Tuesday, November 6, 2012

Hurricane Sandy lays bare the fraud of benevolent all powerful government

Yesterday, I noticed that the Walmart store in Secaucus, NJ has run out of machetes.

Any government's first and foremost responsibility is to protect the lives and properties of its citizens. Do you feel safe in the dark streets of various New Jersey communities a week after Sandy hit, knowing that Walmart has run out of machetes?

With a storm of this magnitude, it is impossible for things to return to normal immediately and things will go wrong. But, there are many instances were things are made worse by government after the nature's fury goes away. It is one thing to mourn after what nature has done to Seaside Heights. It's a whole other thing to watch helplessly as people suffer at the hands of government.

The most glaring example of government induced suffering in New Jersey and New York is the ongoing gas shortage. Yes, the initial supply shock to the system was real. Just as real as the initial supply shock to the system in the case of Hurricane Katrina.

There is one major difference between the two, however. Back when Katrina happened, every ignoramus and his cousin, including a frothing in the mouth, angry liberal student in my class who almost physically attacked me for saying that higher prices are what signals to everyone that there is a scarcity somewhere in the system, and therefore, gas must be conserved, re-routed alleviate it, cried about the evils of price-gouging.

Because gas prices were able to go up following Katrina, shortages were few and far in between, confined to small areas, and short periods.

A Google search shows that many people understand that the reason there is no shortage of food in the area supermarkets, but there is a serious shortage of gasoline in gas stations is because markets are allowed to work in the case of food, but, in the case of gas, the government interferes with the free market by forcing the gas price on the sign outside to remain low (presumably so no one can criticize politicians for higher prices) even if there is no gas to be had at that price.

I watched in horror as the evening news mentioned that the national average price of gas had fallen over the last week. Under normal circumstances, when one of the most densely populated and richest areas of a country is hit by a supply shock, the price would shoot up as people in the affected area bid the price of gas up. That would raise prices everywhere, leading to automatically reallocating gasoline from parts of the country where it is abundant to where it is scarce.

Prices would then come down as time goes by, and the effects of the supply shock dissipate.

Just like it happened after Katrina.

And, totally unlike what we are having to suffer now.

New Jersey has an odd-even rule. In New York City, Cuomo advertised free gasoline up to ten gallons per person. Every gas station has lines snaking out on to the highway for hundreds of yards, creating dangerous driving conditions. In Hudson county, it took most people almost a week to get power. Hoboken is still a black hole. People are tried, frustrated. Long lines at gas stations are the last places they want to find themselves in. They are not happy.

In New York City and Hudson County, NJ, there is a significant police presence at almost all gas stations.

Meanwhile, Walmart has run out of machetes.

Let's say gas station owners could charge $10/gallon for gas in the case of a supply shock like this.

They would have a much greater incentive to obtain a generator to keep the station open, so there would be, fewer, shorter lines in the first place, and there would be less psychological panic among the populace because they would see and hear about fewer instances of shocking lines and behavior at such gas stations.

If gas station owners could really charge whatever they wanted for gasoline, those who perceived a danger to their property and customers would make sure to hire security personnel, freeing up police forces to deal with their primary responsibilities.

Power Company Monopolies

A lot of the difficulties which the people of New York and New Jersey are continuing to endure are due to lack of electricity. The power company monopoly model of electricity distribution is a very late 19th century market structure. But, even granting that, one must ask, why do power companies have a monopoly over fixing various elements of the infrastructure?

There is no economic justification for allowing the power companies to have a monopoly over things like fixing poles and clearing trees, or even drying out an cleaning power substations. Under the current system, mayors of municipalities have neither the responsibility nor the ability to ensure that their communities get power back as soon as possible (other than trying to exert political influence, but that's most inefficient when everyone is trying to do the same thing).

Of course, some kind of coordination and certification system would be needed, but given that storm related outages are a common enough occurrence, I can see a lively market in companies offering various service level guarantees, an liberating communities from the arbitrary union work rules of power company monopolies.

No, things would not be perfect under a much more market oriented system.

But, if you thing everything is just so perfect under the current system of governments at various levels diddling people out of the benefits of a functioning price mechanism, you must either be delusional or a rich & famous Hollywood personality who wants more of the same while you vacation on your private island.

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