Posts Tagged With: price controls

Can You Spot the Free Marketeer?

Let’s play a game.  Reading the two quotes below, can you guess which one is by New York governor Andrew Cuomo, the liberal son of a prominent Democratic governor, and which one is by New Jersey governor Chris Christie, the budget-slashing Republican who was celebrated by the Cato Institute?

Quote 1:

We will not hesitate to impose the strictest penalties on profiteers who, in direct violation of our consumer protection laws, seek to capitalize on the misfortune of others in the midst of a crisis and recovery period.

Quote 2:

“Do not try to take advantage of [our citizens],” he said, stating that if the state believes public energy and transport companies are not being diligent or doing the right thing, they could lose their certification.

Click on the links for the answer.

We might call this phenomenon “the Chris Christie effect.”  That is, it is very nice to talk about the beauty of free markets when you’re speaking to a room full of avid Republican convention delegates.  But what really matters is how you act when you actually have the opportunity to pursue a genuinely libertarian response to a real crisis.

Chris Christie has shown that, whatever he thinks of the theoretical value of free markets, he won’t trust them in practice.  I have the feeling that most other Republican politicians would do the same, if they were faced with a similar option.  But as I’ve mentioned earlier, theory is meaningless if it doesn’t lead to beneficial practical consequences.  It doesn’t matter how you talk; all that matters is how you act.

So remember Chris Christie–convention-hall libertarian, governing statist–if you’re planning on voting tomorrow for the lesser of two evils.

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Hurricanes and Price Gouging

As Hurricane Sandy hits the east coast, bureaucrats have been predictably warning businesses against price gouging.  On the local news today, I heard official talking about how, during a hurricane, “normal economic operations don’t apply” and price controls become necessary.

Here’s Art Carden, writing at the Ludwig von Mises Institute, on what price controls actually accomplish during natural disasters.  (Spoiler: It’s not pretty.)

First, price controls create shortages because they eliminate the market’s way of telling people to conserve scarce resources. After a disaster like a flood, a hurricane, or a tornado, demand for some goods increases while the supply of some goods decreases. If prices are not allowed to adjust, people will want more “water, ice, storage units, and generators” than the market is prepared to supply at the controlled price. As Michael Munger, chairman of Duke University’s political science department, has pointed out, this means that the effective price of a good for which the price has been controlled is infinite: beyond the amount that the market will supply at the controlled price, nothing can be done to call more goods into existence.

Instead of relying on prices, governments that institute price controls must rely instead on moral suasion. This will help in some cases, but it is unlikely to be as effective as a price increase. One might be tempted to respond that the government should be able to make up for the shortage, but the government’s performance in similar cases, such as FEMA’s ham-fisted response to Hurricane Katrina, provides us with grounds to be skeptical of this claim.

Restricting the price mechanism also means that recovery will be delayed. If prices are allowed to fluctuate freely, resources will be directed to where they are most desperately needed. Someone who wishes to build a new deck in San Antonio will have to think twice if lumber prices increase because people in Iowa are struggling to rebuild their houses. If lumber prices are not allowed to change, our deck-builder in San Antonio lacks the signal he needs to learn that the lumber he would otherwise use to build a deck might be better used rebuilding houses in Iowa.

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