Miles-Long Gasoline Lines In New Jersey Show The Case For "Price Goaging"

A blog about business and economics.
Nov. 1 2012 9:36 AM

Miles-Long Gasoline Lines In New Jersey Show The Case For "Price Gouging"

When I published my column making the case against legal bans on "price-gouging" in the wake of disasters, I got too primary negative reactions. Some folks were outraged that I'd be picking on this small topic amidst vast human tragedy. Others, like Chris Hayes, opined that my view was already conventional wisdom and barely counted as a Slatepitch.

But look at these photos of miles-long lines for gasoline in New Jersey and you'll see that there's a real issue here. The Christie administration fined a gas station for breaking price gouging rules back in September, and issued a press release before Sandy hit noting that case and explicitly warning retailers not to respond to the hurricane by raising prices. The failure to allow prices to adjust doesn't magically eliminate the supply side problems, it just means that the gasoline is misollacated and lots of people need to waste time in line. You can also see that the combination of shortage and underpricing seems to be leading people to overconsume when they do get to the front of the line.

Last but by no means least, the lack of price gouging is harming things on the supply side. If it were possible to earn windfall profits by transporting gasoline into the affected areas, then human ingenuity would be finding ways to do it. But if you restrict retailers to earning merely ordinary profits, then people won't take extraordinary measure to increase supply. Worse than that, gas stations are probably making unusually small profits right now since gas stations don't normally make much money selling gas. Since it's a competitive market for an undifferentiated product, you get razor-thin margins on fuel and try to use it as a lever to get people in the door to buy snacks and sodas. A gasoline supply crisis just brings out lots of people who genuinely only want gasoline.

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Long story short, you can see here in the real world that misguided laws about commerce in the wake of an emergency create real problems for real people.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.