Hurricane Sandy caused the closing of a majority of the gasoline stations in the New York City area, did major damage to petroleum terminals, and reduced the ability of barges carrying fuel to reach their docks. All of this represented a substantial reduction in the supply of gasoline and other petroleum products in the New York metropolitan area. None of it was the cause of a shortage of gasoline or any other petroleum product, a shortage which New York’s Mayor Bloomberg can think of no better means of alleviating than by means of imposing a system of gasoline rationing. (See The New York Times, Nov. 9, 2012.)
In a free market, the effect of a good’s becoming scarcer is not to cause a shortage of it, but a rise in its price. The rise in price serves to reduce the amount of the good buyers seek to buy to a point that is within the limit of the reduced supply available. However much the supply of oil and oil products was reduced by the hurricane, it was certainly not reduced to anywhere even remotely near the normal, everyday degree of scarcity in the supply of such things as gold or diamonds. And yet there is no shortage of gold or diamonds. Whoever is willing and able to pay the market price of these goods has no difficulty in obtaining them. But if our government officials, inspired perhaps by some such belief as that everyone should be able to obtain gold and diamond jewelry at an affordable price, decreed that the price of gold and diamonds should be cut in half, say, then, indeed, there would be shortages of gold and diamonds alongside the present shortages of gasoline in New York and New Jersey.
Even goods of which there is just a single specimen, such as a Rembrandt painting, are not in a state of shortage. When such a good is put up for auction, its price rises as high as necessary to reduce the number of bidders to just one. In the face of the high price, all the other bidders give up and walk away. They do not remain in the auction room for hours still waiting to buy the painting. They know that the price is just too high for them. But imagine an auction in which the auctioneer was prohibited from progressively raising the price until only one buyer remained. Imagine that he was compelled to hold to his first or second offer. In that case, the auction room might remain packed indefinitely.
What all this implies is that the shortages of gasoline now being experienced in the New York metropolitan area and elsewhere in the path of destruction left by Hurricane Sandy, simply do not need to exist. They could be made to disappear very quickly, within a matter of hours. All that would be necessary is to remove the threat of prosecution of gas station owners, and all others in the chain of supply of gasoline, for raising their prices to the extent necessary to reduce the quantity of gasoline demanded to conform with the reduced supply of it available.
Confronted with such a price—possibly one as high as $10 or $20 a gallon, or even higher, given the apparent extent of the reduction in the supply of gasoline—many of the drivers of the cars presently waiting in line at gas stations, would simply drive off, park their cars, and make arrangements for alternative means of transportation, whether car pooling, bicycle riding, or whatever. Almost everyone would curtail his driving commensurate with the higher cost of driving. No one would drive into a gas station who was not prepared to pay the then prevailing very high price of gasoline. The people who needed gasoline for such urgent purposes as getting to work, but who could not afford to pay such a sharply higher price, would not be in nearly as bad a position as needing gasoline to get to work and being simply unable to find it, or find it only after waiting in line for three hours. Such people could car pool and spread the high price of gasoline over as many of them as could reasonably fit in an automobile. The environmentalists, who seem to desire that such arrangements become a normal, everyday occurrence, should welcome this chance to see the achievement of their goal, however temporarily.
What caused the shortages and stops them from being overcome in this way is the fact that the necessary rise in prices is illegal. It is against the law. According to a Bloomberg news release of November 9, 2012, “New Jersey law defines price gouging as an `excessive price increase,’ or of 10 percent or more, during a declared state of emergency.” The same news article also reports that “New York law prohibits selling goods or services for an ‘unconscionably excessive price’ during `abnormal disruption of the market.’”
Thus State laws are what make it impossible for the market immediately to put an end to the shortages. It is these State laws that allowed the shortages to come into existence in the first place, by prohibiting the immediate rise in prices that would have prevented them, and that then make the shortages persist.
The same State laws make it impossible for the market speedily to restore supplies to their normal level, which would serve quickly to bring down prices from their abnormal heights.
If prices were allowed to be “unconscionably” high, it would be possible to bring in vital supplies that are more costly. For example, gasoline from more remote refineries. At prices of $10 to $20 per gallon, it would pay for tanker trucks to bring in gasoline from several hundred miles away. This would serve to spread the loss of supplies caused by the hurricane over a much wider area, with a corresponding reduction in the severity of loss experienced in the area of the hurricane’s path.
The price of gasoline would rise in the areas from which the additional supplies came. That rise in price would pull in replacement supplies to those areas from still more remote regions. Thus, for example, while refineries in Pittsburgh and Cleveland were helping to supply New York and New Jersey, other refineries in the Chicago and Detroit areas would be helping to resupply Cleveland and Pittsburgh. The effect would be that the loss of supplies of gasoline in the New York metropolitan and New Jersey shore areas would be spread across much of the country, thereby resulting in a substantially reduced percentage of loss in the New York/New Jersey areas. Instead of those areas experiencing the effects of a 50 or 75 percent reduction in supply, a much broader area would experience the effects of perhaps only a 5 or 10 percent reduction in supply. The rise in price of gasoline would quickly diminish, reflecting this greatly reduced percentage of loss of supply.
The “unconscionable” rise in the retail price of gasoline that made it possible for the gas stations to pay higher prices to their wholesalers and distributors bringing in gasoline from remote refineries, would also cover the high costs of speedy repairs, such as entailed in round-the-clock repair work, using extra crews, and paying premium wage rates. Thus, in the absence of the price controls, in very short order New York/New Jersey area refineries, terminals, and docks would be repaired, and the gas stations now closed would reopen. This would serve to achieve a full restoration of supplies, along with a return of the gasoline distribution system to normal. These results would quickly bring gasoline prices down to their normal level.
All of this is prevented for no other reason than that our government officials are utterly ignorant of economic law. They believe that prices have no connection with reality and can be dictated by them with no effect other than to make supplies less expensive—for people who can’t get the supplies, because the supplies don’t exist, and who are led to waste endless hours, day after day, trying to get the supplies that don’t exist. By what standard is this a more reasonable arrangement than allowing prices to be “unconscionably” high, for what would certainly be a very short time, and thereby quickly fixing the problem?
The press is as much to blame as the government officials. With rare exceptions, the reporters are as ignorant of economic law as the politicians. Both are unqualified for their jobs. They just don’t know what they’re doing.
The ultimate responsibility, of course, rests with the general public and with the educators who failed to provide people with even the most rudimentary knowledge of economic law.
In a society in which economic law was widely understood, legislators and prosecutors who sought to prevent price increases in cases of emergencies would be regarded as public enemies and barred from office. They would be barred not by a mere lack of support, but by a lack of support manifested in the utmost public contempt and ridicule for their ignorance and destructiveness.
These laws should immediately be overturned. They are in violation of the Ninth and Fourteenth Amendments to the US Constitution. The Ninth Amendment states that "The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people." Obviously, the people retain the right to take the steps necessary to cope with catastrophes, such as Hurricane Sandy. These laws fly in the face of that right. They make it illegal for people to take those steps. The Fourteenth Amendment makes the provisions of the US Constitution applicable to the states.
A panel of Federal judges should be convened at once and asked immediately to render these laws null and void. New York and New Jersey are in an emergency situation. It is intolerable that their people be made to suffer the effects of disastrous legislation piled on top of a natural disaster and thereby needlessly enlarging and extending the effects of that disaster.
Copyright 2012 by George Reisman. This article may be reproduced electronically provided this note is included in full. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). He is also the author of The Government Against the Economy, Warren Buffett, Class Warfare, and the Exploitation Theory, and the recently published The Benevolent Nature of Capitalism and Other Essays. His website is www.capitalism.net. His blog is www.georgereismansblog.blogspot.com. See his Amazon.com author’s central page.
The “extremists” among you openly call for the death of 1 to 6.4 billion human beings. The “moderates” among you openly call for the forced reduction in carbon dioxide emissions of 90 percent within a few decades, which would serve to reduce energy use almost to the same extent. Such a severe reduction in energy use follows from the fact that there are no presently existing large-scale viable alternatives to fossil fuels other than atomic power, which is regarded by most members of your movement as a death ray and is opposed more vehemently than fossil fuels. Furthermore, the likelihood of ever finding and developing such alternatives will be greatly reduced by destroying the energy sources we do have and need to increase. So what your movement advocates is mass death or, at the very least, dreadful mass impoverishment whose outcome will be tens or hundreds of millions of unnecessary deaths and a life of misery for those who survive.
If your motivation in calling yourself an environmentalist is merely such things as that you like to see flowers bloom on open meadows, and love trees, whales, and polar bears, and the like, then you owe it to yourself to put as much intellectual and moral distance as possible between you and those who advocate mass impoverishment and mass death.
The first step you need to take is to stop using the same word “environmentalist” to describe both them and you. So long as you do use the same word, people cannot help but think of you all in the same terms.
Don’t think you can solve the problem by calling yourself a “free-market environmentalist.” That’s like calling yourself a “free-market Communist” or a “free-market Nazi.” They’re contradictions in terms.
The free market exists to promote prosperity and human life, and that is what it has accomplished, splendidly, with breathtaking brilliance. In the industrialized world, the average person today enjoys a standard of living superior to that of kings and emperors of the past. The whole world’s population is capable of enjoying the same marvelous results, if it adopts economic freedom. But if you call yourself an “environmentalist,” you mark yourself as sharing the goals of mass destruction and death. A socialist dictatorship is the vehicle for achieving those goals, not a free market.
It is true that many American businessmen, some of them extremely talented and successful, now call themselves “environmentalists” and are stumbling over themselves in a race to prove how “green” they are. In the early 1930s, many talented and successful German businessmen did essentially the same thing when they began to call themselves “Nazis” and raced to prove their devotion to National Socialism. It’s possible for people to be geniuses in one area of their lives and fools, or worse, in other areas. In any event, the outcome for the German businessmen, and for all other talented individuals who joined either the Nazis or the Communists, was that they ended up as accomplices of mass murderers. The same will be true in the United States, if the environmentalists succeed in imposing their agenda.
If you care about your moral character, don’t place an indelible stain on it by supporting a movement that seeks to destroy Industrial Civilization and all the human lives and human well-being that depend on it. Accept moral responsibility for the ideas you propound and stop standing in the service of mass destruction and death.
Do not come back with the argument that if we uphold individual freedom, our great grandchildren will have to live in an uninhabitable planet, one that is either too hot or too cold. Sooner or later Nature itself will make the climate considerably warmer or considerably colder than it is today (most likely colder). The only significant question is what is the best method of coping with such change? Is it the free market or a centrally planned dictatorship that reaches down into every detail of everyone’s personal life and productive activities, that, indeed, wants to control the carbon content practically of every breath that anyone draws?
Even if you are absolutely convinced that human activities are responsible for global warming and, if nothing is done, will ultimately result in an intolerable rise in temperature, there is a very simple test that you need to apply. Pretend, for just a moment, that that same global warming is coming about independently of human activities, that it is strictly the product of natural forces. Then ask yourself, what would be the best fundamental method of coping with it? Maintaining a free market or establishing a centrally planned socialist system?
More fundamentally, what is the appropriate method for Man to use in dealing with Nature in general? Is it the motivated and coordinated human intelligence of all individual market participants that is provided by a free market and its price system? Or is it the unmotivated, discoordinated chaos in which one man, the Supreme Dictator, or a handful of men, the Supreme Dictator and his fellow members of the Central Planning Board, claim a monopoly on human intelligence and on the right to make fundamental decisions?
Suppose even that the warming caused by Nature were such that what was required to deal with it was some sort of space program, perhaps emitting thousands of tiny mirrors that would prevent some sunlight from reaching the earth by reflecting it back into space. Suppose further that as a practical matter, given our present state of social organization, the only realistic means of carrying out such a program was through governmental action—a kind of public works project, as it were. In which circumstances, would such a program be more likely to be feasible: in those of the primitive economies characteristic of third world countries or in those of advanced industrial economies? And would they not be more likely to be feasible in an economy substantially more advanced than our own is at present?
The answer to the question of how best to cope with intolerable global warming caused by Nature is obviously the maintenance of the free market, not its replacement by Socialist central planning. Indeed, the answer is to make the free market freer than it now is—as much freer as is humanly possible. This is because while the primary reason for advocating a free market is the greater prosperity and enjoyment it brings to everyone in the course of his normal, everyday life, a major, secondary reason is to have the greatest possible industrial base available for coping with catastrophic events, whether those events be war, plague, meteors from outer space, intolerable global warming, or a new ice age.
In effect, what the environmentalists would have us do as the means of preparing for coping with a coming global warming is analogous to the imaginary absurdity of the United States in the 1930s having reduced its economy to the level, say, of Poland’s economy. Then, when World War II came, our country would have had to fight the war with horses instead of tanks and planes. In the same way, the environmentalists would have us cope with global warming by waving little fans instead of using air conditioners, refrigerators, and freezers.
Now what, if anything, changes if we assume that global warming is an unintended by-product of the human productive activities that make life possible and enjoyable? How does it possibly follow from this that the only means of stopping this much-less-than-certain outcome is by suffering the absolutely certain impoverishment and death that will come from the destruction of most of our present sources of energy?
Is there absolutely no other way to deal with global warming than the destruction of our economic system? Is that how we would deal with it if global warming were the product of Nature, and not the by-product of our activities? Would the environmentalists then ask us to engage in what in the circumstances would be a merely ritual sacrifice incapable of accomplishing anything beyond itself?
If they would not do that, then they would have to look for other alternatives as the means of coping with global warming. Why aren’t they looking for those other alternatives now? Why on earth should the first and only solution for global warming as a by-product of human activity be the scuttling of our energy base? Do we deserve to be exterminated for our unintended by-products? Must we really choose to live in poverty and misery, surrounded by death, in order to avoid excessive heat? Can absolutely no other way be found? (The likely answer is actually no more complicated than having the greater energy base required to build and power bigger and better air conditioners.)
Do you environmentalists who do not want to think of yourselves as misanthropes, as recycled Communists or Nazis, do you really want to entrust your lives and material well being, and the lives and material well being of everyone who may matter to you, to the power of government officials to tax carbon emissions and to limit the total of such emissions? Are you willing to entrust this power to today’s President (who at least has the good sense not to want it)? Do you want to entrust it to any of the candidates with a realistic chance to succeed him (who do want this power and may even crave it)? Do you want to entrust it to the members of the United States Congress? To the members of the United Nations General Assembly?
Do you want them to decide how much man-made energy is to be available to you in every aspect or your life, by their imposing carbon taxes and carbon caps? These will be taxes and constraints on you that are tantamount to adding extra dead weight to your body and to restricting your power to move your own limbs. And they will go on increasing in severity, to the point that you, or your children or grandchildren, will drop from exhaustion. For the effect of every loss of energy use is a corresponding imposition on the meager power of human muscles and the human frame. And if the impositions cannot be borne, the products that depended on the lost energy use can no longer be produced. If the environmentalist agenda is imposed, the day will come when your descendants, if they have any awareness of it at all, will look back on our time as a mythical Golden Age never to be achieved again.
Is that what you want?
It’s not too late for you to change your mind, abandon any support you may have been giving to environmentalism’s program of impoverishment and death, and come over to the side of the values of human life, wealth, and happiness—the values Mises fought for under the banner of genuine Liberalism.
Copyright © 2008, by George Reisman. George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. His web site is www.capitalism.net and his blog is www.georgereisman.com/blog/.
From the movie review “Casualties of China’s Transformed Economy” by Jeannette Catsoulis, in today’s Times:
Bracketed by stunning long shots taken from the front of a moving freight train, Wang Bing’s epic, three-part documentary, “Tie Xi Qu: West of Tracks,” is an astonishingly intimate record of China’s painful transition from state-run industry to a free market. Filming between 1999 and 2001, Mr. Wang and his sound engineer, Lin Xudong, painstakingly document the death throes of the Tie Xi industrial district in the city of Shenyang, in northeast China, a once-vibrant symbol of a thriving socialist economy.
How foolish of China to abandon its “thriving socialist economy” of perpetual mass starvation for a rapidly progressing market economy of soaring skyscrapers and rising living standards for hundreds of millions.
From the book review by William Grimes “Looking Back in Anger at the Gilded Age’s Excesses” in today’s Times:
Again and again, surveying the post-Civil War landscape, Mr. Beatty throws up his hands in despair. “The people supported the government, and the government supported the corporations and the rentiers with the people’s money,” he writes. “And the people did not seem to object, at least not enough of them.”
Maybe that’s because of wheeler-dealers like Jay Gould, who once boasted, “I can hire one half of the working class to kill the other half.” They just don’t make them like that anymore.
Or maybe it’s because the reviewer and author (Jack Beatty, a senior editor at The Atlantic Monthly) are 180 degrees wrong. Instead of the “robber barons” stealing the industries that did not exist before they created them, and impoverishing those who had next to nothing in the first place, the vast new wealth that the great industrialists employed as capital served radically and progressively to increase the supply of goods available to the common man to buy and increased the demand for the labor that he sold. That’s the actual nature and significance of the fact that, in the reviewer’s words, “The richest 1 percent owned 26 percent of the wealth, and the richest 10 percent owned 72 percent.” The hated rich created that new and additional wealth and were led by the nature of the profit motive, capital, and free markets to employ it for the progressive benefit of the masses.
Such is the intellectual and moral state of The New York Times, a veritable cesspool of wrong and vicious ideas serving day in and day out to poison the minds of its readers against the capitalist economic system and economic freedom.
This article is copyright © 2007, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.
