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 midst
the outpouring of human kindness and generosity that characterized
America's response to the terrorist bombings last Tuesday, an ugly
note was struck by the gasoline-price spikes that ripped through
a number of cities immediately after the disaster struck. The ugliness,
however, is not to be found in the alleged price gouging but in
the primitive reaction to what, by all accounts, was a simple lesson
in supply and demand.
What happened
in gasoline markets after the disaster is not hard to understand.
A lot of Americans, shocked by the devastation that wracked New
York and Washington, feared that the worst was yet to come and immediately
went out to stock-up on groceries and gasoline. Press reports bear
this out. Long lines began to form at some stations across the nation.
Now, there's
only so much fuel at a service station. Whether you like it or not,
there's only two ways to ration gasoline under such circumstances:
by price or by, well, queuing up. After hearing from their distributors
that oil companies couldn't guarantee when the next shipment of
gasoline might arrive, some service stations likewise panicked and
chose the former option. Others chose the latter.
The mob and
the politicians and reporters that earn a living by feeding it would
have us believe that the gas stations that stuck to the old prices
and pumped until they dropped were "the good guys" while
the stations that jacked prices were the blood-sucking profiteers.
But let's examine
for a moment the consequences of sparing motorists the price hike.
With demand skyrocketing, you get gasoline if you're lucky enough
to be first or second in line and risk not getting any if you find
yourself a few blocks back in the queue. People who don't really
need the gasoline on Tuesday are given no reason to step aside for
the motorist whose tank is running on empty. The result: a mini-replay
of the wonderfully humane policies of the 1970s.
Now let's examine
what happens when service-station owners try to maximize their profits.
Aunt Edna, whose tank is half-full, sees $5.00 a gallon prices and
thinks twice about filling up today. Uncle Fred, who's running on
fumes, has a better chance of getting to the pump before he runs
out of gasoline because the Aunt Ednas of the world aren't there
to clog up the service station with panic buying.
This, dear
readers, is a perfect example of what Adam Smith termed "the
invisible hand" of the market, which permits individuals to
pursue their self-interest in such a way as to advance the interests
of society as a whole. And the reason, by the way, that there are
soaring skyscrapers and concentrated wealth in Manhattan for terrorists
to target in the first place is that we allow the invisible hand
of the market — and not the all-too-visible political boot
of government — to order our economic affairs.
Of course,
politicians found time out of their busy schedules last week to
scream bloody murder about the alleged profiteering that was going
on and — what do you know? — prices quickly came back
to earth. Many concluded, of course, that the hot spotlight of righteous
indignation focused on those unconscionable prices was what stopped
the gouging in its tracks. The reality is that the gas-buying panic
in the heartland subsided about as quickly as it arose, causing
demand to crash and prices along with it.
Sen. Jeff Bingaman
(D., NM), chairman of the Senate Energy Committee, promised the
usual political witch-hunt to punish the "profiteers."
But the ugly political ploy of whooping up the mob has got to stop.
Panic, not price-gouging, was to blame.
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