Rationing Vs Gouging: Why Not Just Let the Market Work?

The northeastern US has been facing major gas shortages in the wake of the recent weather emergencies -supply lines are still thin as the recovery effort continues, and the high demand for gas has become a major issue. New York officials have initiated gas rationing as a way to curb this high demand, allowing cars with tags ending in odd numbers to get gas on odd numbered days and tags ending in even numbers to get gas on even numbered days. Seems a little convoluted, but that’s about as fair as you get… right?

There is another route that you could take to alleviate some of the stress of the crisis that would also help expedite recovery efforts… it’s not a popular one, especially in a union state… we could let the free-market work. When the supply of a product decreases but the demand does not, the value and price of the item increase, and this balances the demand and supply which provide a natural rationing of resources. However, temporarily increasing prices on things like gas in times of shortages is called “price gouging”, and there are laws against this which limit the amount of money that a business can charge for something.

The ration has been imposed to help alleviate some of the stress at the pumps, and the most “fair” way that they can see to do that is by limiting access to the pumps. I’m not sure about fair, but I know that if we need to ration gasoline -I would be far more likely to watch my gas usage if the price could increase to follow this drop in supply. But, if  the prices were held low, I would want to get as much as I could -regardless of whether or not I needed it at the time. An increase in price would give people who have gas a reason to wait to get more, leaving the gas for others who have none. This natural rationing might cost more money, but it seems to be about as fair as anything else.

No doubt, it sucks to have to pay $8/gallon for gas when you’re already paying too much in the first place, but let’s try to look past that and see the bigger picture. Not only would the higher price provide that natural regulation/rationing of gas, but the increase in price would drive gas stations to order as much gas as they could and gas transporters to bring as much gas as possible into the area to capitalize on those profits. Eventually, the supply will meet the demand again and the price would come back down. Let’s not forget that this increase in price is not just reflecting the lack of supply -it’s got to cover the added cost of renewing that supply in the face of disaster.

The extra money at the pump isn’t going to the gas stations as much as the extra work and risk that has to go into getting the gas to the stations -we all have to pay more. This combination of forced pricing and rationing completely undermines any effort to fix this issue by effectively stagnating the market. The gas stations end up taking the hit as supply costs increase, and because they can’t increase prices in the damaged market, they spread that cost as much as they can over every other market. I’m afraid to say much more, lest the Federal government get in on this because of the affect on interstate commerce.

Another thing to consider is that when you take a free market and impose regulations on it, you not only create a regulated market -you create a black market, as well. Black markets are often controlled by extreme violence due to their “criminal” nature, and that’s no fun for anybody. But, the thing to remember about black markets is not just the unnecessary violence they create -the key lesson to learn from black markets is that the market cannot be regulated completely; the will of the market will beat any effort to restrict it. This became evident in this situation as Craigslist ads began popping up in that region for gasoline at up to $18/gallon.

Truly, the market cannot be contained. Anti-gouging laws might provide fast-moving New Yorkers a chance to make a few bucks, but this regulation still distorts that natural rationing and price recovery process… it also hinders recovery efforts and everyday life in that region. This, mixed with the thwarted relief efforts of non-union workers who attempted to solicit their utility services to the heavily union-regulated region seem to make this recovery a big lose for regulation, all around. Why people can’t see the self-regulatory process of the market and how disrupting that process only makes things worse, I do no understand. Feel free to leave some feedback… anyone.

[Originally posted on 11/9 -revised on 11/20]

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