3 ms·

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.

by 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.
  - tptacek 14y ago
    I'm sorry, but to be honest, no, this doesn't make much more sense to me after rereading. I'm sure there are elements of macroeconomics that don't apply in disasters, but all I'm talking about is the law of supply and demand, and how a 10% cap on gasoline price increases causes problems with it. I feel like basic supply and demand remains meaningful the day after a hurricane.
    - 001sky 14y ago
      The distortions that follow from price-gouging are (arguably) worse that the distortions that follow from making it illegal. Probaly in orders of magnitude. Thats the general point. The logical flow of this argument, with respect to the HN thread is as follows: 1) Opportunistim is predictable and adverse, so it creates distortions, as resources are allocated ex-ante to mitigate its impact. 2) Laws exist to minimize opportunistic behaviour, to minimize the distrotions and resources allocated to minimizing its impact. 3) Per (2), the existence of these laws is incrementally efficient. 4) Anti-gouging rules (2) when observed empirically, are not evidence that the market is broken. 5) Rather, these laws are on the books to make markets work better. Directionally. [(4) was the original claim, starting this sub-thread] You're most interested in "correctly" specifying the parametric details of (4). But while this is a valid line of inquiry, its not central to my larger point (5). Good arguments exist that the less change there is the better. Also, the precision of the tools normally used begins to decline. The analytical toolkit one needs take the debate further is beyond a basic (textbook) understanding of supply and demand. While "supply and demand remains meaningful", it does so in a certain place, under certain contraints and assumptions. All of which are now <edge case> variants. The pre-sumption of equilibrium becomes questionable, externalities dominant, etc. To wit: The edge case of supply and demand is, classicaly, the boundary of the firm. Inside the firm, supply and demand does not apply. Resources are allocated more efficiently by fiat than by negotiation. So, in the same way that internalizing resource allocation into a firm is not a problem during the normal course for firms, its not per-se problematic to temporarily suspend or modify market trading terms in an emergency, and even to do so under the (correct) rationale of "efficiency".

by 001sky 14y ago

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.
- tptacek 14y ago
  I'm sorry, but to be honest, no, this doesn't make much more sense to me after rereading. I'm sure there are elements of macroeconomics that don't apply in disasters, but all I'm talking about is the law of supply and demand, and how a 10% cap on gasoline price increases causes problems with it. I feel like basic supply and demand remains meaningful the day after a hurricane.
  - 001sky 14y ago
    The distortions that follow from price-gouging are (arguably) worse that the distortions that follow from making it illegal. Probaly in orders of magnitude. Thats the general point. The logical flow of this argument, with respect to the HN thread is as follows: 1) Opportunistim is predictable and adverse, so it creates distortions, as resources are allocated ex-ante to mitigate its impact. 2) Laws exist to minimize opportunistic behaviour, to minimize the distrotions and resources allocated to minimizing its impact. 3) Per (2), the existence of these laws is incrementally efficient. 4) Anti-gouging rules (2) when observed empirically, are not evidence that the market is broken. 5) Rather, these laws are on the books to make markets work better. Directionally. [(4) was the original claim, starting this sub-thread] You're most interested in "correctly" specifying the parametric details of (4). But while this is a valid line of inquiry, its not central to my larger point (5). Good arguments exist that the less change there is the better. Also, the precision of the tools normally used begins to decline. The analytical toolkit one needs take the debate further is beyond a basic (textbook) understanding of supply and demand. While "supply and demand remains meaningful", it does so in a certain place, under certain contraints and assumptions. All of which are now <edge case> variants. The pre-sumption of equilibrium becomes questionable, externalities dominant, etc. To wit: The edge case of supply and demand is, classicaly, the boundary of the firm. Inside the firm, supply and demand does not apply. Resources are allocated more efficiently by fiat than by negotiation. So, in the same way that internalizing resource allocation into a firm is not a problem during the normal course for firms, its not per-se problematic to temporarily suspend or modify market trading terms in an emergency, and even to do so under the (correct) rationale of "efficiency".