In the wake of Hurricane Sandy, waiting hours in line for gas has become the new norm. Even hours north of the devastation, lines are forming, as people desperately search for fuel. Day and night, lines stretch for blocks and even miles. Some wait for hours only to find that the station has run out of gas before they get to the pump. Others run out of gas while idling in line. More than half of the stations have “no gas” signs hanging from the pumps as they wait for the next shipment.
Here's an all too common scene from New Jersey.
Despite the high demand and low supply, gas stations are prohibited from adjusting their prices accordingly. New Jersey Governor Chris Christie warned that the “State Division of Consumer Affairs will look closely at any and all complaints about alleged price gouging. Anyone found to have violated the law will face significant penalties.” New Jersey law makes it illegal to set “excessive prices” during a declared state of emergency. Prices are deemed excessive if they are more than 10% above the price prior to the state of emergency. During Hurricane Irene, one gas station was fined $50,000 for raising their prices 16%.
New York State has similar anti-gouging laws. By statute, charging an “unconscionably excessive price” for goods and services deemed “vital and necessary” for the health, safety, and welfare of consumers is prohibited. Remarkably, the term “unconscionably excessive price” is not defined. I suppose it’s all in the eye of the beholder. Governor Cuomo has made it clear his administration will strictly enforce the law. Nassau County Executor, Ed Mangano, said "If you're ripping off our residents, we'll find you and prosecute you to the fullest extent of the law.”
As is most often the case, government bureaucrats have done more harm than good, despite their noble intentions. The government is purportedly protecting the consumers from greedy business men, but who is protecting us from the government’s ruinous economic policies?
Price is a critical message sent to both producers and consumers. In a free market, price signals are used to correctly allocate scare resources. When prices rise, producers increase their production and consumers reduce their consumption. When prices are fixed artificially, this signal is disrupted. Producers find no urgency to increase the supply and consumers find no reason to reduce demand.
Policies should not be judged by their intentions, but rather the results that follow. So what are the results of anti-price gouging measures? See the video above. If the prices were left to respond to changing supply and demand, our current gas crisis would be improving by the day. When prices rise, the resource is used for only higher valued purposes. Suppliers shift resources from lower demand areas to the higher demand region.
With prices kept artificially low, we have people filling up their cars for a joy ride around town, and their gas cans for leaf blowing in the back yard. Meanwhile, the people in the areas left devastated by the hurricane stand in line for hours waiting for a few gallons to get to work or power their generator.
As economist Milton Friedman once said, "Almost all government programs are started with good intentions, but when you look at what they actually achieve, there is a general rule. Almost every such program has results that are the opposite of the intentions of the well-meaning people who originally backed it.”
Anti-price gouging laws were intended to protect the consumers in the worst of times, but in the end, these measures have only added to the misery.