So we have two elasticity estimates floating around. First, the elasticity of petrol demand with respect to price during a crisis. Second, the elasticity of public good provision [people voluntarily doing things to help neighbours and community] with respect to temporary price hikes that would likely be misunderstood and resented by customers.
For starters, petrol demand is and always has been relatively inelastic in the short term: around -0.3: a 10% increase in price results in a 3% reduction in quantity demanded. But those estimates will be calibrated around relatively small and expectationally permanent increases in the price of gasoline; we have good reason to expect a short duration, sharper price spike would induce a greater behavioural response.
We know that demand for security in general is fairly elastic. Why else would we see such price dispersion in the various grades of, for example, kid car seats? Some folks put a lot of value on it, others don't. It costs less to have a monitored security system in your house than a Sky TV subscription. I've not looked at the numbers, but I'm willing to give 3:1 odds that more homes in Christchurch have Sky TV than have a working monitored security alarm. Folks are willing to pay a premium for security, but not an infinite premium. Further evidence, more earthquake related? In the last earthquake, bottled water was security. This time around, Council was very quick to get tanker water out to Brighton. But not so last time. After the September earthquake, everybody was out of the bulk cheap water, but you could still sometimes find the fancy water at its usual crazy high price. Water was security. But not at any price.
But let's grant Keith's assumption for now: folks have inelastic demand for security. Whatever prior estimates we might have on demand for security get thrown out the window because security has understandably become rather more salient. But how much petrol constitutes security? It's not an infinite amount - folks aren't filling up a pile of jerry cans along with their regular gas tank. Is a full tank security? Or is a tank big enough to get you to Rakaia enough? A full tank in one or two of the family vehicles, for those with more than one car? I felt pretty insecure in South Brighton with a quarter tank in the car that wasn't abandoned on the other side of the bridge because I knew traffic getting out of Brighton could take hours; it also seemed impossible to tell which stations would have petrol once we got through the traffic bottleneck at Travis Road. Pretty high risk we'd wind up stranded if we went for groceries or tried getting to the airport. I'd have been happy enough with a half tank, damned nervous about trying to get anywhere on a quarter tank. So if a tanker truck had shown up in Brighton on Wednesday selling petrol at normal prices, I'd have been tempted to fill to the top absent quantity restrictions. At double prices, I'd not have filled beyond the half tank. From a check of StatsNZ data, we're in the upper ranges of the South Brighton income distribution. But I'm horribly cheap - at $5 per litre, I'd only have filled up with enough to get me through to prices dropping. Would everyone else be substantially less price responsive than me? Am I really that cheap?
Even if demand for security is very inelastic, if "security" can vary across individuals and can be anywhere from a half tank in one car, a full tank in one car, or a full tank in two cars, it's still very plausible that a temporary doubling of petrol prices would have reduced queuing and ensured that adequate supplies were available for folks who really needed them.
As for social solidarity - I totally agree with Keith that neighbourhoods coming together voluntarily to help each other out has been totally laudable. I can't imagine anybody who'd think otherwise. But would that spirit of community have been broken if, on Wednesday following the quake, the following message had gone out?
Our critical transportation infrastructure has been badly damaged by Tuesday's earthquake. We've strongly encouraged people to stay off the roads except in case of emergency. Unfortunately, many of our major roads remain completely congested, sometimes preventing emergency crews from getting through to where they're needed. At the same time, the temporary closure of the Port of Lyttelton's petrol terminal has resulted in a short term gap in petrol supplies. This will be solved in two days when the petrol tankers bound for Lyttelton have been diverted to Timaru and tankers have made it up from there. But we need people to show restraint during that gap. Despite our having urged such restraint, queues at those stations that have not yet run out of petrol prevail. We consequently have asked the major petrol retailers to impose a $2 per litre surcharge on petrol, with the surcharge earnings to be contributed to the earthquake relief fund. This measure will help to ensure that those who absolutely need petrol will be able to find it in a crisis. Only buy what you need to get you through the next two days. After that, the surcharge will be lifted. Know that your contributions are going to help your neighbours in Christchurch.And so on, but with more PR. I just can't see that temporary charge ruining social solidarity. Especially in the case where folks can see that the extra charge is going to the earthquake relief fund.
This isn't a "screw the poor" thing. Is a poor person worse off having to spend $40 than $20 to get enough gas to get through a two day period, or worse off having to spend a whole lot of time in a queue for potentially no petrol at all? Recall that poor households are more likely to be single parent. Who's looking after the kids while Mom's queuing for petrol? Further, count the costs of uncertainty. Lots of folks had to be making lots of plans after the earthquake, many of which would be contingent on knowing whether fuel would be available and at what prices. Everybody who happened to have a quarter tank or less at the time of the quake had to bear a whole lot of uncertainty costs. Rationing by queuing effectively locked a whole pile of folks in a part of town with no services and no food because they couldn't know whether they'd be able to find fuel to get home should they have left. Is that better?
Neither is this some crazy Eric libertarian thing: it's technocratic. I'm positing a market failure - that it would have been socially efficient for the Christchurch petrol stations to have raised prices in concert, but that none would do it on their own because of hugely negative reputational effects because of public irrationality about the working of the price mechanism. Consequently, I proposed a policy solution that removes that reputation cost: government coordinating a temporary price hike with the collected excess revenues going to earthquake relief. I hate the idea of "targeted tax increase dedicated to some social project". All manner of ridiculous redistribution schemes can gain support that way. But government coordination in this case could have helped; toss me out of the libertarian club if you like. It's odd how the party lines have broken on this one. The libertarians have generally supported my proposed government intervention; the folks on the left who generally favour technocratic dirigiste solutions haven't liked it.
I think social cohesion is far more robust to a petrol price increase than Keith does, and especially in the case that I proposed: a temporary hike where the raised funds go to earthquake relief. Would you suddenly stop helping your neighbours because you thought the gas station down the road cheated you?
It's a bit of a shame that Keith's initial good points - the elasticity questions - get lost a bit at the end. The footnoted tirade against homo oeconomicus and the Austrian school, and the threatening to bash anybody who believes in a strawman form of the argument I'd put up, don't help his argument. Homo economicus maximizes a utility function that can and does include loving their families and helping their neighbours. And Austrians support anything that's voluntary; I'd expect a proper Austrian would oppose my proposal that government try to coordinate a temporary price hike.
But we economists are wary of relying solely on altruism to get the job done - and the job here is a big one. There's only so much altruism to go around. We have some evidence that folks behaving altruistically on one margin then feel that they've done enough and so can afford to be less altruistic on other margins. We strain altruism if we ask it to do too much. And it denigrates the altruism folks have shown and continue to show to argue that it would have disappeared had gas prices had gone up for two days last week.
I'd argued last time round in favour of gouging more generally. I stand by it. The dairy owner who's massively short on supplies shouldn't be excoriated for keeping enough on the shelf for emergency need by raising prices. But I also cheer those who, seeing that folks on the other side of town are having to pay multiples of normal prices, load up trucks with the items in obvious short supply and bring them over to give away. It never occurred to me that folks could interpret this as "he likes one, he must hate the other". I'd think rather that evidence of the former helps to encourage the latter.
Update: Rauparaha at TVHE seems to agree.