Price-Gouging

In the wake of Hurricane Sandy, the New York Posts reports that New York attorney general is going after Craigslist listings for "price gougers" who are offering, e.g. $20/gallon gasoline.

Robert Nozick once said that "the socialist society would have to prevent capitalist acts between consenting adults." Well, here you go. I'm trying to understand the A.G.'s theory here: if someone needs, say, 5 gallons of gasoline, they usually have a range of quick, relatively equally-priced options, i.e. gas stations. It only takes a few minutes, and the range of prices for the equivalent grade of gas is only a few percent.

During the shortage conditions that obtains following Sandy, those options were curtailed. You could go to a gas station, but would wait in line for hours to buy gas at the normal, low price. Or you could go to a "price gouger", offering to sell you gas with no wait at a considerable mark-up. This gives the consumer a choice.

If the "gouger" did not exist, only the first option would be available. Of course, the approximate equivalent could be accomplished: the person who needed gas but didn't want to wait in line could hire someone to wait in the gas line. That, presumably, would not be gouging. But waiting in line and then trying to sell the product is. The "gouger", we see, is really a small-time entrepreneur.

There are many economic stories in which there are two sides, and one could easily understand the opposite position. (For example, economic nationalists who want certain barriers to trade may be willing to accept the costs of those barriers - higher prices, lower productivity - in exchange for protecting domestic jobs. One may see that there is a tradeoff, even if one has strong opinions about which side of the trade is the more desirable.) But this is a case in which the existence of the "gouger" is a pure good.

The Stock Market Effect

This is necessarily a very approximate, first-order view of things, but consider the following facts:

1. The day of the election, InTrade estimated that President Obama had a 70% chance of winning re-election.
2. The day after the election, the Dow Jones fell about 300 points.

Suppose that all other election-day news had an effect worth a drop of N points on the DJIA. Then the Obama effect was worth a drop of 300-N points. That result had a 70% chance of occurring (assuming efficient markets and sufficient arbitrage). That implies that had Mitt Romney won, the DJIA would have risen by approximately 7/3 × (300-N) = 700-(7/3)N points.

It's probably not fair to assume N=0, in which case the Romney effect would have been +700 points. But even if N=150, a Romney election would have worth +350 points. Instead, it dropped 150 points (due to Obama, plus another 150 due to other news). That's a 500-point swing, or about 4%.

Post-Election Wrap-Up

Well, Tuesday was unpleasant. We were standing athwart history, and history rolled over us like a freight train. We really can't deny that.

At the moment, at least, this is not a center-right country: it's center-left. Some would have us believe that this is due to demographics, and thus has an unstoppable momentum behind it. But I don't think that has to be the case.

In the near future, some predictions:

1. There won't be any conciliation between the parties, unless the GOP chooses to roll over. Obama won narrowly, but he's going to view this as a mandate and push his agenda as aggressively as ever.
2. We will see even more abuses of executive power over the next two, and possibly four, years. (My biggest fear is that this won't end with Obama's second term, but may become a permanent fixture of American politics. If I'm right about that, then we'd better hope we never elect an ambitious power-monger President.)
3. Taxes are going up for most people. The most obvious top-line effects will be on "the rich", but if business taxes are raised, that affects everyone. If gas is taxed more heavily, that affects everyone. And so on.
4. Health care coverage will get worse as more companies opt not to provide it to their employees. We're going to start the long march towards universal care. I predicted this two years ago and so far have seen no reason to doubt it.
5. Iran will get a nuclear weapon.