4 ms·

Is this a failure of capitalism No, not at all. All of the gas is in the hands of people who bought it. The supple constraints are not problems of incentive

by 001sky 14y ago

Is this a failure of capitalism No, not at all. All of the gas is in the hands of people who bought it. The supple constraints are not problems of incentives, they are problems of physics. Roads are down, plant is not working, traffic, security, etc. The reason anti-gouging laws exist is because jacking up prices has no benefit. It just keeps the poor people from having access to resources. 10 gallons of gas to a rich guy is not making the country or the economy better off, than if the gas is given to a poor/normal person, the day after a hurricane/earthquake, etc. The Feds are going to be on the Hook for $6-7B to fix NY and that's going to be paid by everyone in the country. Most people aren't going to benefit from that, except for the local people in NYC. But we do that as a country to make sure all of the right incentives are in place over the long run, not just opportunistically in the short run.

deleted 14y ago
[deleted]
tptacek 14y ago
The idea that "jacking up prices" has no constructive purpose is strictly incorrect . When you fix prices on gas, and the relative value of gas shoots up, gas gets allocated to the people whose time is least valuable. When you allow gas prices to float in the same situation, gas gets allocated to the people whose time is most valuable. Neither allocation is optimal; it is indeed unfair for all the gas to go to investment bankers. But that doesn't make it efficient or even fair for all the gas to instead go to the people who can get to the station earliest and wait in lines the longest. Equally importantly, when you fix prices instead of allowing them to float, you enable hoarding. People get gas who don't need the gas, because they're risk averse and overestimate the likelihood that they'll use up what they already have. So gas quickly runs out everywhere. If you leave the fixed price in place for long, eventually all the value that would have been captured by the station owners instead gets captured by the grey market (and the deadweight losses involved in transferring gas to that grey market). It's obviously not good social policy to allow gas station owners to charge $100/gallon for gas during a disaster. But it also seems pretty silly for prices to be capped at 10% of the pre-disaster spot price. Gas could easily float up to $10, $15/gallon (ie: the price of gas in Europe), motivate stations to find creative ways to supply that suddenly lucrative market, dampen the consumer urge to fill their tanks to 100%, and not bankrupt anyone (Americans famously overestimate the impact of gas prices on their daily lives).
- jbooth 14y ago
  I wasn't sure where I stood on the whole thing, but I think I agree that 200-300% of pre-crisis prices seems like a reasonable cap. Acknowledge that something happened but reign in the worst excesses of the market.
- 001sky 14y ago
  No, Not really. What's strictly incorrect are naive assumptions that the standard behavioural assumptions of "economics" hold in a disaster. The basics: truth telling, promise keeping, etc. The purpose of anti-gouging laws is a rational anticipation of Opportunism. http://en.wikipedia.org/wiki/Opportunism http://en.wikipedia.org/wiki/Opportunism Opportunism is not dealt with by economics (assumed != existent), except obliquely. It is the providence of political economy, law and economics, and other areas that focus on the political Institutions that allow "rational-choice" econonmics to actually be logically rational. Some of these ideas are variants of: "I've got your back" in a disaster, so you can trust people to do the right thing, to avoid lord-of-the-flies. While I appreciate your analysis, its important to keep an eye on the sandbox in which the black box sits. With 3m people without power, and with people losing their homes, no electricity, no cell etc, its more valuable to society to avoid over-generalizations of "rich people" are more important than "poor people" when all of the ATMs are broken, the surveilance cameras don't work, and the police stations are flooded, etc. Thats just common sense and street smarts, really. Its not really a political or economic argument in the traditional sense (especially the partisan sense). Its more of a point about when the shit hits the fan, you preserve the fabric of society first. Sort of like the 80/20 rule. Having a "basically functional" market is better than having a "perfectly functioning" one but especially is better than having the market looted or burned down (etc). That being said, hording and etc are equally anti-social. Often times what you see is that the quantities will be limited (to say, 8-10 gallons of gas, etc). For this very reason. Those are fair and good points to raise.
  - tptacek 14y ago
    There are lines miles long for gas. People do hoard in disasters. Gas in NY metro simply is more valuable now; for instance, as a substitute for the electric grid. Your reply is nonresponsive.
prentis 14y ago
"jacking up prices has no benefit" Jacking up prices gives distant suppliers an incentive to divert resources towards the disaster-struck area, reducing shortages. Jacking up prices discourages people from buying goods that they don't really need, making them available to people who really do need them. On the other hand, if prices are not allowed to increase, people have an incentive to hoard the scarce goods that they anticipate will become scarce. This of course creates those very shortages. And the hoarded goods go unused while the people who really need them are unable to buy anything.

by 001sky 14y ago

deleted 14y ago

[deleted]

tptacek 14y ago

The idea that "jacking up prices" has no constructive purpose is strictly incorrect . When you fix prices on gas, and the relative value of gas shoots up, gas gets allocated to the people whose time is least valuable. When you allow gas prices to float in the same situation, gas gets allocated to the people whose time is most valuable. Neither allocation is optimal; it is indeed unfair for all the gas to go to investment bankers. But that doesn't make it efficient or even fair for all the gas to instead go to the people who can get to the station earliest and wait in lines the longest. Equally importantly, when you fix prices instead of allowing them to float, you enable hoarding. People get gas who don't need the gas, because they're risk averse and overestimate the likelihood that they'll use up what they already have. So gas quickly runs out everywhere. If you leave the fixed price in place for long, eventually all the value that would have been captured by the station owners instead gets captured by the grey market (and the deadweight losses involved in transferring gas to that grey market). It's obviously not good social policy to allow gas station owners to charge $100/gallon for gas during a disaster. But it also seems pretty silly for prices to be capped at 10% of the pre-disaster spot price. Gas could easily float up to $10, $15/gallon (ie: the price of gas in Europe), motivate stations to find creative ways to supply that suddenly lucrative market, dampen the consumer urge to fill their tanks to 100%, and not bankrupt anyone (Americans famously overestimate the impact of gas prices on their daily lives).

jbooth 14y ago
I wasn't sure where I stood on the whole thing, but I think I agree that 200-300% of pre-crisis prices seems like a reasonable cap. Acknowledge that something happened but reign in the worst excesses of the market.
001sky 14y ago
No, Not really. What's strictly incorrect are naive assumptions that the standard behavioural assumptions of "economics" hold in a disaster. The basics: truth telling, promise keeping, etc. The purpose of anti-gouging laws is a rational anticipation of Opportunism. http://en.wikipedia.org/wiki/Opportunism http://en.wikipedia.org/wiki/Opportunism Opportunism is not dealt with by economics (assumed != existent), except obliquely. It is the providence of political economy, law and economics, and other areas that focus on the political Institutions that allow "rational-choice" econonmics to actually be logically rational. Some of these ideas are variants of: "I've got your back" in a disaster, so you can trust people to do the right thing, to avoid lord-of-the-flies. While I appreciate your analysis, its important to keep an eye on the sandbox in which the black box sits. With 3m people without power, and with people losing their homes, no electricity, no cell etc, its more valuable to society to avoid over-generalizations of "rich people" are more important than "poor people" when all of the ATMs are broken, the surveilance cameras don't work, and the police stations are flooded, etc. Thats just common sense and street smarts, really. Its not really a political or economic argument in the traditional sense (especially the partisan sense). Its more of a point about when the shit hits the fan, you preserve the fabric of society first. Sort of like the 80/20 rule. Having a "basically functional" market is better than having a "perfectly functioning" one but especially is better than having the market looted or burned down (etc). That being said, hording and etc are equally anti-social. Often times what you see is that the quantities will be limited (to say, 8-10 gallons of gas, etc). For this very reason. Those are fair and good points to raise.
- tptacek 14y ago
  There are lines miles long for gas. People do hoard in disasters. Gas in NY metro simply is more valuable now; for instance, as a substitute for the electric grid. Your reply is nonresponsive.

prentis 14y ago

"jacking up prices has no benefit" Jacking up prices gives distant suppliers an incentive to divert resources towards the disaster-struck area, reducing shortages. Jacking up prices discourages people from buying goods that they don't really need, making them available to people who really do need them. On the other hand, if prices are not allowed to increase, people have an incentive to hoard the scarce goods that they anticipate will become scarce. This of course creates those very shortages. And the hoarded goods go unused while the people who really need them are unable to buy anything.