Ron Paul praises price gouging

Sure, I called it. But isn’t that special when Ron Paul backs me up on simple free market economics:

Had gas stations been allowed to raise their prices to reflect the increased demand for gasoline, only those most in need of gasoline would have purchased gas, while everyone would have economized on their existing supply. But because prices remained lower than they should have been, no one sought to conserve gas. Low prices signaled that gas was in abundant supply, while reality was exactly the opposite, and only those fortunate enough to be at the front of gas lines were able to purchase gas before it sold out. Not surprisingly, a thriving black market developed, with gas offered for up to $20 per gallon.

With price controls in effect, supply shortages were exacerbated. If prices had been allowed to increase to market levels, the profit opportunity would have brought in new supplies from outside the region. As supplies increased, prices gradually would have decreased as supply and demand returned to equilibrium. But with price controls in effect, what company would want to deal with the hassle of shipping gas to a disaster-stricken area with downed power lines and flooded highways when the same profit could be made elsewhere? So instead of gas shipments flooding into the disaster zones, what little gas supply is left is rapidly sold and consumed.

Governments fail to understand that prices are not just random numbers. Prices perform an important role in providing information, coordinating supply and demand, and enabling economic calculation. When government interferes with the price mechanism, economic calamity ensues. Price controls on gasoline led to the infamous gas lines of the 1970s, yet politicians today repeat those same failed mistakes. Instituting price caps at a below-market price will always lead to shortages. No act of any legislature can reverse the laws of supply and demand.

History shows us that the quickest path to economic recovery is to abolish all price controls. If governments really want to aid recovery, they would abolish their “price-gouging” legislation and allow the free market to function.

It’s a shame that RINO governor Chris Christie won’t listen to free market advocates, but he’ll be listening when citizens hit the voting booth next year and remember his handling of gas shortages by further exacerbating the situation with rationing. Even worse, they might remember him giving the green light to football fans to attend a Giants football game during said rationing and state of emergency. Or, they might remember that Christie was quick to send an army of 45 bureaucrats out to check gas station receipts.

Already polls are showing Governor Christie rather vulnerable against Democrat contenders (who most certainly would have also rationed gas, but go ahead and ask them yourselves). Hurricane Sandy and his mishandling of the aftermath have yet to be factored into these polls.

Gas rationing may have ended in New Jersey today, but the extended gas crisis’ actual costs to the New Jersey economy will no doubt haunt Christie well into next year’s re-election bid.

posted by vforvandyke · tags: , , , , , ,
  • Chris Czernel

    Once again, Ron Paul was right. Demand spikes while supplies are short means prices should temporarily rise. This gives resources on the outside of the region incentive to move supplies into the region to capitalize on the high prices. As more supplies then enter the region, prices are driven back down. It’s not a tough concept. Unfortunately, it’s just another example of the government doing something where it should be doing nothing, and let the market handle it.