ICLE letter to Gov. Christie opposing direct vehicle distribution ban: Over 70 economists and law professors

Geoff Manne of the International Center for Law and Economics has spearheaded a detailed, thorough, analytical letter to New Jersey Governor Christie examining the state’s ban on direct vehicle distribution and why it is bad for consumers. Geoff summarizes the argument in a post today at Truth on the Market:

Earlier this month New Jersey became the most recent (but likely not the last) state to ban direct sales of automobiles. Although the rule nominally applies more broadly, it is directly aimed at keeping Tesla Motors (or at least its business model) out of New Jersey. Automobile dealers have offered several arguments why the rule is in the public interest, but a little basic economics reveals that these arguments are meritless.

Today the International Center for Law & Economics sent an open letter to New Jersey Governor Chris Christie, urging reconsideration of the regulation and explaining why the rule is unjustified — except as rent-seeking protectionism by independent auto dealers.

The letter, which was principally written by University of Michigan law professor, Dan Crane, and based in large part on his blog posts here at Truth on the Market (see here and here), was signed by more than 70 economists and law professors.

I am one of the signatories on the letter, because I believe the analysis is sound, the decision will harm consumers, and the law is motivated by protecting incumbent interests.

I encourage you to read the analysis in the letter in its entirety. Note that although the catalyst of this letter is Tesla, this law is sufficiently general to ban any direct distribution of vehicles, and thus will continue to stifle competition in an industry that has been benefiting from incumbent legal protection for several decades.

Information technology has reduced the transaction costs that previously made vehicle transactions too costly relative to local transactions between consumers and dealers. Statutes and regulations protecting those incumbents foreclose potential consumer benefits, and thus do the opposite of the purported “consumer protection” that is the stated goal of the legislation.

See also comments from Loyola law professor (and fellow runner and Chicagoan!) Matthew Sag.

Discrimination in West Virginia price gouging case?

Are West Virginia “outsiders” more likely to be accused of price gouging?

From the March 8, 2014, Charleston Gazette, “Morrisey accused of discrimination in price gouging response“:

CHARLESTON, W.Va. –A Putnam County storeowner accused of price gouging bottled water during the water crisis says Attorney General Patrick Morrisey discriminated against him because he is Lebanese, questioned him unethically and illegally leaked the charge to the media before informing him of it.

On Feb. 14, Morrisey filed suit in Putnam Circuit Court alleging that Achraf Assi’s convenience stores, Hurricane-based Mid Valley Mart LLC, unfairly raised the price of Tyler Mountain Spring Water from $1.59 a gallon to $3.39 a gallon the day after the Jan. 9 chemical leak that contaminated the region’s drinking water.

Morrisey alleged that Assi, who owns the two stores that allegedly sold water at inflated prices, kept the prices higher for a week following the chemical leak.

In this news report the West Virginia Attorney General refers to alleged price gougers as “bad apples.”

The attorney general’s office reported over 150 calls concerning prices during the water emergency and documented 74 cases of increased prices on water and other goods. As of late February, the AG’s office reported issuing six subpoenas and 15 cease and desist letters. Only one price gouging case has been filed subsequent to the water emergency.

So far as I am aware, this is the first time I’ve seen claimed that price gouging laws have been implemented in a discriminatory fashion.

In 2012 I suggested the possibility that price gouging laws could be applied in discriminatory fashion (here and here). In brief, my claim was (1) the laws typically grant some discretion to the state, and any discretion exercised was unlikely to favor “outsider” groups; and (2) enforcement is almost always triggered by consumer complaint and so gives any consumer bias a role in anti-price gouging law enforcement. I’ve also speculated that “outsider” merchants may be more likely to raise prices in response to emergencies, but know of no research on that possibility.

Anti-price gouging laws can increase economic welfare

An article by Robert Fleck of Clemson, forthcoming in the International Review of Law and Economics, presented a theoretical case that price gouging restrictions can be value-enhancing under certain conditions. I was skeptical, but Fleck is careful in building his case.

The key qualifier above is under certain conditions. In “Can Prohibitions on ‘Price Gouging’ Reduce Deadweight Losses?” Fleck agreed it is obvious price caps can cause shortages, and price caps designed to apply specifically during emergencies can create shortages at times during which shortages are especially harmful to consumers

But he found a special case for which such laws may be on net beneficial, namely: when consumption of the good creates external benefits, and the price gouging limits are foreseen to create shortages under unpredictable high demand conditions, and production is fixed in the short run, and resale of the good among consumers is impossible, then the policy can induce consumers to buy larger amounts of the external-benefit generating good.

His primary illustration was flu vaccinations, for which production is completed before the flu season type is revealed to be either “high demand” (flu epidemic) or “low demand” (normal). In the absence of shortage-inducing price limits, consumers wait for realization of the flu season type before deciding whether to get a flu shot. Given a price gouging-based price cap and resulting predictable shortage, Fleck explained, more consumers buy a vaccine production prior to the flu season (i.e. before revelation of the flu season type). Because by assumption consumption of the good has external benefits, inducing greater consumption can create net increases in overall economic value.

Fleck clearly stated that his result doesn’t generalize to all price gouging restrictions. While he suggested a few light stories of the potential external benefits associated with drinking water, gasoline, home electrical generators, and chain saws, he didn’t play these alternatives up. (For good reason, too. Unlike flu vaccinations “consumed” at point of retail purchase, these other consumer goods are readily resold. A resale market undermines consumer incentives to purchase the good before the demand type is known and so does not lead to an increase in overall consumption.)

He concluded by raising the possibility the widespread adoption by states of price gouging proscriptions might reflect growth of relatively efficient types of regulation at the expense of less efficient regulation, or perhaps the laws persist because they are not as costly as they otherwise may seen. On this point I remain skeptical.

As Fleck emphasized early in the paper, the model shows that price gouging limits may be on net beneficial, but it does not conclude they must be on net beneficial. In addition, even when the policy may be on net beneficial it will fail to maximize total benefit, and so in theory there are better policies. Finally, he said, the laws would have to be tailored to apply mostly under the restrictive conditions set out above. Price gouging restrictions under other conditions will reduce overall surplus. Fleck suggested (for Hayekian knowledge problem reasons) it was unlikely that policymakers would be so well informed as to be able to identify just which products and at which times the laws should apply.

Overall he has a unique and interesting theoretical case built with traditional microeconomic tools. Other attempts at providing an analytic foundation for price gouging laws are ad hoc and unpersuasive (comments on Rotemberg here, comments on Rapp here and here). But despite Fleck’s offering an efficiency-based justification for price gouging limits, the relatively strict conditions for his theoretical case make the model an unlikely base of support for any existing price gouging policy.

Public Choice Theory: Skwire’s First Law

Some time last spring, my friend and occasional KP contributor Sarah Skwire formulated on Facebook what’s now dubbed “Skwire’s First Law”, and we’ve been using it, kicking its tires, and discussing it all summer. In a timely manner (given what we’ve learned this summer about widespread, unwarranted government surveillance and the impending likelihood that yet another president will engage in yet another international military action without Congressional authorization), Sarah has formalized and expanded upon Skwire’s First Law in a Bleeding Heart Libertarians post today:

Accidentally invented by me on Facebook a while back, named by my co-blogger Steve Horwitz, and picked up–to my great diversion–by a crew of Facebook friends, Skwire’s law is simply stated thusly:

Politicians are asshats.

I’m driven to write a bit about Skwire’s First Law today because, like every other day, politicians are being asshats. And I want to talk about how Skwire’s law—though simply expressed—is not merely a sigh of exasperation, a political version of “boys will be boys.” It’s a manifesto condensed into three words.

Saying that politicians are asshats means that you acknowledge the deep truths of public choice theory. It means that even if the occasional politician supports a policy you like or gives a speech you admire, you know enough not to turn him or her into a hero. We can debate, as my friends and I have on Facebook, whether asshats become politicians or politicians become asshats. I don’t think that debate much matters, because I think both parts of it are true. Politics is a machine that turns good people and good ideas into bad ones, and turns bad people and bad ideas into worse ones. Politics is a system that attracts not only people who want to help, but people who want to control. And once those people—good or bad, helpful or controlling—are in the system, they use it to further their ends.

Note in particular the last three sentences, and how they encapsulate the essential implications of public choice theory — in our roles as political actors (here let’s focus on individuals as elected representatives and in regulatory agencies, not as voters), individuals prioritize self interest, broadly defined. This is the extension to the political decision realm of the self-interest assumption in our roles as purposive individuals in other decision settings. Many individual politicians are motivated by good intentions (the “public interest”, making the world a better place, “giving back”, bringing resources to his/her community), and some are also motivated by the desire to control and manage the choices of others and how others live their lives. Public choice theory is general enough to accommodate that diversity of motivation and intent.

More insidiously, though, the fact that political power gives politicians coercive power to make decisions about the resources and the choices of others means that even those who have good intentions and good ideas can, do, and often must use control and coercion to satisfy those intentions and attempt to implement those ideas. Thus even well-intentioned politicians use the system of coercion and control to attempt to achieve their ends. And I hope Sarah doesn’t mind my paraphrasing a Facebook comment of hers on this point, because it’s apt: by definition, politics means using the state’s monopoly on force, and being a politician means that you contribute to decisions that will use that force to enshrine your “honest mistakes or infelicitous actions” in a pretty permanent way in the lives of many, many people, including those the politician says s/he wants to help. If that politician is unaware of that likelihood, or doesn’t care, that’s asshattery. It’s also hubris. And it’s pervasive in politics.

Sarah goes on to point out that this outcome is not accidental or a flaw, although some of us may consider it perverse. Here’s where the study of institutions and incentives becomes important — once these individuals become politicians, they are embedded in a set of institutions that shape their incentives. They face the tragedy of the commons in the federal budgeting process, because to bring resources home to their constituents means either decreasing resources somewhere else that doesn’t matter as much to them or increasing government spending in ways that can unsustainably increase government debt (oh, hey, did you know we’re hitting another government debt ceiling in October?). They trade votes and engage in log-rolling to achieve what they style as “compromise”. The incentives are inherent in the institutions, and they are bad incentives that lead to inferior outcomes and to politicians being asshats. Of course there are nuances and degrees of asshattery, especially if you look on an issue-by-issue basis at the questions you find most pressing. But remember the initial formulation: occasional support that aligns with your preferences does not change the fundamental, underlying institutional incentives.

Note that this asshat designation is not a statement about personal character or merit of the individual politician. It’s a statement about the institutionally-driven incentives facing each individual politician regardless of their motivations or intentions. And that’s what makes it such a pithy and damning statement about the pernicious effects of political decision processes, even (or perhaps especially) political decision processes in what is supposed to be a democratic republic. It is the nature of our political institutions that politicians are asshats, and therefore

[t]hey are wasting your time and your money and your energy. They are allying you with people you hate and with causes you despise and with actions you would never condone.

Don’t wait around for them to save you or the things you think are important. Don’t think you’ve found the politician who can fix your world.

Realizing this nature of political institutions opens up the idea that political processes are not necessarily the only or the best way to approach social conflicts and problems. Thinking about alternatives, about experimenting with different approaches, about the impossibility of doing away with all social problems, gives us opportunities to be creative and to enable other approaches to emerge.

Raisin’ a complaint against USDA marketing orders

Can raisin growers pack and sell all of the raisins they grow? Yes, but only if the USDA permits it. Sometimes the USDA claims the right to take raisins off the market in the effort to keep the price to consumers higher. If a raisin grower doesn’t comply with the USDA’s demands, then the government’s attorneys will come a knocking. That is what happened to Marvin Horne and his wife, raisin growers in California, when they chose not to comply with the USDA’s demand to hand over a 47% share of the Horne’s 2002 crop without any payment from the government.

It is, as Planet Money describes it in a radio segment, kind of crazy. In most industries the federal government tries to block industry collusion–it is bad for consumers, they say–but with raisins and a number of other crops the federal government requires it. Your tax dollars at work.

The Planet Money broadcast is worth a listen. Here also is ReasonTV on the story: Feds vs. Raisins: Small Farmers Stand Up to the USDA

This 2002 act of non-compliance is, more than 10 years later, still bouncing around the courts. In a recent decision the Supreme Court declared that Horne et al. could raise a takings claim without first paying the USDA’s proposed fine of about half-a-million dollars, but that small victory only allows them to continue the legal fight.

MORE: The Cato Institute filed a legal brief at the Supreme Court in support of the Horne et al. position. Links: Summary of brief; Full brief. See also coverage at SCOTUSblog.

Tacit privilege and social order

Nathan Goodman, at the Liberty Minded blog, pulls the Hayekian knowledge problem out of the pricing field and applies it in the field of social relations. Well, technically speaking, Goodman employs just the tacit knowledge elements of Hayek’s “The Use of Knowledge in Society” article, but he uses it to make a good point: some of the knowledge needed to promote social interaction is distributed and not readily articulated or transferred; this kind of knowledge comes from personal experience in particular times and places; to the extent that my experiences differ from yours, I may not understand and you may find it difficult or impossible to convey to me the full nature of your experiences or the explain how it shapes your relationships in society.

For Goodman, this means that men listening to women talk about male privilege may not be in a position to understand the breadth and depth of the experiences women have experienced. Women, talking to men about male privilege, may not themselves understand and certainly may not be able to articulate the breadth and depth of their experiences of gender discrimination. Knowledge of social privilege itself will be highly distributed and sometimes tacit. Goodman continues with a discussion of disability and other differences from which privilege can emerge, and how, when government gets involved the problems can easily be made worse.

This isn’t, he said, an argument to silence critics, but an attempt to get people to recognize the limits of their knowledge. Libertarians especially, he said, “should have the humility to check our privilege, to listen to oppressed people who discuss their experiences, and to respect oppressed peoples’ rights to direct their own struggles for liberation.”

America’s surveillance state: Can you hear me now?

Lynne Kiesling

Today has seen a flurry of information in the wake of Glenn Greenwald’s breaking the news in the Guardian last night about the National Security Agency’s (dubbed in the Washington Post the “eavesdropper in chief“) collection of Verizon phone customer metadata on a daily basis. Here’s a roundup of the resources I have found most useful and informative:

Shane Harris in the Washingtonian provides an overview of the NSA metadata surveillance program. If you are not familiar with metadata, this is a good place to start:

In fact, telephone metadata can be more useful than the words spoken on the phone call. Starting with just one target’s phone number, analysts construct a social network. They can see who the target talks to most often. They can discern if he’s trying to obscure who he knows in the way he makes a call; the target calls one number, say, hangs up, and then within second someone calls the target from a different number. With metadata, you can also determine someone’s location, both through physical landlines or, more often, by collecting cell phone tower data to locate and track him.

The NSA is data mining to look for patterns, ostensibly with a national security/terrorism reduction objective. They store, analyze, manipulate the data on our communications. These surveillance activities are supposed to be applied only to foreign communications may be associated with terrorist threats, not to the widespread collection and storing of the communications metadata of U.S. citizens.

And they have done so under legal authority granted in the late 1970s to FISA courts. Timothy Lee in the Washington Post provides background on the use of FISA courts. The FISA courts were fairly moribund until the Patriot Act created Congressional authority for the NSA to use FISA courts to process secret authorizations of widespread surveillance of our communications. The authorizations processed in FISA courts are rolling three-month authorizations, and according to a USDOJ Office of Legislative Affairs report in April 2013 to the Senate, of the 1,976 surveillance requests the NSA made, the FISA court did not reject one. Seems suspiciously like a legal rubber stamp …

Julian Sanchez does an excellent job of explaining why the NSA’s collection of our communication records is a problem:

We are, predictably, being told that this program is essential to protecting us from terrorist attacks. But the track record of such claims is unimpressive: They were made about fusion centers, and the original NSA warrantless wiretap program, and in each case collapsed under scrutiny. No doubt some of these phone records have proven useful in some investigation, but it doesn’t follow that the indiscriminate collection of such records is necessary for investigations, any more than general warrants to search homes are necessary just because sometimes searches of homes are useful to police.

And Arik Hessedahl at All Things D reminds us that we, the citizen-voters, are the boss:

Now that we live in an age where data storage is inexpensive and computing power all but limitless, finding that meaning and achieving that understanding is simply a matter of will.

Clearly, the will exists, or the court order would not have been sought or granted. But will implies intent, and we can only guess at that intent. Officials in all branches of federal government have a long history of overstepping their legal authority and of abusing outright the powers granted them by their boss.

That boss, by the way, is us.

At this, it’s worth reminding ourselves what the boss’s policy is. It’s contained within the Fourth Amendment to the Constitution:

Which, by the way, has been in precipitous decline over the past 13 years, as the surveillance state has evolved in the face of either fear or indifference, or both.

Other useful commentary today is from Jim Harper of Cato in the Daily Caller, Kashmir Hill in Forbes, and the editors of Bloomberg News.

But the most striking commentary is from the editors of the New York Times, who state that “the administration has now lost all credibility”.

You are not entitled to a profitable business model

Lynne Kiesling

Cory Doctorow at Boing Boing highlights the Supreme Court’s copyright decision in Kirtsaeng v. John Wiley & Sons. Briefly, Wiley wanted the court to enforce copyright in a way that restricts the flow of book purchases across geographic regions (i.e., limiting the ability to buy cheaper versions elsewhere online).

Clearly Wiley was attempting second-degree price discrimination, and the Internet makes arbitrage prevention nearly impossible, so this case is a good illustration of how price discrimination can fall apart.

But I’m more interested in the fact that the defense was attempting to use a “but … but we can’t make money if they can buy cheaper versions from other regions!” argument to get the court to expand the copyright breadth. The ruling’s smack-down of that line of argument is beautiful:

Third, Wiley and the dissent claim that a nongeographical interpretation will make it difficult, perhaps impossible, for publishers (and other copyright holders) to divide foreign and domestic markets. We concede that is so. A publisher may find it more difficult to charge different prices for the same book in different geographic markets. But we do not see how these facts help Wiley, for we can find no basic principle of copyright law that suggests that publishers are especially entitled to such rights.

You may enter an industry and build up your business, but you are not entitled to having that business remain profitable ad infinitum. You have to work harder to avoid becoming the destruction in creative destruction. And if you do that, and consumers benefit from it, you’ll profit too. Funny how that works.

Are property rights now more clearly defined for organic farmers in Minnesota?

Michael Giberson

The United States Supreme Court chose to let stand a Minnesota Supreme Court decision concerning the rights of organic farmers exposed to pesticide drift from neighboring conventional farms. In the case Johnson v. Paynesville Farmers Union Cooperative Oil Co., the organic-farming Johnsons had sued conventional-farming Paynesville for damages after pesticide drift from Paynesville’s farm damaged the Johnson’s organic crops and required some of Johnson’s fields to be held out from organic production for up to three years. The U.S. Supreme Court action left in place Minnesota’s decision which held Paynesville was not responsible for harm to the Johnsons’ organic crops.

The case provides a good background for exploring questions of externality and property rights (i.e., a real live case for contemplating Coasian reasoning):

  • At one time both the Johnsons and Paynesville engaged in conventional farming, including the application of pesticides. Pesticide drift was a non-issue.
  • In the 1990s Johnsons decided to switch to organic farming. They posted signs declaring the property was to be used for organic farms, established a buffer zone between their organic fields and adjacent properties, and asked Paynesville to take actions to avoid overspraying Johnsons’ fields. Then they operated without pesticides for three years in order to qualify to market their product as organic.
  • Subsequently, pesticide drift from the Paynesville farm has resulted in damages to the Johnsons on at least five occasions: crops have had to be sold at lower non-organic prices, crops had to be destroyed, and fields had to be held out of organic production for three years after the pesticide overspray.

The story may be framed as a simple case of negative externality: Paynesville’s operation are imposing an external cost (i.e. “polluting”) the Johnsons’ operations. The beginning economist will jump to the conclusion that efficiency requires a tax on Paynesville, or, in the case of a more thoughtful student, liability for damages.

But the question of who is creating the externality is a bit more complicated, observes the more advanced economics student. After all, pesticide drift is only a problem because of the Johnsons’ choice to go organic. You might say that the Johnsons caused the problem by starting up an organic farm in an area they knew was subject to occasional pesticide drift. If you build your house adjacent to an airport, you don’t really have much ground to subsequently complain about the related noise and traffic.

In class discussions when I’ve talked about this case, most students will side with the Johnsons at first. The question that moves many of them back to Paynesville’s side is this: “If Paynesville had the right to its manner of operations before the Johnsons switched, how did the Johnsons acquire the right to force Paynesville to change its operations?” Or sometimes, this question: “No one is too worried if Johnsons’ choice results in a higher cost of operation for the Johnsons, but on what grounds do the Johnsons get to impose a higher cost of operation on Paynesville?”

(Note that you can move students to the Paynesville side by asking, “What right does Paynesville have to limit the Johnsons ability to farm the way they please on their own farm?” Also relevant, Minnesota farming regulations prohibits the application of pesticide in a manner that damages neighboring property, and the State has cited Paynesville for violating this rule in the past.)

Now that it appears that the legal matters are settled–the Johnsons’ choice to go organic does not impose restrictions on how Paynesville operates–Coasian thinking would have us expect the least-cost avoider to take steps to minimized the costs associated with pesticide drift. I can imagine several possibilities, but have no idea which would be least cost:

  • Johnsons pay Paynesville to exercise greater caution to avoid pesticide drift.
  • Johnsons expand their buffer zone between the organic crops and the Paynesville property.
  • Johnsons simply suffer occasional pesticide drift and attendant costs.
  • Johnsons return to conventional farming on their property.
  • Johnsons sell and relocate their organic farm elsewhere.
  • Johnsons buy out Paynesville (i.e. Paynesville relocates its conventional farm elsewhere).

Because this is a case in which the number of parties is small on each side of the externality, the costs of negotiation should be small and so ‘transactions costs’ ought not be a barrier to obtaining the least cost solution. Of course if the least cost adjustment is fully in the Johnsons’ control then it will not require negotiation at all.

NOTES: The first link above includes a summary of the case and links to related documents including the Johnsons’ appeal to the U.S. Supreme Court. The Johnsons’ appeal includes a lengthy appendix with the text of the Minnesota court decisions.

Lynne and I have each written about this case before: Lynne here, and me here and here.]

Hoffman on price gouging (in which I take on claims made in a 7-year old blog post)

While seeking out the guns and ammo price gouging post at Mother Jones (see link here) I came across a post-Katrina 2005 Political Mojo post by Bradford Plumer on price gouging that I don’t recall having seen before, and it provides a link to a Dave Hoffman post-Katrina post at PrawfsBlawg that actually advances some empirical claims in favor of state anti-price gouging laws. Most advocates of state price gouging controls rely on arguments that come down to “I don’t think it is fair so those sellers shouldn’t be able to do it.”

(ASIDE: There is an empirical claim embedded there too – whether or not the advocate actually thinks post-emergency price increases are unfair – but the feelings of editorialists are not normally significant factors in formal policy analysis.)

Here are a few of Hoffman’s more substantive claims:

  1. “In civil emergencies, markets don’t work to clear information in rational ways.”
  2. “High prices will not serve to reduce demand for, say, water and gasoline, over the short term if folks think their lives are going to depend on having such commodities nearby.”
  3. “Price gouging regulations do two things to reduce panic and regulate demand.  First, they increase trust in market transactions (an SEC-like role) and thus will act to reduce “panic demand” in emergencies without increasing price.”
  4. Second, the regulations – when publicized appropriately – have the same information forcing effect as higher prices themselves, teaching people that there are supply interruptions and they should change their use patterns until conditions improve.”

My responses:

1. Claim #1 depends on what he means by “rational,” but my expectation is that prices do the same work of helping coordinate buyers and sellers during emergencies as before and after. Yes it is true that during times of quick changes in conditions that more of those prices may turn out to be “wrong” in the sense of too high or too low, but the pre-emergency price is almost assuredly wrong in this same sense and so will likely guarantee that outcomes won’t achieve his rationality standard however he chooses to define that term.

In any case, with a manageable definition of “rationality,” we could explore empirically whether freely-adjusting prices do better or worse than alternative price rules in helping to better clear information rationally. (By “clear information in rational ways” I take Hoffman to be referring to the market’s imperfect-but-still-normally-useful ability to reveal where goods are most highly needed.)

2. It is absolutely true that when it comes to cases in which our lives hang in the balance, consumers will do things that would otherwise be crazy. Would you pay $100 for a bottle of water? Normally no, but if I would die without it then yes. (And if I were about to die for lack of water, I should probably go to the emergency room, not the supermarket. The irony, of course, is that the emergency room would charge $100 to provide the water.)

As an empirical claim about consumer behavior, at least with respect to almost all market transactions during civil emergencies covered by price gouging laws, I’d say he is wrong but at least this is potentially testable. But to the extent we are talking about life and death, I’d say the relevance of his point to price gouging policy is essentially nil. A hurricane hits the Gulf Coast and suddenly state officials in New York and Massachusetts are warning gasoline retailers not to use the hurricane as an excuse to raise prices excessively. No New Yorker is going to die from a Gulf Coast hurricane because gasoline prices on Long Island jumped from $3.50 to $4.75 for a few days.

Of the millions of retail transactions conducted under activated state price gouging regulations, my guess is that fewer than 0.01 of a percent of them involved life and death. In the actual post-emergency retail sales covered by most price gouging laws consumers are quite capable of weighing whether they need four days of bottled water or fourteen,  whether they really need to top off a nearly full gasoline tank again, and if they can get by with two batteries instead of eight, and so on.

3. The empirical claim suggested by standard economics seems contrary to Hoffman’s claim on panic buying. Since emergencies are times of heightened demand and limited supply, some panic demand and hoarding behavior is typical. Artificially low prices are more likely to result in shortages, therefore are more likely to prompt consumers to rush to stock up on supplies. Price gouging controls, in this standard economics story, promote “panic buying.” Two things that would reduce panic buying: (a) consumer confidence that stores will not run out of goods, and/or (b) belief that prices will tend to fall rather than increase over the next few days.

It might be the case that with price gouging laws on the books a consumer doesn’t have to worry about unjustified price increases, but I don’t see the connection between added trust in the market and a consumer’s decision to stock up on supplies right away rather than later. I feel like I must be missing Hoffman’s point.

4. The claim that publicized price gouging enforcement will yield the same kind of “forcing effect” of higher prices, i.e. induce equivalent conservation of newly scarcer goods and services, is eminently testable. The comparable situation in electric power might by those hot summer afternoons during which the utility (mayor, governor, etc.) calls on power consumers to help protect system reliability by voluntarily cutting demand. These voluntary calls for conservation work in the strict technical sense that some people will reduce their consumption. But compare the response rate to that among power consumers with a direct economic incentive to cut back consumption during these power system emergencies, and I’m sure publicizing emergency conditions has nothing at all like the same kind of “forcing effect” as simple economic incentives.

And, of course, it is simply not possible that, say, Governor Christie’s disaster declaration could contain all of the necessary information about which goods are now going to become how-much-more scarce in which parts of the state for how long, and how much one consumer’s needs should weigh against another consumer’s needs, etc.

Hoffman declares his motives in his concluding paragraph: “I dislike folks who intentionally profit on others’ misfortune.” Personally, I’m not so worried about intentions and I’m not  worried about degree of profits. I simply want to support public policies that are best at helping people in distress get useful goods and services at reasonable terms and conditions.

Now, of course, Hoffman is for helping people in distress just like I’m for helping people in distress. The debate here isn’t which one of us secretly hates puppies, but rather which policies will work best for the people affected by emergencies. My empirical claim is that normal public policies towards retailers and pricing do a better job in helping people in distress than anti-price gouging laws do.

ALSO: See Hoffman’s follow-up post, still from September 2005, in which he reacts to some of the comments to his first piece. I now notice that some of those 7+ year old comments beat me to the punch on points I’ve made above. Hoffman suggests the ‘hotel problem’ is more interesting than the gasoline station problem. Here is my ‘hotel problem’ price gouging argument: Hotel rate price gouging during snowstorms can promote public safety.