Hurricane Sandy’s Handy Dandy Supply & Demand-y

Hurricane Sandy messed up New York and New Jersey more than the crack game! But you gotta be smoking crack to think that government price controls help people. If you think I’m straight gassin’ you: I got two for five! Two for five over here, baby!!!

Some of the first, and probably most important, lessons in economics are on scarcity, price, supply, and demand. As simple of concepts as they are, misunderstanding them can have disastrous results on the distribution of goods and services. One example is the current situation in New York and New Jersey. Shortly after Hurricane Sandy swept over the New York and her West-Virgina-like-cousin-state, their governments instituted price controls on gasoline, saying that anyone caught selling gas above the state-determined price would be in big trouble with the law. 

Before we get in to all that, it is important to define some terms: 

Scarcity 

Put simply, scarcity means that people want more of something than there may actually exist, like diamonds, or something that we may have some difficulty getting to, like drinkable water. Scarcity is not the same thing as a shortage. Many people misunderstand this. EVERYTHING HAS SCARCITY. Some things are just scarcer than others (diamonds, compared to water). 

Price 

Prices are very important in economics. Prices are information. Prices are like water. That could be a haiku: 

Prices are info. 
Economics loves prices. 
Prices are water. 

Did I mention that I’m queer? 

Anyway, prices can tell us a great many things. One of my favorite economists, Tomas Sowell, explained prices very well in his book, Basic Economics: 

"Prices are like messengers conveying news – sometimes bad news… For example, computers have been getting both cheaper and better at a very rapid rate, as a result of technological advances. Yet the vast majority of beneficiaries of those high-tech advances have not the foggiest idea of just what specifically those technological changes are. But prices convey to them the end results—which are all that matter for their own decision-making and their own enhanced productivity and general well-being from using computers." 

"Similarly, if vast new rich iron ore deposits were suddenly discovered somewhere, perhaps no more than one percent of the population would be likely to be aware of it, but everyone would discover that things made of steel were becoming cheaper. "

Sowell continues: 

"The same would be true when comparing various other products made of steel to competing products made of aluminum, copper, plastic, wood, or other materials. In short, price changes would enable a whole society—indeed, consumers around the world—to adjust automatically to a greater abundance of iron ore, even if 99 percent of those consumers were wholly unaware of the new discovery. "

Law of Supply 

Producers will produce more of a good or service at a higher price than they would at a lower price. 

Law of Demand 

Consumers will demand (meaning “willing to buy or consume”, not “will buy or consume”) more at a lower price than at a higher price. 

Semantics are out of the way. Now let’s get back to New York and her armpit, New Jersey. The aftermath of Hurricane Sandy provided the nation with a perfect example of why price controls are a bad idea. In a crisis situation like Sandy, they can make things much worse. Prices were not allowed to rise because of government controls. These controls were put into place to “protect” people from “price gouging”, meaning the angels elected into office (Aren't they all?) didn't want evil gas station owners raising their prices on gasoline, taking advantage of the communities they sell to. 

When prices are kept artificially low or high and not allowed to reach their equilibrium level where the laws of supply and demand dictate, the market will have either a surplus or a shortage, respectively, of that good. In the case of gas in New York and New Obnoxious, prices were lower than where the market would have determined, therefore there were huge shortages of gas. We don’t have to look back in our history very far to see that these policies NEVER work, and hurt the very people they claim to benefit. The gas shortages and long lines of cars are exactly what happened when Jimmy Carter was President. 

Prices are like water: seeking their own level. If the price of gas goes up in New York and New Hershey Squirt, suppliers of gasoline would realize that they can make more money off a gallon of gas in those areas than they can in other areas. The overall supply would increase (provided the gas trucks can actually reach those areas), bringing the price of gas back down, even if just a little. Even if gas suppliers can’t reach the gas station immediately, they would have been able to eventually, relieving those areas of the heightened scarcity of gasoline. 

If the stations had been allowed to charge more to meet the increased demand, there would have been no shortages, no long gas lines, and everyone who needed gas the most would have gotten gas. In a mutually beneficial exchange, Person A is willing to give Person B $10 or $20 for a gallon of gas because he values the gas more than the $10 or $20, and vice versa. Instead, people are having waited in huge lines of cars for hours, sometimes all day, to get their ration. With no price controls, there would be no lines, people get the amount of gas they want, and they can spend their valuable time doing other things like being with their family, helping their neighbor, volunteering to help clean up, or helping the elderly. 

These price controls have also created a black market, where people are selling gas at extremely high prices. In a ReasonTV video, there's  a man who relates that he witnessed another man buy two and a half gallons of gasoline for $50. The customer would have rather paid the high price than wait another minute in line. Another man, with his face blurred to protect his identity, said he was probably going to sell his gas illegally. For how much? "Depends. Probably $7." 

Price gouger! How could he? Seven whole dollars?!? He is now a criminal for making a mutually beneficial transaction with a consenting person. 

The economic effects of price controls are basic stuff. There is not a single serious economist that I can think of that supports price controls like the ones on gasoline in New York and Arkansas-Of-The-North. Yet politicians are concerned with perception, not reality. 

No matter what the good or service provided is, you institute a price floor or ceiling, you will have problems. Minimum wage causes some unemployment, particularly with young, inexperienced workers entering the labor force for the first time. Rent controls in New York created slums and a shortage of housing. Yet, people still think price controls are a good thing.

At least Jersey Shore is gone.