Sunday, September 14, 2008

Price Gouging again!!

Hurricane Ike has brought back the Gas Price Gouging debate back in the media. This morning I woke up to MSNBC news about the aftermath of hurricane Ike. An on site reporter kept taking to the same people waiting at a Gas station. They were calling it a disaster and a mess. Sure it was! A hurricane just went by. I just cannot believe the number of people who think the government has to provide them gas and other supplies. Wouldn't a rational person stock up when they know there would be supply problems after a Hurricane. Of course, this sample does not include the many people who actually stocked up, so the media does have an availability and sample bias. Obviously, the people who line up outside the gas station or convenience store after a disaster would be the ones that did not think in advance, and this could be a small percent of the population. 
So the anchor in the news room brought in an expert economist (I forget his name and affiliation) to talk about gas prices. Apparently gas prices are up to $5 a gallon in some places. So she asked the expert if such price increases were expected, and he replied that not everything can be expected during and after a disaster and that there would always be some element of the unexpected that was not prepared for. She asked him about the price increases and he said that it was because there was less supply and so prices go up and that it was all demand and supply. She did not get it. She kept hounding him about how much of it was price gouging, and going on and on about what a mess and bad situation it was. The expert said that the refineries were not like a power switch that you could turn on and expect to run immediately, and that it took time to shut them down and turn them back on again. She still did not get the supply demand part of it and said "oh so its a delivery problem". 
I was impressed with the expert who kept it to facts and basic economics and saddened at how little people understand basic economics and are unwilling to listen to experts. We do not believe the diagnosis of a medical condition made by someone who is not trained in medicine. Why do we think economists know less economics than us?

1 comment:

bobvis said...

We do not believe the diagnosis of a medical condition made by someone who is not trained in medicine. Why do we think economists know less economics than us?

It may not be fair to make this comparison. Nassim Taleb writes about "the expert problem" in The Black Swan, and refers specifically to economists. We can test a doctor's knowledge fairly reliably. Also, they can reliably predict the important stuff within their fields. For example, when one doctor says someone has cancer, most other doctors will agree, and the person in all likelihood does actually have cancer.

With economics, it's much tougher to define who is an expert. There is no standardized test of knowledge. Economists regularly disagree on fundamental questions (e.g. the stimulus package). Economic forecasts are famously unreliable.

Of course, I still agree with your main point. And supply and demand is something all economists will sign their names to.