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Friday, November 9, 2012

Do Anti-Gouging Laws Kill People?

Living in the New York City metropolitan area the past two weeks has made productive people bear the brunt of both natural disasters (Superstorm Sandy and a strong nor'easter) and man-made disasters in horrible policy reactions to crises.  This is in the news because the recent storms hitting the Northeast, and particularly New York and New Jersey, are being blamed for oil refinery damage which has led to gasoline shortages in that region.  But are these anti-gouging laws worse that the problem they seek to address?  And are they making the gas shortages worse, the lines longer and your hardship even deeper?

New Jersey has been under an odd-even rationing system (that is, vehicles whose last license plate number ends in an even number can only get gas on an even-numbered calendar day) for more than a week, and New York City and Long Island will implement that rationing starting at noon today. 

(For your reference, check out an interesting guest opinion column today criticizing the New Jersey anti-gouging law and arguing that price gouging will actually be beneficial to consumers.) 

From personal observation, it appears that rationing does little to reduce overall demand, the impulse to hoard, or the gross inefficiency caused by waiting hours for gasThe logical first reaction is to get a full refill in order to wring as much inefficiency from the wait time. It may, over time, reduce the amount people drive as people gradually weight the costs and benefits of any car usage against the gasoline depletion and ultimate inconvenience of a wait (with the promise but not the assurance of a refill) necessitated by that use.  But what of people in the suburbs or rural areas, or people whose job necessitates driving around?  How much economic activity is lost -- never to be regained?  (Note that commercial vehicles are generally exempt, but many independent contractors drive personal, noncommercial vehicles for business use and are stuck in the odd-even system).

The impacts of the rationing are already seen in the behavior modification of less driving, and perhaps increasingly "efficient" uses of vehicles.  But at what cost?  Consider the immediate and easily recognizable costs of lost time, the related inefficiency, and a seriously degraded lifestyle.

There are downstream economic costs.  A business owner who now spends 70 hours instead of 60 hours a week to make the same net income will either pass that cost down to consumers, or cut back on other expenses.  Somewhere, someone will lose his or her job when owners cut back due to revenue declines or physical fatigue, or even demoralization at continued government policies that reduce or eliminate the marginal benefit of added work.  This is a perfectly rational decision.  Other businesses will pass on costs, and the price increases or declines in service quality, quantity or variety of offered goods and services will reduce the savings or standard of living of downstream consumers.  Somewhere, somehow, the price is going to be paid. 

But there are more problems.  An anti-gouging law is intended to protect the consumer from presumed exploitation by a business owner who raises prices at all following a natural disaster or other emergency event.   But the government presumption that businesses are exploiters leads to further, unintended -- and unproductive and harmful -- consequences.

The government scrutiny fuels (no pun intended) the public perception that gas retailers are greedy and somehow profiting unfairly.  This subtly encourages a temptation for the consumer to cheat the gas station owner, to try to escape without paying, to otherwise ignore rules such as to cut in line, and that type of thing.  The rule of law, the sense of fairness, will deteriorate further.  In a society where our re-elected President Obama has exhorted Americans to "pay their fair share" and degraded business owners' efforts on their own behalf, arbitrary government policies which inflict hardship or create a sense of injustice threaten to produce more lawbreaking and antisocial behavior, not less.  The danger is that more and more people will feel that they are being robbed. (Whether they should feel this way is not relevant.  I only acknowledge the existence of the sentiment and do not attempt to deny the sentiment and dismiss the people feeling it by imposing my judgments of reasonableness upon them.)  That sentiment will lead to harsher reactions, to less hesitancy to pass on costs or to withhold benefits from others.  I can see charitable contributions and investments drying up, in both an economic and emotional reaction. We will have hoarding, not merely of gasoline but of almost any asset or resource.  Even sleep.  And some are even resorting to violence against the police.

But the very worst collateral consequence may be one that is ultimately infinite and not capable of being measured in dollars.  What happens when car owners start losing sleep because they are waiting on line four, six, even eight hours a week?  This time comes out of another productive -- or essential -- activity: sleep.  At our core, humans need three things: food, water -- and sleep.  How do you measure the efficiency of rationing against the infinite human loss of life or serious injuries caused by sleep-deprived drivers?   

Do people need to be driving off highways and causing major accidents, killing and maiming dozens of innocent unfortunates in the wrong place at the wrong time, for our elected leaders like Governor Chris Christie and Mayor Mike Bloomberg to realize that command and control economic policies spark an uncontrollable chain reaction of misery?

The solution is not to fight people, to fight demand.  The solution is to open up supply.  Let gas station owners charge whatever they want.  Those who abuse consumers will soon pay a heavy price when they are shunned by their former customers.  This will encourage gas station owners to stay in business, wholesalers to deliver gas, and refineries to get back in business.  Elected leaders should spend their energies working on the supply and supply chain problems, instead of fighting their people.  The major Northeast metropolitan areas cannot spark any economic revival when their governments act like the savage bikers out of the dystopian, post-apocalyptic movie "The Road Warrior."  Governments must serve their people, not treat them like the enemy for the sin of wanting to drive.  Otherwise, we may see a new form of "road rage."

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