do with” Fichte’s and Nietzsche’s philosophies, but that doesn’t mean that Nazism is logically dependent on their philosophies.

                The internet “has to do with” government financing which resulted in the basic ARPA packet switching technology. But that doesn’t mean that internet communications are logically dependent on statism.

                Your understanding of Austrian economics “has to do with” the debates that you have had with internet Austrians. But that doesn’t mean that your understanding of Austrian economics is logically derived from their understanding.

                There are many more examples. It seems nuance and subtlety are very weak spots for you.

              • Lord Keynes says:

                “So while Hayek’s explanation had something to do with Walrasian GE, the theory is completely independent of it.”

                Yet another violation of the law of non-contradiction.

              • Major_Freedom says:

                Still no contradiction, LK.

                It’s worded in a way that definitely looks like a contradiction, but I think it can be understood by getting the difference between theory and history. Read Mises’ book “Theory and History”.

                I think what is happening here is that Hayek’s discussion is historically “something to do” with Walras, but that doesn’t mean it is theoretically dependent on it.

                I think you treat history and theory the same, much like chemists and physicists do, so when you see someone saying A is historically related to B, you think it has to be theoretically related too, such that it has to be logically dependent.

                Thus, you see a contradiction.

            • Daniel Kuehn says:

              I understand that MF. I’m saying that LK has been trying to teach Roddis about Roddis’s errors.

              That’s my claim.

              See how your logic is either circular or easily used against you.

              You’re assuming your own conclusions in offering Roddis “teaching” LK as truth.

              • Matt Tanous says:

                LK attempting to teach Roddis that he is making errors in understanding Austrian economics is about as sensible as Krugman correcting Murphy on what ABCT is, or Lange correcting Mises on economic calculation.

                See the point is that the people making the corrections have a totally flawed understanding of what they are correcting.

                I’m not saying that the Austrian theory is even necessarily right (although I strongly believe it is) – only that the understanding of it purported by LK and others is way off base.

              • Lord Keynes says:

                “I’m not saying that the Austrian theory is even necessarily right (although I strongly believe it is) – only that the understanding of it purported by LK and others is way off base.”

                On the contrary, anyone who thinks that a set of market clearing prices is a fundamental idea of modern Austrian economics, understood by no other school, is clearly incompetent even at understanding what modern Austrian economics is – certainly at the full range of views within modern Austrian economics

                Unless, of course, your view of Austrian economics is that it is nothing but a handmaiden to neoclassical economics.

              • Major_Freedom says:

                Not sure what you are referring to, because Roddis has been trying to teach LK about LK’s errors.

                That’s what has been happening.

                I don’t see how my argument is inherently circular, nor that it can be used against me.

                It’s not inherently circular, that’s clear.

                It can’t be said to be used against me by you merely stating as much.

              • Major_Freedom says:

                On the contrary, anyone who thinks that a set of market clearing prices is a fundamental idea of modern Austrian economics, understood by no other school, is clearly incompetent even at understanding what modern Austrian economics is – certainly at the full range of views within modern Austrian economics

                Market process tendencies towards clearing prices, is actually not a bedrock of Austrian economics.

                It is but a component among many for a particular theory within the Austrian framework.

                Austrian economics is the study of acting man, and what can be ratiocinated from self-reflecting on the concept of action.

                It’s best characterized as a quantity of few, yet apodictically true propositions about individual action.

                If you can grasp that thinking is an action, then you are on the first step towards understanding Austrianism.

        • Jonathan M.F. Catalán says:

          I’d hate to call him out again, but I have to really disagree with you about LK. What irks me the most is when he quotes Austrians out of context. (I actually paid $7 to check out an article that he had quoted out of, and it turned out he had taken Hayek totally out of context.)

          • Lord Keynes says:

            If we want to speak about astonishing misunderstandings of Austrian economics, we need only revisit your absurd attempt to turn both Mises and Rothbard into radical subjectivists, who (according to you) denied that there was any tendency towards equilibrium states (say, towards Mises’s final state of rest) in market economies.

            Then you retreated from that position in a comment over at the radicalsubjectivist blog.

            • Major_Freedom says:

              That’s called ad hominem tu quoque.

              • Major_Freedom says:

                Or, in your words, a “cowardly evasion” that introduces a red herring ad hominem.

      • Lord Keynes says:

        If people really want to see how tenuous Bob Roddis’s grip of both economics in general and even Austrian economics is, then they need only review this thread:

        http://mikenormaneconomics.blogspot.com/2012/11/matias-vernengo-confusion-and-failure.html

        We’ve now established that roddis:

        (1) thinks that Hayek’s equilibrium structure of wages and prices has nothing whatsoever to do with neoclassical/Walrasian GE theory.

        (2) he thinks the law of demand can be false, yet still this has no impact on the notion of a market-clearing equilibrium structure of wages and prices.

        (3) also demonstrated that his broken record player cry that nobody outside the Austrian school has ever understood their alleged problems of “economic calculation” is nonsense.

        More interestingly, he also has no notion that 2 strands within neo-Austrianism – viz., (1) the moderate subjectivist strand of Rizzo and O’Driscoll and (2) Lachmann and his followers – would not even accept any tendency to a market-clearing equilibrium structure of wages and prices.

        E.g., If one looks at Rizzo and O’Driscoll’s the Economics of Time and Ignorance, they clearly discard the tendency to GE states. Their reformulated “pattern coordination” is quite different from a GE state too.

        • Matt Tanous says:

          1) Yes, his understanding of equilibrium differed from the Walrasian garbage with its mathematical equations that have no bearing in reality.

          2) The idea that the law of demand might not be true for status symbols is irrelevant for market-clearing. Primarily because you are actually contravening the all-important ceteris paribus clause. If there is increased demand for a good as a symbol of status, then all things are NOT equal – the consumer is buying both the good in question AND the ability to demonstrate their wealth as status. The latter necessarily is a different good at different prices, as well.

          3) Certainly, you have never demonstrated any understanding of economic calculation as a concept.

          “More interestingly, he also has no notion that 2 strands within neo-Austrianism – viz., (1) the moderate subjectivist strand of Rizzo and O’Driscoll and (2) Lachmann and his followers – would not even accept any tendency to a market-clearing equilibrium structure of wages and prices.”

          Or he just rejects the so-called “moderate subjectivist” strand and Lachmann’s absurdity of a completely unknowable future that contradicts the very possibility of action directed at the future (as all action is) if taken to its logical conclusion.

          • Lord Keynes says:

            (1) “Yes, his understanding of equilibrium differed from the Walrasian garbage with its mathematical equations that have no bearing in reality.”

            Hayek’s notion of plan coordination from his 1937 paper “Economics and Knowledge” does indeed discard the notion of a set of equilibrium prices. Everyone knows that.

            But in the stock quote of Hayek Roddis pulls out, Hayek is clearly thinking there in terms of Walrasian market clearing equilibrium. This is just further proof that Hayek was inconsistent in his attitude to GE theory, certainly in that talk.

            (2) You seem to be talking about what, in economics literature, are called commodities with “snob value”.

            But I am asking a different question: if the law of demand can be false in a general sense, then does this have no impact at all on the notion of a market-clearing equilibrium structure of wages and prices?

            “Lachmann’s absurdity of a completely unknowable future

            (3) Lachmann did say “the future is unknowable but not unimaginable” – and by that all he meant was that economic agents are subject to radical/Knightian uncertainty.

            So is it your view that Austrian economics does not think that economic agents are subject to radical/Knightian uncertainty??

            • Major_Freedom says:

              I agree with you LK.

              Politicians, regulators, and lawmakers really are subject to Knightian uncertainty. Their expectations are necessarily subjective. They are uncertain about the future.

              So you’re absolutely right that statesmen can foist the general economy onto prolonged slumps, in which the only forces that can turn the economy around are strong market forces in which more individuals act more in accordance with private property economic freedom subject to profit and loss.

            • Matt Tanous says:

              1) Hayek was inconsistent overall. I do not intend to defend Hayek, nor examine this contention over the issue. Only to point out that, inconsistent as he was, nothing was derived from or dependent upon the specifically Walrasian idea of mathematical equilibrium.

              2) The law of demand cannot be false in a general sense. And Roddis did not claim it to be so – he acknowledged that some people will pay for this “snob value”, and he personally would not.

              3) “by that all he meant was that economic agents are subject to radical/Knightian uncertainty.”

              I see. So you are not only more familiar with Austrian economics than Roddis, but also Rothbard!? Lachmann claimed the future to be “absolutely unknowable” – meaning, as his writing demonstrates, there are supposedly no laws that can determine cause and effect. (Of course, when pressed, he claimed this was only true in the social world.) Which is to deny not only Austrian economics on account of “subjectivity”, but ALL economics.

              Rothbard wrote a lengthy article – “The Present State of Austrian Economics” – on the subject of the “subjectivist Austrians”, as not being Austrians at all, and often not even being economists. (He also heavily criticized Hayekian thought, as well.) It is ludicrous to just lump all these lines of thought together – the Misesian, the Hayekian, and the Lachmannian – as being fundamentally the same. The only real connection is that both Hayek and Lachmann started out as competent Austrians (Hayek with Prices and Production, and Lachmann with Capital and Its Structure) and then were basically converted to other types of thought – Hayek the more neoclassical, and Lachmann to the teachings of Shackle.

              • Lord Keynes says:

                “Only to point out that, inconsistent as he was, nothing was derived from or dependent upon the specifically Walrasian idea of mathematical equilibrium.”

                That Hayek derived his early basic economic framework from Walrasian GE is an obvious truth. It is astonishing that you deny it.

                ” The only real connection is that both Hayek and Lachmann started out as competent Austrians (Hayek with Prices and Production, and Lachmann with Capital and Its Structure)

                Hayek’s Prices and Production is precisely the work shows the greatest influence of GE theory out of all of his work.

                “and then were basically converted to other types of thought – Hayek the more neoclassical, “

                You have got it precisely around the wrong way: in fact, Hayek started deeply steeped in neoclassical thought, then moved away from it.

              • Major_Freedom says:

                That Hayek derived his early basic economic framework from Walrasian GE is an obvious truth. It is astonishing that you deny it.

                It is not derived from it in the sense that without Walras, there can be no Hayekian ABCT. ABCT can be theoretically derived independent of Walras, despite the fact that they are historically related and that one influenced the other.

                You have got it precisely around the wrong way: in fact, Hayek started deeply steeped in neoclassical thought, then moved away from it.

                Wrong. According to his own writings, Hayek started out deeply Misesian, and then moved towards neoclassical and then later on to social democratic thought.

              • Lord Keynes says:

                That Hayek deviated from his early neoclassical economics framework, especially on equilibrium after 1937, is a straightforward fact.

                You of course are too dishonest or stupid too acknowledge it.

                And when did Hayek ever call himself a social democrat?

                When you’re free to invent things at will, you can prove anything you like, can’t you MF! That is your operating procedure

              • Major_Freedom says:

                That Hayek deviated from his early neoclassical economics framework, especially on equilibrium after 1937, is a straightforward fact.

                You of course are too dishonest or stupid too acknowledge it.

                It’s a red herring. It doesn’t need to be acknowledged.

                And when did Hayek ever call himself a social democrat?

                Around the same time Hitler called himself a tyrant.

                When you’re free to invent things at will, you can prove anything you like, can’t you MF! That is your operating procedure

                Yeah, because you’re not X unless you personally name yourself X.

    • Bob Murphy says:

      Daniel we had lines in Nashville a couple of years ago, for a few days, and there it was because the AG set up a hotline asking motorists to report any “gouging” they saw. (A storm had knocked out a refinery that supplied our area.) I don’t even know if they had statutory authority to do that, and certainly the governor didn’t announce, “All prices are capped at last week’s price,” but retailers knew they were taking a gamble if they raised prices significantly.

      • Daniel Kuehn says:

        Right – we are in complete agreement that anti-gouging laws will cause lines.

        I just suspect that if gouging were allowed after a storm like that you’d still have long lines. Anti-gouging laws make things worse – but I doubt gouging would solve a lot of the problems some people (really just one or two in my comment thread… but presumably more) think it will solve.

        • Major_Freedom says:

          I just suspect that if gouging were allowed after a storm like that you’d still have long lines.

          Yes, because everyone would want the same quantity of gasoline during an emergency, as they would during normal times, no matter how high the price gets.

          Dammit, I am not going to avoid going to the movie theater this month no matter how expensive gas gets!

        • Bob Murphy says:

          DK wrote:

          I just suspect that if gouging were allowed after a storm like that you’d still have long lines. Anti-gouging laws make things worse – but I doubt gouging would solve a lot of the problems some people (really just one or two in my comment thread… but presumably more) think it will solve.

          This is what I meant on your blog, Daniel, when I accused you of not believing in supply and demand anymore. You’re saying that the amount of gas people want to buy is the same, whether the price is $4 or $10 per gallon?

          If you just mean, there are social norms and the retailers would be afraid to jack up prices for fear of people beating the crap out of them or not inviting them to parties anymore, OK I will back down. Then it would technically still be due to a price lower than the market-clearing price, but it wouldn’t be the fault of the government. It would be analogous to wage stickiness that was genuinely coming from market forces.

          But is that what you are saying? I’m getting the sense you think that even a skyrocketing price wouldn’t cut down on the lines.

        • Silas Barta says:

          Agreed. I’m a little iffy on whether this whole “supply and demand” thingama-whatchamacallit works.

      • Bob Roddis says:

        Oh come now, Prof. Murphy. That’s just an anecdote. That’s not scientific. That’s not proof. And it’s all because you Austrians don’t believe in empirical evidence. Because you can’t do math.

        • Daniel Kuehn says:

          “Data” is the plural of anecdote.

          • Ken B says:

            Get thee behind me satan!

            • Bob Murphy says:

              Oh Ken you can be funny, even droll, at times.

              • Ken B says:

                “Just once, and that continuously.”

              • Major_Freedom says:

                “Just once, and that continuously”

                Kind of like that line right there.

      • Ken B says:

        I remember debating — this was back when you were but a gleam in your father’s eye Bob — with intelligent educated friends about the odd/even licence idea. I said it would make lines worse. Outraged denial! One angry denier was a mathematican who did a post doc at the IAS!

        I just don’t know why this kind of thing is so hard to see. People let emotioanl responses about ‘good’ or ‘bad’ behavior cloud their thinking.

        • Daniel Kuehn says:

          So I feel really dumb asking this – but why does odd/even rationing make it worse?

          I mean, it “makes it worse” in the sense that it treats the symptom and not the disease and makes people anticipate needs more than they otherwise would need to and that’s all dumb and welfare reducing.

          But I don’t see an obvious reason why it would lengthen lines (I don’t see why it would shorten them either – it would just reshuffle people).

          Isn’t it the price control that actually lengthened the lines?

          • Ken B says:

            Imagine that with an odd plate you drive past a short line on an even day. Can you join it?

            Imagine that on an odd day you think you might need to travel extra far tomorrow. You have enough gas for normal use only. Can you wait for tomorrow or do you join the line now?

            • Major_Freedom says:

              Imagine that with an odd plate you drive past a short line on an even day. Can you join it?

              Short line?

              Are you not contradicting the context of long line ups?

              • Ken B says:

                No. I am noting that lines vary from place to place and time to time.

              • Major_Freedom says:

                OK, but do varying lineups include short line ups during a disaster?

                That’s a stretch.

                DK was asking how would odd-even plate days make things WORSE.

            • Daniel Kuehn says:

              OK – so there’s this inter-temporal decision making it forces on you. I get that – I’d agree with that. But it doesn’t do it through any mechanism like the price control does for increasing lines.

              I guess I’d put it this way: the principle problem with odd/even rationing is its futility and its impact on welfare, not its impact on excess demand (after all – the guy that goes on the 1st because he’s not sure if he’ll be able to wait till the 3rd won’t be coming on the 3rd in all likelihood… excess demand is unlikely to increase all that much as a result of the odd/even scheme)

              • Ken B says:

                Right. I just said it makes things worse. Different effect from the gouging law.

                Same overarching cause though: messed up incentives and restricted choices.

              • Daniel Kuehn says:

                Gotcha

            • Bob Murphy says:

              MF and Daniel, my gut tells me Ken B. is right about this. If you just draw a supply and demand curve that is timeless, then it doesn’t matter.

              But, if you are trying to assess the impact of rationing schemes that depend on days of the week for their very definition, then clearly you need a model of gasoline demand that occurs over time. And so I think once you introduce that, Ken is right.

              • Major_Freedom says:

                I think I get that general point, but wouldn’t the odd plate “excess problem to the problem” more or less counter-act the even plate “excess problem to the problem”?

                It would create its own problems, but I can’t see how it would make line ups longer.

                If you have an odd plate on an even day, then you don’t add to the line up, but even plates do.

                And vice versa.

                Where are the extra cars coming from?

                Maybe I need an example with numbers to get it.

              • Bob Murphy says:

                Maybe I need an example with numbers to get it.

                MF be careful…are you sure you want Ken B. and me arguing over an Excel spreadsheet showing Al through Edward with even plates, and Frank through John having odd plates?

              • Bob Murphy says:

                MF just to point out something: How do price controls cause lines? I mean “where are the extra cars coming from”?

                So the mistake in your reasoning is to think that the introduction of the new restriction, doesn’t have any effect on how much gasoline people want to try and get at a given time.

              • Ken B says:

                There are other considerations too. In my neighbourhood more people have even plates, but in Bob’s (naturally enough) they’re all odd. The point being that the restriction makes it harder to adapt to any local variations, be they of long or short duration, persistent conditions or mere fluctuations.

              • Major_Freedom says:

                MF just to point out something: How do price controls cause lines? I mean “where are the extra cars coming from”?

                They come from the lack of gasoline. The line ups extend because the quantity demanded exceeds the quantity supplied.

                So the mistake in your reasoning is to think that the introduction of the new restriction, doesn’t have any effect on how much gasoline people want to try and get at a given time.

                I am trying to understand how odd / even plate laws INCREASE the line ups.

                Does it contribute towards the difference between quantity demanded and quantity supplied?

                My thinking is that for every odd plate car driver you can imagine adding to a line up, there is a corresponding even plate car that isn’t.

                I am of course more than willing to see an example so that I understand it better.

                There are other considerations too. In my neighbourhood more people have even plates, but in Bob’s (naturally enough) they’re all odd. The point being that the restriction makes it harder to adapt to any local variations, be they of long or short duration, persistent conditions or mere fluctuations.

                OK, I think I get it now.

                I was assuming a constant distribution of plates. I was assuming that in any given neighborhood, or city, or whatever, there would be a 50-50 split.

              • Bob Murphy says:

                MF wrote:

                I was assuming a constant distribution of plates. I was assuming that in any given neighborhood, or city, or whatever, there would be a 50-50 split.

                OK assume that. Now imagine an extreme scenario where in your neighborhood, the people with even plates for some reason don’t need to drive on Monday or Tuesday. But the people with odd license plates need to drive on both Monday and Tuesday.

                If we just have the price ceiling, but no other rationing, then in practice the lines from the odd-plates will be evenly spread out over Monday and Tuesday. On Monday they might all go to fill up, until the lines encompass half of them and (since we assume rational expectations) they know that the lines will be just as long tomorrow, that’s when people decide to wait a day. (Or, people who really are running low on gas go on Monday, leading to long lines that encourage the others who can wait a day, to go on Tuesday.)

                But then Chris Christie says, “If you have an odd license plate, you can only buy gas on M-W-F.”

                Now everybody has to pile in on Monday, who can’t wait until Wednesday. So the lines that these people have to wait in, are longer than they would be in the other equilibrium.

                And with our extreme assumption, there are no lines at all on Tuesday.

                Yes if you assume away enough stuff, “on average” the license plate thing might not matter, but *at best* it won’t matter. There are all sorts of real-world complications that could make it cause worse delays.

                Another way of putting it: It can’t possibly *reduce* lines by introducing another constraint, since the market would have an in-built mechanism to spread the lines out over time and minimize them. Thus, introducing a new constraint can at best do nothing, and in practice will lead to longer lines on average.

              • Major_Freedom says:

                I was taking it for granted that a whole bunch of complications would have to be “tuned” just right to result in no additional delays, because I was/am? assuming there are no statistical anomolies between license plate numbers and gasoline needs/habits that would manifest itself in additional line ups as compared to the baseline of “ceteris paribus but without the odd even law.”

                I understand what you are saying, that IF the kinds of “extreme scenarios” were to transpire, then odd even rationing would bring about more lineups.

                I guess we’re on the same page, because those extreme possibilities are what I was thinking were missing, and had to be explicitly mentioned before I would integrate them into my thinking.

                I think what sealed the deal for me is when you said the market process tends to spread purchases over time, and that introducing odd even rationing restrictions could only at best have no effect, but because of the almost certain complications that can arise, which are necessarily unknowable to mortal individuals like myself, it is likewise almost a certainty that the odd even rationing would make clear those complications that we oh so easily take for granted in the market process.

                I think that’s maybe the “hunch” you had that it would be silly to think odd even rationing cannot make the line up situation worse. If we can imagine possible complications, then it would take a miracle for them to all average out such that we see no change.

  2. William says:

    Daniel,

    In Virginia:
    “The Anti-Price Gouging Act (Act) prohibits a “supplier” from charging unconscionable prices for “necessary goods and services” within the affected area during the thirty (30) day period following a declared state of emergency. Motor fuels, including gasoline and diesel, are considered necessary goods.”

    http://www.vdacs.virginia.gov/forms-pdf/cp/oca/complaint/pricegouging.pdf

    • Daniel Kuehn says:

      Insteresting.

      Of course whether this is just on paper or actually an influence at all is an empirical question.

      • Bob Roddis says:

        And it’s also technically an empirical question as to whether your next response to an undeniable pro-Austrian assertion will be your typical hair splitting and obfuscation.

        • Ken B says:

          Overheard:
          “I don’t agree.”
          “See? I knew you didn’t understand.”

      • Major_Freedom says:

        Yes, because we always hear about stories and research papers of gas stations raising the price of gasoline to over $10 a gallon or whatever during emergencies…

        /s

        At this point, it remains empirical until you personally look out your window.

        • Daniel Kuehn says:

          I don’t know why this sent you and Bob into a frenzy.

          Laws on the books don’t affect behavior because people don’t know about them all the time. I’m not making some kind of radical claim here.

          Vague laws with languages like “unconscionable” are particularly prone to this. You see this with restrictions on things like payday loans a lot – laws on the book that prohibit “unconscionable interest rates”. Guess what: those states usually look a lot like states that don’t place any restrictions on payday loans.

          • Bob Roddis says:

            Ok. So where’s all your “data” showing $15 a gallon gas plus long lines in states that have the death penalty for price gouging?

            http://www.flickr.com/photos/bob_roddis/5665427476/in/set-72157600951970959

            • Daniel Kuehn says:

              I don’t understand the question, and I strongly suspect you are misunderstanding my claim.

              • Major_Freedom says:

                I think he’s saying that the empirical question of whether or not anti-price gouging laws are actually being followed, has been answered already, namely, there is no evidence of gasoline stations price gouging during emergencies where the law applies.

                In other words, whilst you are treating the empirical question as a current hypothetical, Roddis is saying it’s not hypothetical.

          • Major_Freedom says:

            What frenzy are you talking about? I’m actually just chuckling.

            Laws on paper do affect behavior, or else people would always act as if there were no laws on paper.

            Vague laws are often even more effective, because if the state threatens a gas seller with anti-gouging punishment, for “unconscionable” price increases, then he may be so scared that he won’t even raise his price a penny because maybe some buyer will phone the cops, even though he may be legally allowed to raise the price by a penny.

            • Daniel Kuehn says:

              MF I’m not arguing laws don’t affect behavior and I’m not arguing vague laws can’t affect behavior.

              Come on – your reading comprehension can’t really be this horrendous, can it?

              • Major_Freedom says:

                You said

                Laws on the books don’t affect behavior

                Don’t think it’s my reading comprehension that is the problem here.

              • Major_Freedom says:

                And I didn’t say you said vague laws CAN’T affect behavior.

                You said vague laws are particularly prone to being ignored. Yet the context is gasoline, and, as if often the case with vague laws, they can be more “effective” in terms of altering behavior than precise laws, since with threats against vague price gouging, price rigidity is more likely.

              • Daniel Kuehn says:

                You challenged my claim that this could happen.

                Notice you left off the half of the sentence where I conditioned the first half???

                Yes, I still have doubts about your reading comprehension.

              • Major_Freedom says:

                Think about it.

                If someone threatened you with kidnapping if you talked “too loudly”, would you be more or less quiet as compared to if they threatened you if you talked above X decibels?

                I submit that the vague threat would lead you to being more quiet.

                This is why I said vague laws are “often more effective”. Not always of course.

              • Ken B says:

                DK to M_F: “Yes, I still have doubts about your reading comprehension”.

                We differ again! I harbor none.

              • Major_Freedom says:

                No, I didn’t challenge your claim that this could happen. I only said vague laws can often be more effective, that’s all.

                The reason why I said that is because I think this is the case with anti-price gouging.

                There is no implication in me leaving out the second half of that argument, where you continued with “because.”

                The particular reason for your claim that laws on the books don’t affect behavior, does not change the fact that you did write that laws on paper don’t affect behavior.

                If you had instead said something like

                “Laws on paper don’t ALWAYS affect behavior, because…”

                then I would not have pointed it out.

                I still think the problem is not my reading comprehension.

              • Daniel Kuehn says:

                I think I’m coming around to agreeing with you though Ken B (a reassuring position to be in, btw).

                I need to repeat my mantra: Do not feed the trolls. Do not feed the trolls. You come here for Bob’s wisdom not MF’s nonsense. oooohhhmmm ohhhhhmmmm.

                Centered again. Very good.

              • Major_Freedom says:

                DK you are a troll.

              • Major_Freedom says:

                Ken B,

                Where did I misread DK?

                Apparently easy to assert, apparently difficult to show.

              • Ken B says:

                I can’t be here for Bob’s wisdom. I read the Sunday threads! (ba-BOOM-ba)

              • Major_Freedom says:

                At some point Ken B, you reading every Sunday thread starts to look uncannily like you searching for wisdom.

                I mean, I stopped reading Family Circus because I found out it wasn’t funny. If I kept reading it anyway, it would look like I am still searching for laughs.

                Seeing as how you’re (allegedly) convinced about theism and atheism, I cannot help but suspect you are like someone reading Family Circus every week because he is hooked on the belief that maybe he’ll laugh again like he used to, only in your cause it’s learning new wisdom.

              • Ken B says:

                “Where did I misread …?”

                Just once, and that continuously.

              • Major_Freedom says:

                Where did I misread DK on this thread?

      • Silas Barta says:

        Yeah, it’s a really tough question whether retailers worry about being legally abused by AGs who want to placate a hysteria driven public, we really need to do some studies before can conclude it’s okay to bash them for being so greedy when obviously they know nothing will go wrong if they raise prices to market clearing levels.

        • Bob Murphy says:

          Good (sarcastic) point Silas. I have some “day job” stuff to do, but later I will post on Krugman pulling an analogous stunt with Wall Street donors to Romney. I.e. Krugman tries to make it sound like they disliked Obama just for petty personal reasons, then ends up concluding that an Obama reelection means they are screwed. Huh?

          • Silas Barta says:

            LOL good catch. Krugman’s defense would be “Obama’s not doing anything harsh to them now, but he *will* do stuff later when re-elected” (and it would be a very bad defense)

  3. William says:

    But indeed, in Maryland:

    “”Maryland does not have a price gouging statute,” Paulson said. “This office has been supportive of price gouging legislation in the past.”

    The attorney general can and does prosecute businesses that he suspects of price gouging under the fair practice laws of the state, but Paulson said the burden of proof in those cases is much higher.

    “We would still like to hear the complaints; we would like to get them,” Paulson said.

    http://bethesda.patch.com/articles/maryland-attorney-general-gets-reports-of-price-gauging

  4. Jordan says:

    Good point on the stockpiling. Few people realize that flexible pricing discourages panic buying and hoarding before the event as well. A night before the storm in MA, all the regular gasoline was sold out at the three stations I checked, selling at $3.70/gallon. If that gas was $5, then there’d be more supply left during and after the storm, which is imperative for allowing higher value uses during emergencies. We know better after the storm who really needs what the most, and more even distribution before the event is preferable to the equivalent race to the pump and panic buying that results in lumps of goods and hoarding.

    • Bob Murphy says:

      Jordan heh you’re taking it even further than I did. You’re talking about conservation among the consumers before the storm hit, whereas I was talking about building up the supply.

    • Major_Freedom says:

      We know better after the storm who really needs what the most

      What would you say to someone who says that what you really mean by those “who need the most”, is those “who have the ability to pay more”?

      • Matt Tanous says:

        Another question is “who is we”? I certainly don’t know, after the storm, who most needs gas in NJ – nor who has the ability to pay more.

        • Jordan says:

          MF – I’d say the ability to pay is of course a prerequisite but the key is willingness to pay, and the wealth issue is important but generally conflated.

          Matt – Fair point, “we” was a poor choice. But “we” do know a few things, like which regions got hit worse and which areas have widespread outages and increased demand for gas for generators, etc… But in general what I meant was that flexible pricing would reveal relative values ex post facto through transactions.

  5. Ken B says:

    “are you sure you want Ken B. and me arguing over an Excel spreadsheet showing Al through Edward with even plates, and Frank through John having odd plates?”

    Next time I produce a horror flick Bob I want you to write the screenplay. Unsuspected talents!

    M_F: Imagine 10 ending digit days, days 0 through 9, and some of the problems become clearer. If you are down just a bit you won’t miss the chance to top off. Think not just of demand for gas, but of demand for spots in line, and the cost you in line imposes on those behindyou. By any reasonable standard people are worse off.

    • Major_Freedom says:

      Don’t forget, these discussions have to include the fact that many cars are banned from getting gas.

      With even odds, that’s half of the population of cars that could get gas, that can’t get gas. That leaves 50% of all cars that can get gas on a given day.

      With ending digit days, that’s 90% of the population of cars that could get gas, that can’t get gas. That leaves 10% of all cars that can get gas on a given day.

      I guess my inner monologue is telling me something is missing in the argument that even odds and 0 to 9 days can lead to longer line ups.

  6. Bharat says:

    I really like your verb usage, Dr. Murphy. The imagery is appealing.

    After getting whacked by a hurricane, the poor citizens of New York and New Jersey have to suffer the added indignity of government price controls on gasoline.

  7. Lunaris says:

    Hey Dr. Murphy is there anyway you can respond to the comment on the link of the original write up at the institute of energy research website.

    There is a guy in my class who is clinging to that response along with “all things were not equal” and therefore the laws of supply and demand don’t apply.

    Thanks!

  8. Let Them Eat Cake says:

    LK,

    I’m not entirely sure why you bother with your intricate deconstructions of “ignorant internet austrian” arguments. They’re practically all based on circular reasoning. That’s all that really needs to be said.

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