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No, Not really. What's strictly incorrect are naive assumptions that the standard behavioural assumptions of "economics" hold in a disaster. The basics: truth t

by 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.
- 001sky 14y ago
  Gas in NY metro simply is more valuable now The amount you are willing to bid on something under duress is not the way to construct a proper-functiong market. Its important to seperate the short-term from the long-term, in this regards. In certain cases, its rational to obviate the market, into hierachy. see, for example: http://en.wikipedia.org/wiki/Hold-up_problem http://en.wikipedia.org/wiki/Hold-up_problem . This is precisely why firms are distinct from N-dimensional outsourcing arrangements, even under free-market capitalism, under ideal conditions. So you can attack the problem from perfect conditions or imperfect ones. You may or may not like anti-gouging laws, but an plain vanilla analyis using under-graduate economics is naive to several critical factors.
  - tptacek 14y ago
    I don't think you read my original comment. I think you skimmed it, concluded that I was arguing for abolition of all price caps to allow "free market capitalism" to solve all our problems, and wrote a philosophical response. In fact, I don't believe we should abolish all price caps. I simply think the cap we've chosen is foolishly low. We have empirical evidence that a dense western urban area can survive on prices >300% higher than what they are in NYC now, and yet we've capped price increases at 10%. Fixing prices on a good whose intrinsic value is rapidly increasing, as gasoline's value clearly is in NYC, amounts to declaring a state-managed fire sale on gasoline. How can that possibly be a sensible response to a crisis of scarcity? If you want to think about it from the other direction: price fluctuations in the gas market of 10% or more are not altogether uncommon, and empirically they do little to alter people's behavior. The 10% cap therefore amounts to a declaration that the market will not be allowed to alter people's behavior, despite the obvious fact that people are not behaving optimally --- and you can look at any gas station near NYC to verify that. Finally, I just think you made a very flimsy argument upthread: that "jacking up prices", as you put it, serves no objective purpose. Well, no. Not true. At all. The knowledge that rising prices aren't an intrinsically bad thing will help in all sorts of situations where we have actual judgements to make in our lives.
    - 001sky 14y ago
      No, the arguments are orthogonal. As such, getting into a point-by-point is of questionable merit. Its not that I don't understand what you are saying. To put it another way, economics is based on the premise of risk, not uncertainty. The two are significantly different. The purpose of political economy (ie, the orthogonal approach) is to box uncertainty and turn it into risk for a sub-space of actions. We can then set up markets to work efficienty in that sub-space where risk is a viable operating assumption. In a disaster situation, what was previously part of the subspace risk gets thrown back to uncertainty. In this case, if market-trading is suspended it is not-per-se evidence that "markets are broken". Its just evidence that they are misplaced for the time being. This may or may not make sense, at first glance. But it makes alot of sense when you think about it. There are lots of times when markets are not the best way to allocate goods (even in a market economy -- that is why we have firms). Unless you are comfortable with that idea, the rest of what I'm saying probably won't make sense in general.

by 001sky 14y ago

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.

001sky 14y ago
Gas in NY metro simply is more valuable now The amount you are willing to bid on something under duress is not the way to construct a proper-functiong market. Its important to seperate the short-term from the long-term, in this regards. In certain cases, its rational to obviate the market, into hierachy. see, for example: http://en.wikipedia.org/wiki/Hold-up_problem http://en.wikipedia.org/wiki/Hold-up_problem . This is precisely why firms are distinct from N-dimensional outsourcing arrangements, even under free-market capitalism, under ideal conditions. So you can attack the problem from perfect conditions or imperfect ones. You may or may not like anti-gouging laws, but an plain vanilla analyis using under-graduate economics is naive to several critical factors.
- tptacek 14y ago
  I don't think you read my original comment. I think you skimmed it, concluded that I was arguing for abolition of all price caps to allow "free market capitalism" to solve all our problems, and wrote a philosophical response. In fact, I don't believe we should abolish all price caps. I simply think the cap we've chosen is foolishly low. We have empirical evidence that a dense western urban area can survive on prices >300% higher than what they are in NYC now, and yet we've capped price increases at 10%. Fixing prices on a good whose intrinsic value is rapidly increasing, as gasoline's value clearly is in NYC, amounts to declaring a state-managed fire sale on gasoline. How can that possibly be a sensible response to a crisis of scarcity? If you want to think about it from the other direction: price fluctuations in the gas market of 10% or more are not altogether uncommon, and empirically they do little to alter people's behavior. The 10% cap therefore amounts to a declaration that the market will not be allowed to alter people's behavior, despite the obvious fact that people are not behaving optimally --- and you can look at any gas station near NYC to verify that. Finally, I just think you made a very flimsy argument upthread: that "jacking up prices", as you put it, serves no objective purpose. Well, no. Not true. At all. The knowledge that rising prices aren't an intrinsically bad thing will help in all sorts of situations where we have actual judgements to make in our lives.
  - 001sky 14y ago
    No, the arguments are orthogonal. As such, getting into a point-by-point is of questionable merit. Its not that I don't understand what you are saying. To put it another way, economics is based on the premise of risk, not uncertainty. The two are significantly different. The purpose of political economy (ie, the orthogonal approach) is to box uncertainty and turn it into risk for a sub-space of actions. We can then set up markets to work efficienty in that sub-space where risk is a viable operating assumption. In a disaster situation, what was previously part of the subspace risk gets thrown back to uncertainty. In this case, if market-trading is suspended it is not-per-se evidence that "markets are broken". Its just evidence that they are misplaced for the time being. This may or may not make sense, at first glance. But it makes alot of sense when you think about it. There are lots of times when markets are not the best way to allocate goods (even in a market economy -- that is why we have firms). Unless you are comfortable with that idea, the rest of what I'm saying probably won't make sense in general.