Afternoon roundup

The closing of the tabs...

• Transport is in the ETS. Therefore, bus networks do not need decarbonisation strategies. Councils can just assess the all-up costs of different options - with a measure for the cost of particulate matter pollution in places that are less windy than Wellington. I don't know why NZTA has funded research to models weighing up 'different bus decarbonisation strategies'. 


• Canterbury's Mike Grimshaw on the fundamental underlying problem with NZ's universities.


• Ryan Bourne on the War on Prices


• The CFTC had been the safe harbour that let the IEM run. They've since been taken over by Vogons. 

If prices can't allocate, we may need greater prudential reserves

My column at the Sunday Star Times this week harkens back to the petrol shortages in Christchurch after the earthquake. Stations on the west side of town, where there was still power, had substantial queues and were running out of fuel. But prices didn't go up.

If prices could go up in a crisis, that would provide incentive to invest in capacity against such crisis. But if you fear consumer backlash, legislation, or expropriation, it won't happen.

Last week, Minister Woods announced new rules requiring fuel companies to maintain onshore reserves against scenarios where international fuel shipments are disrupted. It'll increase the cost of fuel during normal times to maintain some capacity during a crisis. It wouldn't be needed if prices could allocate in that event. But it seems rather unlikely they'd be allowed to. 

The column concludes:

Letting prices ration scarce supplies would not just save everyone the cost of queueing. Companies would also have stronger incentive to invest in capacity. If a company expected to be able to sell fuel at multiples of normal prices in an emergency, it would make sense to invest in tanks to hold that supply ready.

High prices in the crisis would cover the cost of building capacity ahead of time. There would be no need for mandates, though the Government might still want to purchase emergency supplies for emergency services.

But no one will invest enough in that capacity if they expect punishment for increasing prices when the crisis happens. Consumer backlash, Government edicts, or punitive taxes on gains that populist governments portray as ‘windfalls’ are all very real risks.

So we are stuck in a very second-best world. In a better world, those of us most willing to pay for fuel in times of crisis would be the ones who cover the cost of that capacity. And we could get by with less emergency capacity because high prices would reduce demand during the crisis.

Instead, regulation is buying us a form of insurance. We all will pay a premium for fuel during normal times and less than we otherwise might if fuel supplies are disrupted.

Whether the Government has chosen the right amount of insurance against these kinds of scenarios is anyone’s guess. Over insuring is a real risk. But forcing us all to pay for at least some insurance through higher fuel prices is not mad.

The real madness was the pumps running dry in Christchurch when no one dared to increase fuel prices. Clear thinking about prices in a crisis is too scarce.

Perhaps we need an emergency reserve of it somewhere.

Afternoon roundup

Another long-overdue closing of the browser tabs:

• Tower Insurance is now offering parametric flood insurance. I'd love to know more, including the maximum sum insured and how they've dealt with regulatory issues. 
• New Zealand doesn't have any price gouging laws. Suppose that you can't keep up with demand for your product - everyone in the country is short of it. Normal drill would be to increase prices, right? Surely it's better to ration by willingness-to-pay than by queuing and leaving people short. Alas.
• The Climate Commission notes that, at a carbon price of $150, rebating 54% of ETS revenues back to households as a carbon dividend would fully offset the median increase in food and fuel costs. See Section 5.8. Now imagine the politics of carbon prices if they dispersed 100% of it, instead of letting Grant Robertson use it for industry subsidies. 
• Germany's fantasy energy policy. The Gods of the Copybook Headings limp up to explain it once more. 
• In praise of Corsi-Rosenthal boxes
• The short-term effects of a minimum wage hike may differ, substantially, from the longer-term effects. Hurst, Kehoe, Pastorino and Winberry over at NBER. 
• The Lake Onslow project: an analog solution in a digital age? I still wonder about allowing Korean-style small modular nuclear reactors. If an investor wanted to stick some at Huntley to plug into the existing distribution grid, would it be possible? 
• Minister David Clark wanted to push through a government flood reinsurance scheme. Subsidising people to live on flood plains encourages more people to want to live on flood plains. And then you wind up in stupid second-best worlds where Councils try to zone to keep people from living in places where they wouldn't be living in the absence of that insurance subsidy, or try to pay for flood-protection works that developers would have had incentive to put in on their own so that properties would be insurable. Dodged a bit of a bullet if that one's been avoided. 
• Remember how I said that the RUC discount scheme for diesel drivers invited rorts? The predictable has happened. 
• Take blood, run gene sequencing, predict height, BMI, educational attainment and more. 
• The CDC is failing in its response to Monkeypox. 
• Roger Bootle on the return of the Gods of the Copybook Headings in inflation.
• Smell loss seems the best current predictor of long-term post-covid cognitive impairment. Makes sense to this non-physician: the olfactory nerve is a direct pathway to the brain, right?

Afternoon Roundup

This afternoon's worthies, as I try to free up system resources so the Zoom session I'm listening in on might work a little better:

• The Canterbury Crusaders want what is effectively hundreds of millions of dollars of subsidies for their sports franchise. It would be nice if support for their sports team could be demonstrated through a PledgeMe fundraising drive for a stadium, rather than by forcing everyone in Christchurch to pay for it. Mayor Lianne Dalziel notes that the thing didn't pass cost-benefit even before the big run-up in costs. 


• The Reserve Bank is not Tane Mahuta. But if it is, then its Governor is a Northern Rata slowly strangling a once beautiful tree. DoC wouldn't let it happen. 


• Marc Daalder keeps providing the best NZ coverage on the current Covid state of play.


• Economists (rightly) don't like laws against price gouging.


• Pfizer's Covid vax is safe and effective for under-5s. Well, duh. So when will it be available in NZ?


• I'd not caught the BBC Radio version of Flight of the Conchords, from 2005. It's very good. HT: Andrew Farrant. 


• Anti-Money Laundering laws have made money transfers to the Pacific unsafe. This whole regime is so bad. 


• ESR geneticist Mike Bunce and Siouxsie Wiles sing the praises of wastewater testing. Bit of a shame that, as of 16 June, the most recent wastewater testing results were released 2 June, for the week ended 29 May. 

Shortages and rationing: marriage edition

During times of shortage and crisis, everyone hates a price-gouger. And sensitive types argue for rationing and sharing rather than allocation by prices. Sure, prices might be more efficient, but they could induce social disruption. Allocating suddenly scarce resources by ability to pay confers rents on owners of the suddenly scarce resource. And the merits of allocation by price are smaller if supply constraints mean that you can't draw new supply into the market.

And so we come to Eritrea's man shortage. Let's take all the reporting here at face value - I've not verified any of it, and it could all be wrong. But it's interesting.

In what could pass as an ‘April Fool’s Day’ prank, activists have posted a memo on Facebook allegedly from the Eritrean government asking men to marry at least two wives due to an acute shortage of men occasioned by causalities during the civil war with Ethiopia.

A copy of a scanned decision of the Grand Mufti surfaced on the social media site on Thursday last week and showed the State of Eritrea calling for all men in the country to marry at least two wives and the government assuring that it will pay for the marriage ceremonies and houses.

The document, which could not be independently verified, says any man or woman who oppose the decision “will face a life sentence”. A Standard report showed that activists had translated the memo — written in Arabic — to:

“Based on the law of God in polygamy, and given the circumstances in which the country is experiencing in terms of men shortage, the Eritrean department of Religious Affairs has decided on the following: “First that every man shall marry at least two women and the man who refuses to do so shall be subjected to life imprisonment with hard labour. “The woman who tries to prevent her husband from marrying another wife shall be punished to life imprisonment.”

More than 150,000 Eritrean soldiers were killed during the secession war from Ethiopia between 1998 and 2000. At the time Eritrea had about four million people.

Ok. The recent war means they have a shortage of men relative to women. So consider the marriage market.

When there are more men than women, the women who are richest - who have the bundle of characteristics most valued by relatively scarce men in the Eritrean marriage market - will be able to afford husbands. And the poorest women will go without.

The law here forbids rich women, where rich means possessing the scarce resource, from hoarding husbands. Instead, the government's requiring that sharing be an option.

Isn't this a form of anti-gouging, pro-sharing legislation that, in other contexts, is usually lauded? It prevents scarce single men from exercising market power because already married men are forced into the market and compelled to be suppliers. It ensures that poorer women have access to the scarce resource, at the potential expense of richer women who are hoarding the scarce resource. And, presumably, the government will rescind the compulsion when the shortage has eased - otherwise they could run into the opposite problem.

Now, I'm a fan of the price system and am sceptical of anti-gouging arguments. And so I don't like the government compulsion here - as I don't like other anti-gouging legislation. Allowing sharing can be a reasonable solution where it's otherwise banned; we could well expect it to emerge naturally in some contexts. But compelling it makes me nervous - in this as in other markets.

Postscript: If you haven't read Marina Adshade's take on polygamy in her excellent Dollars and Sex, you should. Perhaps a future edition will consider the equilibrium where both polygamy and polyandry are allowed. She expects polygamy would result in a cohort of single men. But if women could also take on multiple husbands, that does not necessarily follow.

Surge

Stephen King (the Monash economist) worries that Uber's surge pricing is ultimately unsustainable. Not because surge pricing fails to bring cabs into the market, but because people really don't like higher prices at times of peak demand.

It is not ignorance that leads to customer annoyance with surge pricing. Customers understand exactly what surge pricing does. And that is why they do not like it.

From the customers’ perspective, surge pricing does two things. First, it encourages more drivers and so makes it more likely that the customer can get home (or where ever else they are going) in less time (albeit at a higher - and possibly much higher - monetary price).

This is the economic ‘plus’ from surge pricing. Economists call this an allocative gain. It means that more mutually beneficial trade occurs because there are drivers who are only willing to drive for the higher price but there are also customers willing to pay that price. Setting a lower ‘normal’ price would just mean that the drivers stay at home and the customers don’t get home.

Second, however, surge pricing creates a transfer.

When I jump into the Uber car I don’t know if my driver only decided to work because of the surge pricing. He or she might have been out there anyway. And in that case, I just pay more even though the driver would have been there anyway. Of course, the driver also gets more. The money doesn’t disappear. It is a transfer. My loss through paying the higher surge price is the driver’s gain. So from an economic perspective, this transfer is neutral. But that doesn’t make the customer feel any happier.

So economists love surge pricing because it improves ‘allocative efficiency’. Customers tend to dislike it because it means all customers pay more, even if their driver would have been working regardless.

He notes that American bans on price gouging are fundamentally counterproductive: where customers really hate price hikes and would punish firms for it, firms already have incentive to avoid it - even if it's to the strong detriment of consumers. I've argued that this kind of reputational concern can induce a market failure in a post-disaster context. Christchurch really could have used some petrol price hikes post-quake, but nobody was doing it.

King rightly notes that, if surge pricing puts off customers enough, either Uber or a new competitor will come up with a better way of handling things:

For example, instead of surge pricing everyone, the price rise could depend on the customers history. Regulars get a lower price than those who have just downloaded the App due to the crisis. Of course, to encourage drivers, they would need to receive a uniform higher price. So Uber would have to sit in the middle and manage payments. This will most likely lead to lower profits for Uber in the short run. However, it will be a long run investment in goodwill.

And if Uber does not come up with a better alternative to its hated surge pricing, one of its competitors will.

Firms in other sectors behave as though they expect to be punished more for pricing to meet demand than for running out of product: stores run out of snow shovels in blizzards. And if some store always charged a premium so they could keep an emergency stock of snow shovels out back, well, that store would likely have no customers except during the blizzard.

King's mechanism would effectively save those emergency snow shovels for the regulars. But would taxi regulars really be willing to pay a premium on day-to-day traffic to ensure supply availability during peaks? Uber would have to be betting so. I'm not sure it's a bet I'd make - but it would depend on the premium they'd have to charge at off-peak times where they'd risk being undercut.

Not enough gouging

American conservatives rail (rightly) against legislation banning price gouging. The pretty standard economic case is hard to overturn: in a crisis, it's really important to make sure that we provide incentives to bring scarce resources into a disaster area and to ensure that those scarce resources are allocated appropriately.

We can find some cases where anti-gouging legislation has done harm. The entrepreneurs who, at reasonable personal cost, tried bringing power generators to New Orleans should have been rewarded rather than prosecuted.

Mark Perry suggested that getting rid of anti-price gouging laws could bring substantial gains during crises:

Well, maybe if Home Depot, Sears and Lowe’s had been allowed to raise their prices to $1,000 (or more) this week to reflect the true value of gas generators following the hurricane, more people with children would actually have a generator right now because the retailers wouldn’t have sold out so fast!  And you really can’t blame the retailers for not raising prices, because they could have been charged with price gouging by the state of New Jersey.  So now gas generators are sold in the secondary market for market-based prices on Craigslist, where it is probably difficult for state officials to charge individuals with “price gouging.”

Bottom Line: The active market for gas generators on Craigslist demonstrates that government enforcement of “price gouging” laws doesn’t eliminate voluntary market transactions for critical items like generators at market-based prices, it just drives the market for generators into the informal marketplace on Craigslist, where market prices prevail.

Great in theory, but I doubt it has much effect in practice. Why? Matt Yglesias summarises:

Alberto Cavallo, Eduardo Cavallo, and Roberto Rigobon have an interesting paper that looks at the 2010 earthquake in Chile and the 2011 tsunami in Japan and finds that in both cases disasters led to widespread shortages of many kinds of goods but did not lead to higher prices. In fact, "prices were stable for months, even for goods that were experiencing severe shortages."

Their research in Chile specifically suggests that firms feared sharp market-clearing price increases would lead to "customer anger" and thus departed in their strategies from what basic supply and demand economics would suggest.

Yglesias is right. After the Christchurch earthquakes, we really really really needed some petrol price gouging. Power was out on the east side of town, so all our stations were non-functional. The ones on the west side of town had massive queues, some were out, and nobody on the east side of town had any reasonable way of knowing where to go to get fuel if they left the east to get groceries and hadn't enough fuel to get home. And everybody on the east side was running on fumes because commutes from downtown that normally take 20 minutes were instead a 4 hour nightmare. But NOBODY was hiking prices. In fact, they were doing the opposite. While prices were going up elsewhere in the country, they were held constant in Christchurch.

And so, sitting at a shopping mall on the west side of town after we figured out how to get out of New Brighton with all the bridges out and next to no fuel in the tanks, I posted a call for an emergency doubling of petrol prices, with the price increase going to earthquake relief rather than to the petrol stations.

I expanded on it here, after we were securely stationed in a house with working internet:

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 this is a pretty general purpose technology. The major chains simply don't hike prices in response to crises. They should, but they fear the reputational effects, and especially if their competitors keep prices down and run out. Why do they fear the reputational effects? Because a lot of consumers share the views of the folks on Keith Ng's old post condemning my defence of price gouging.

Standing plans for various crises could have dedicated emergency taxes on supplies known to run out, with funds dedicated to relief efforts. Pretty hard to do it in the middle of an earthquake, but if it's planned out in advance, it could work.

In praise of price gouging, revisited

There are no laws against price gouging in New Zealand. Nevertheless, there really wasn't very much of it when it really really was needed - after the Christchurch earthquakes.

With the New York hurricane, price gouging is again making the rounds of the Econ blogosphere. Michael Giberson summarises things. Jeff Ely has concocted a scenario in which he thinks gouging worsens outcomes. I'm going to disagree with specific reference to the Christchurch experience.

Ely argues that we can have cases where supply is effectively fixed. Consequently, the only gains we get via gouging are in ensuring that goods are allocated to their highest valued use; we don't get increased supply. In that case, we weigh the gains from improved allocation against the losses to inframarginal consumers who have to pay more. Now, Ely's effectively ignoring producer surplus; he says producer surplus should only count when it can bring forth more supply. The better argument would simply specify that producers have lower marginal utility of income so the transfer is utility decreasing. I don't see why we otherwise would want to say that consumer surplus is so much better than producer surplus.

But, the Ely scenario really doesn't fit hurricanes. You get tons of prior warning for hurricanes and the opportunity to price gouge can bring in plenty of new supply. Not like an earthquake. And so let's go back to the Christchurch earthquakes.

After the February 2011 earthquake, we were in a zero-supply-elasticity world for a few goods, most notably petrol. More petrol was coming, but it wasn't going to be here for a few days. All of the petrol stations on the east side of town were out of commission due to power outages; it was very hard to figure out where you'd be able to find a petrol station with power if you lived in the east. Worse, because everyone knew that petrol was scarce, everyone panicked. If you had a car with half a tank, you filled it up. If you had two cars, you made sure both tanks were full. If you had empty jerry-cans, you filled those up too. A student this year told me that he was working as a security guard at one of the petrol stations after the quake. People were filling up barrels with petrol to keep in the garage. Eventually, the station started enforcing some rationing.

What radio reports we could get in the east noted very long petrol queues at the working stations in the west, with some selling out. We were in South Brighton, no power, a quarter tank of fuel [getting home post-quake took 5 freaking hours in traffic], and absolutely no clue whether our quarter tank would be enough to get us to a working station on the west side of town when we bugged out for a house with working sewerage, water and power.

EVERYBODY KNEW THAT PETROL WOULD BE BACK IN A FEW DAYS.

There were no laws against price gouging. But the petrol stations knew that every single customer would hate them if they were the only station to let prices rise such that supply and demand came back into equilibrium. And so because the stations didn't gouge, we were in a terrible equilibrium where everyone's rational response to the below-clearing price was to hoard, because there was real risk that the stations would run out of fuel. And there was real risk of running out of fuel because of the hoarding. Breaking the hoarding equilibrium would have required a coordinated price hike that both allocated fuel to its highest valued uses and told everyone that there would be fuel available for them in an emergency if they really really needed it. That latter part is crucial - it kills the incentive to hoard.

I take the Roth stuff on stupidity constraints seriously - we can't assume those away.* Any station doing the right thing would have taken a reputation hit that outweighed the private benefits to the station because customers are resentful idiots who do not understand how prices work. If the stations had gotten together to coordinate it, there would have been massive pressure for Commerce Commission action. The second-best alternative, given consumers who are idiots about price gouging, would have been a temporary very large hike in the petrol tax for Christchurch, with money raised being dedicated to earthquake relief. This, I think, is the right response when supply is perfectly inelastic and stupidity constraints bind. I argued for it as soon as I was again able to blog post-quake.** It should be a standing contingency plan for similar emergencies.

If there are big worries about hardship on poorer communities from the price increases, get a helicopter, get a bag of money, and drop the money over the poorer communities while letting prices rise. A better option, if stupidity constraints of another form didn't bind, would be to give everybody an emergency debit card pre-loaded with $200 that would only activate if a state of emergency were declared. But there's awfully strong odds that the folks who'd most need them would lose them or sell them prior to the emergency.

I really think Ely is underestimating just how much value there can be in getting to the right allocative solution, and how a good dose of gouging can break hoarding equilibria.

* He calls it "repugnant markets", where people view some kinds of transactions as being repugnant. When those kinds of preferences prevent efficient trades, I call them stupidity constraints. Semantics.

** Other posts on price-gouging summarised here.

Gouging!

The Canadian Broadcasting Corporation has really outdone itself with its new series, The Invisible Hand. Episode One takes on price gouging, featuring Mike Munger. As Stephen Gordon is economic advisor for the series, expect more good things to come.

I've had no end of problems in getting the podcasts to stream; Munger's figure out a link that works. Here.

I just about never listen to podcasts; with two under-4s, I don't get the alone-time where it works. But this one was worth making time for.

Previously on price gouging:

• In defence of corner shops' price gouging post quakes.
• Me in the Christchurch Press advocating price gouging after the September earthquakes
• Response to a few critiques of same.
• And to a few more.
• I really wish that they had doubled petrol prices for the few days after the February earthquake.
• Some follow up
• Response to Keith Ng's somewhat intemperate anti-gouging argument.
• Anti-gouging legislation isn't the only binding constraint; reputational effects induce too little gouging.
• If earthquakes are endogenous to the actions of post-quake opportunists, then perhaps we might oppose price-gouging: Japanese Catfish edition.
• Allocating Marmite in a world of scarcity; Keith Ng still worries about social unrest.

Steve-I-Am that Steve-I-Am

File this one under "The Culture that is New Zealand".

For the last eight years, Stephen Hickson, my colleague at Canterbury and all-round decent Kiwi, has played Steve-I-Am to this grouchy non-Marmite-eating Canadian.

And for years I told him I would not could not on some toast, I would not could not with some roast, and so on and so forth.

But he finally brought me around with "Would you, could you, with some cheese?" I've been an occasional Marmite eater for the last few months; Susan remains less than a fan.

And now we're running out of Marmite. Twitter is full of #marmitesongs and the #marmitecrisis.

Remember the old Cheers episode where Fraser hypnotised Woody into liking Vegge-Boy and then Vegge-Boy was cancelled? Yeah, that. I blame you, Steve-I-Am. I wouldn't have cared if you hadn't brainwashed me.

I endorsed price gouging as best way of allocating scarce remaining supplies (of course I would; predictable). Keith Ng worried about social cohesion in the face of the crisis. I suggested running a randomized control trial where we allow Marmite price gouging in some cities but rationing in others; Ng invoked Duhem:

@EricCrampton Sure, but if I lose, it just means there are too many uncontrollable variables for empirical observations to be valid.
— keith_ng (@keith_ng) March 19, 2012

And iPredict is running a contract on whether Marmite will be rationed at any of the major supermarkets. The NBR's watching the contract, perhaps fearing the economic costs of the social unrest that might come with a full Marmite apocalypse.

Stephen said at lunch that he now plans on stocking up on his way home. It's folks like him,* who profess a public spirit but will hoard in the face of crisis, that make the case for price gouging all the stronger.

Oh, and at least one person on Twitter has issued threats against those who would suggest Vegemite as acceptable substitute.

* Stephen's really a good guy; if he weren't, I'd not here tease him. I only bear him a pretend-grudge because I enjoy faux-outrage.

Earthquake incidence, with catfish

A series of Japanese woodblock prints from the mid-1800s describes the incidence of earthquakes. Giant catfish, namazu, thrashing about in underground lairs cause the earthquakes. Some folks in the prints pray that the namazu quiets while others egg him on.

This print shows a namazu engaged in a fierce game of "neck tug-of-war" with the god Kashima. A group of earthquake victims root for Kashima, while those who typically profit from earthquakes (construction workers, firemen, news publishers, etc.) root for the catfish.

Hit the link for the full set of prints. From the text descriptions under the pictures, construction workers are by far the biggest namazu abettors. Eight prints show construction workers profiting from earthquakes or praying for them while only one print shows a carpenter praying for an end to earthquakes. Prostitutes are the next biggest beneficiaries, except those in the Yoshiwara red-light district, from which I'd gather that there there were many earthquake fatalities. Other notable earthquake profiteers: sellers of ready-to-eat foods, firemen, and news publishers. Those harmed include earthquake victims, entertainers (musicians, comedians...), teahouse proprietors, eel sellers, sellers of luxury and imported goods, the elderly, young wives, and china-shop owners. Physicians get a bob each way.

In Print 9, the god of wealth, Daikoku, restrains a namazu. Wealth can't stop earthquakes, but it sure lessens their burden.

Sentiment against price gouging makes more sense if you figure those profiting were partially responsible for the disaster. If namazu caused earthquakes and responded to lobbying, I too would oppose price gouging.

HT: @adzebill

Prices prices prices

Post-quake Christchurch is hardly back to normal. Here in the eastern suburbs, we're warned that excessive power consumption will result in blackouts; we have to curtail power use. Fortunately, the folks in the eastern suburbs are also the ones more likely to be running woodburners or old illegal coal burners (yes, I do smell it driving around from time to time), so they're more likely to have options. And everyone in town is warned against letting too much water go down the drains lest the sewage treatment plant overload and be turned into a cesspool that can't be fixed for months.

Prices can help solve one of these problems.

It can't help with water, at least not with current infrastructure. While we all have individual water meters, they're only read about once per year and manually. In an ideal world, we'd have electronic metering with per unit pricing. In that world, the solution on water would be pretty simple.

Step one: figure out how much water each household used last year from April through to October (or whenever they think that restrictions will have to last until).

Step two: multiply that number of litres by the amount of a reasonably substantial water price increase.

Step three: give every household a cheque such that if they bought as much water as they did last year, they'd be no more out of pocket than they were last year.

Step four: increase the price of water to the new higher level.

Ta dah! No household is worse off (I will smack anybody who tries to tell me that the scheme above with higher prices hurts the poor) and every household has incentive to reduce water use. The First and Second fundamental theorems of welfare economics in application.

We can't do it for water. We don't have a baseline reading on the individual meters for starters. And I'd be surprised if Council didn't have better things to do than get a whole pile of new water meter readers to go out and check things.

But we can do it for electricity - we've already got monthly (at worst) readings. Double the power prices in the eastern suburbs and give every household in the eastern suburbs a cheque that would leave them no worse off if they chose to use as much power as they did last year. Some of the scheme's funding would come from windfall gains from the power surcharge, but a decent chunk would have to come out of general revenues - ideally from the property tax assessments of folks who get to not have blackouts over the winter.

Whatever arguments you want to make about folks coming together in crises and all pitching in and price mechanisms eroding that goodwill - I can't see that lasting through the winter. Instead the massively public goods nature of power conservation will become blindingly obvious. In anticipation of which, it's time for me to call the chimneysweep to repair some minor earthquake damage inside our logburner.

In further defense of price gouging

Michael Giberson at Knowledge Problem points to his Regulation piece against anti-gouging legislation.

It's a nice piece and lists many of the absurdities of anti-gouging legislation. But I worry that anti-gouging legislation isn't the substantial binding constraint. As best I'm aware, there's no anti-gouging legislation here. But it still doesn't happen. The binding constraint isn't the legislation - it's the underlying public sentiment that gives rise to the legislation. Even absent the legislation most retailers won't hike prices because the long term reputation costs are too high. Giberson writes:

Instead, price gouging laws appear more akin to laws banning the sale of horse meat for human consumption, “Blue laws” that prevent the sale of certain items on Sunday, or laws that once prohibited interracial marriage. The laws put the force of government behind efforts to prevent people from entering into agreements or transactions that lawmakers find objectionable. One more puzzle: unlike Blue laws and interracial marriage bans, laws against price gouging are not fading away as society becomes more accepting of personal differences. Instead, price gouging laws emerged relatively recently, are spreading geographically, have become more expansive in scope, and are becoming more frequently invoked.

Michael cites a few cases where retailers did hike prices. But those were all petrol retailers who bought product at spot prices in international markets. There, the constraint will be binding. I have a hard time thinking of other major retailers who choose to increase prices rather than run out of specific products during short emergencies. Snow shovels don't jump in price at Home Depot in advance of blizzards. What the legislation mostly prevents is small one-off guys from engaging in useful and profitable geographic arbitrage.

Reader mailbag

Letters... we get letters. Here's one from a reader in the States from Wanganui (that'll teach me to read too much into a .com email address):

Dear Mr Crampton,

I was having a debate with my Uncle this evening about the merits of price gouging. I am a strong supporter of gouging, and was somewhat reinforced in these sentiments by your writings after the earthquake.

My uncle, on the other hand, is not such a supporter. He argues that the role of the state in implementing rationing systems is far more effective. After responding with arguments about how a govt can never judge who needs petrol, for example, the most he used the example of rationing saving millions across the world during and after World War 2.

I am only 16 so I had no knowledge of what actually happened during this period of rationing. I said I would assume that it didn't work as well as a price based system because of theoretical reasons stated above. He said I would be on my own in that view. I immediately thought of your blog.

Would you be able to share with me any knowledge you have of problems of rationing during WW2 and/or reasons a price based system would work better?

Thanks and regards,

James P---

I normally don't blog these things, but it's a fun problem. And, copying from the outbox is cheap content generation when I'm under time pressure. Here's the answer I gave him. Perhaps Seamus can weigh in if I've led him astray.

Your uncle isn't all wrong. If you have ration cards BUT you allow people to trade their cards with each other, then things wind up being efficient so long as the secondary markets in ration cards are thick enough AND retailers can observe the prices in those markets to help guide supply decisions.

Imagine that eBay existed during WW2 and folks traded ration cards. Bang! We'd be back to market clearing prices. The net effect then would be equivalent to giving a lump sum transfer to each person equal to the market value of the set of ration cards; folks then would trade efficiently to the optimal bundles. But there are three problems.

First, in thin markets, transaction costs start eating away at the efficiencies. Simple example. Suppose everybody in Kansas loves bacon while everybody in New York hates bacon (yeah, who could hate bacon, but bear with me). The same bundle of ration coupons is given to everybody. And folks mostly trade with their neighbours and coworkers. The price of a bacon ration card would be low in New York but high in Kansas. That's inefficient. Somebody could make money by driving ration cards from New York to Kansas. But that same arbitrageur could also be labeled a war profiteer and subject to at least strong disapprobation.

Second, signals telling suppliers that they need to get bacon as well as ration cards from New York to Kansas are attenuated; they might not find out until stocks run out in Kansas and stockpiles accumulate in New York. This wouldn't be a huge problem if retailers continued with their normal supply chain relationships, in which case the New York retailers wouldn't have ordered as much bacon as the coupon allotment would have suggested New York needed. But it's still a tough call - retailers couldn't know for a while whether New Yorkers would start eating bacon just because they had the ration coupons and they'd run out of other coupon options. If retailers could see trading volumes and prices for the ration cards in different markets, they should be able to back out from that what demand would look like and stock the right collection of goods. But it's all a bit convoluted compared to just using prices.

Third, the system can't adjust to changes in demand. Or at least not easily. If everybody started preferring chicken to bacon for health reasons, they'd use up their chicken allocation in the ration book, then use up their bacon allocation last. How could suppliers tell that people really wanted more chicken? How could the ration board? Even if the ration board set the optimal bundle correctly at the start, the longer rationing goes on, the farther the bundle can drift from what consumers want.

I'm really not much up on whether WW2 ration cards traded in any kind of secondary market or whether there were legal prohibitions on such sales. The alternative would have been to watch the prices of the bundle of goods that would have been rationed and give a wad of cash equal to the market price of that bundle to each person who would otherwise have been given ration cards. We get to the efficient outcome that way. But compared to the rationing alternative (in which the government effectively expropriated a pile of producer surplus), the government incurs a whole pile of on-budget costs.

I'm far more ambivalent about the benefits of price gouging over rationing during a prolonged war than I am during a temporary emergency. By the time an adequate rationing response would be developed in an earthquake or other sharp crisis situation, it would be too late. No bureaucracy can gear up that quickly. But prices can adjust almost immediately. Just look at Potassium Iodide tablets subsequent to the Japanese earthquake and nuclear emergency.

As always, a question of elasticities

Keith Ng makes his case against petrol price gouging. To summarize: petrol demand is almost perfectly inelastic in a crisis because it represents demand for security, not just petrol; price gouging consequently would not induce the appropriate intertemporal substitution. Instead, it would piss people off and help erode the fragile bonds of community spirit that are critical in times of crisis.

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.

Quake entrepreneurship

While I write up a reply to Keith Ng's missive, do enjoy the following.

Grant Rigby, Manitoba raspberry wine baron and raconteur, sends along this helpful note suggesting that the Cramptons might have seen this as an entrepreneurial moment. As background, my parents, currently visiting, make home-style jam in Manitoba; Grant has long teased them about their labels.

If by fine luck residing in the area where water pipes and sewers no longer connect, then I reason that the elder Crampton may have set to building a quiet personal outdoor biffy, adapted from a design not remote in his memory. The younger Mrs. might have noticed how this improved the elder Crampton's public appearance at certain too frequent times of the day, and instructed his son to request the elder to build a second one for the neighbour to similarly enhance his appearance at certain times via the same proven principle of concealment. The neighbour would have likely then insisted on paying well in excess of material biffy costs, upon which the viability and need for this specialized enterprise would be evident. For material supply, the well honed arts of scavenge and salvage would have perfectly coincided to the timely regional need for such activity.

Surplus staff would likely have been hired to run the tills, to force rigor on the fledgling enterprise to increase supply and thus more rapidly conceal more of the neighbours. Between sessions of cutting nearly round holes in boards to customer specifications, the elder would have found time to proudly apply the ladies' Maid in Zeal labels, ensuring each was slightly off perfect to convincingly convey that enduring indisputable home-made quality.

The younger would have commenced the important composition of the dissertation for which his career would become most remembered, being the final convincing evidence of the overwhelming folly of taxing private economies to enable governments to attempt to provide complex integrated vulnerable rigid infrastructure concealed in fractious mantle floating on bubbling molten iron, to merely deliver a primary service which privates such as the elder Crampton would have done more durably in the absence of tax. The need for existence of nation states to coordinate bureaucracies would have thus become an ever diminishing note of history, as a united anarchy of private economies would soon come to reign.

In fact, the builder just down the road from us had set about to building an old-style outhouse, using his construction generator for that laudable purpose. Being without power, we would be unable to seize the entrepreneurial moment.

Actually, that's far too quick. Hiring a generator is not impossible, and combining that with labour and capital could have produced outhouses aplenty. But selling them for profit might have resulted in a tarring and feathering given the mood around the place.

If someone had driven a petrol tanker to New Brighton on Wednesday and sold petrol at $5/litre from the truck, I would have welcomed him as a hero and thanked him profusely for the ten litres I'd have purchased from him. Had there been the potential for profit in it, some enterprising fuel company might have retrofitted a tanker truck to that end. But the potential for scorn and condemnation was too high, so anybody from Brighton needing petrol had to drive the only remaining road into and out of Brighton - Travis Road - and further deteriorate and congest that lifeline.

Grant continues, making the case for encouraging composting toilets instead of plumbed ones, with property tax reductions for those making the switch. It's not a crazy idea.

Grant Rigby really needs to start a blog. I'd read it. If he ever does, I'll point you to it.

Double petrol prices. Do it now.

The stylized facts. First, lots of petrol stations are closed for lack of power. Second, there is a temporary gap in supply such that if folks only filled up normally, all would be fine. But, if everyone is filling up all the time, the stations cannot handle the spike in demand combined with the temporary supply shock. And given that everybody else is behaving badly, it is optimal for each player in the game also to behave badly. If everyone expects that everyone else is panic buying, then everyone will rightly expect queueing and empty stations when they go to fill up. Moral suasion has been tried and has failed to break the bad equilibrium.

The very best way of solving this problem is a temporary price hike. Figure out when normal supplies will be restored. Announce that prices double until that day, at which point they drop by a quarter per day till back to normal.

The usual case for price gouging is it helps draw resources to the area. There is no margin for that here. They're already doing all they can. Instead, the point is purely allocation. Both to current users and over time. We want to make sure that the guy with a half a tank decides to wait instead of filling up. If he knows prices will be cheaper in two days, he will hold off.

And, even better, folks will also decide to cut back on discretionary driving when construction and emergency vehicles need the roads.

Some folks worry about these poor not affording gas. The gains of reduced queueing and reduced congestion massively outweigh equity considerations of this sort. Or, think of it this way. In a crazy emergency like this, are more people screwed by having to queue for hours for gas, or are more screwed by having to pay an extra twenty bucks for enough fuel to see them through the day?

Double petrol prices. Do it now.

So folks don't hate the petrol stations, call it a two dollar per litre earthquake surcharge with proceeds going to earthquake relief. Normally extra profits help bring more resources to the region. I can't believe there's any margin there this time round. Avoiding backlash then more important.

Note: apologies for hasty and likely typo-ridden post. Internet dodgy. Thanks to Bernard Hickey for posting the initial deck.ly version of this up on Interest.co.nz before I hacked a way into Offsetting.

Update: Response to Keith Ng.

Gouging - another missed opportunity

The Christchurch Metallica show sold out in 21 minutes.

It was, by reports, awesome. Nothing from St. Anger, minimal from Black album, lots of classics, lots of Death Magnetic. I saw them in '91 in Winnipeg (too much Black album); this sounds like it was a better show.

And now I regret not having gone to find a scalper.

Ticket scalping's been a bit of a puzzle to economists for a while - why don't the artists charge market clearing (gouging) prices and cut out the scalper entirely? I've posted a bit on this here, as well as here here and here.

In other gouging news, the comments thread over on my piece in The Press has been, in short, hilarious. My favourites:

lisa #7 04:51 pm Sep 17 2010
this article is why everyone hates economists

I love that I am personally responsible for everyone hating economists. It may be true in our faculty meetings though.

Kiwi Anarchist #8 09:37 pm Sep 17 2010
...
What happened to The Left in this country? It's time to get off your backsides and start organizing and fighting for yourselves and your hard-won rights before people like Eric Crampton have them taken from you!

Bloody peasant!

Further defence of price gouging

I wrote:

...When the stores opened that morning they had only a fixed supply of bottled water available. How should they have allocated that very scarce supply among all the potential customers?

The method they chose, by and large, was first-come, first-served. But is that the method most likely to ensure that the woman needing clean water for mixing baby formula would get some while folks like me, who only needed it for doing dishes, didn't? That seems pretty unlikely.

Instead, it went to the people who were best able to queue. The folks with the most pressing demands might have worked harder to get to the front of those queues, but it's pretty unlikely that those who wound up getting water were the ones who needed it most. Instead, it would have been the folks living close to grocery stores who didn't have pressing property damage to deal with.

Now, imagine that prices had been allowed to do their work. A litre of water might have risen from about a dollar to perhaps even $10, noting that there's no reason a shop can't take IOUs when the eftpos is down.

With the price hike, folks with less pressing needs would have left water on the shelves for those whose needs were more pressing. The guy who needed the water only to do the dishes would have left it on the shelves for somebody who needed it more - not out of the goodness of his heart, but out of concern for his wallet.

...

The most pressing needs get first attention when prices allocate scarce supply; that doesn't work as well under first-come, first-served.

Price increases also draw in supply from further afield. We've heard a lot over the last couple of years about skilled tradespeople moving to Australia in pursuit of higher wages. Right now, their services would really be appreciated here in Christchurch.

But if the prevailing wages prior to the quake were enough to send them off to the West Island, a price freeze here is unlikely to draw them back. If they look back across the Tasman and instead see hourly rates double what they'd been earning prior to moving to Australia, they might consider spending a few months back home helping out.

John Jackson and Canterbury Employers' Chamber of Commerce chief executive Peter Townsend argued that some grand supremo might be needed to ration out scarce tradesmen, ensuring that resources go to the most critical areas first.

But how can any such supremo decide how much I value having my wall fixed as compared to how much my neighbour values having her chimney fixed, let alone weighing up priorities across different damaged factories and retail outlets?

Economist Friedrich Hayek proved back in 1945 that it's impossible for any supremo to be able to do that accounting; prices, by contrast, do it automatically by forcing each of us to weigh up how much we value having a job done now as opposed to waiting for prices to drop.

And no supremo can order Kiwi tradesmen working in Australia to come home. ...

Responses to a couple of critiques:

Some other rationing system may be fairer.
Perhaps, but I can't think of any that could be rolled out in the hours following an earthquake. Recall that it took over a day for City Council to get tanker trucks with water to affected areas. Think that implementing a rationing system would be quicker? I'd put even odds on the system not being operational before standard water supply came back online. Further, any rationing system would have to deal with the Hayek knowledge problem: the Supremo would have to peer into each supplicant's soul to determine how much he really needed the scarce good.

It hurts poor people.
No. No no no no NO. Having gouging rather than first-come-first-served hurts only the people who would have been first in the queue under first-come-first-served (henceforth, FCFS). Everybody else, by definition, cannot have been made worse off. Why? Because under FCFS, they get nothing (by definition - there's nothing on the shelf when they get there); under gouging, they can CHOOSE to get nothing, or to buy something at a high price. If poor people were most likely in the front of the queue, then it might hurt those poor people. But it would help the poor people behind them in line. Are the poor people at the front of the line that much more morally worthy than the poor people at the back of the line?

Further, why would we expect that it would be poor people first in line under FCFS? Rich people are more likely to use cars rather than buses, right? Did any of you see any buses running after the quake? Me neither. Rich people are less likely to be single parents than poor people. Who's more likely to be able to queue up quickly in an emergency: somebody who's in sole charge of a kid (or several kids) who are terrified because of an earthquake, or somebody who can leave the kids with the other parent?

The only counterexamples I can think of are that poor people might be more likely to live within walking distance of shoppes if they've no cars, and that rich people might have been more likely to have to rush off to attend to their business premises.

Weighing all this up, it seems to me that poor people are less likely to be at the front of the queue. If that's the case, then gouging transfers utility from relatively richer folks at the front of the queue to poorer folks at the back.

The best argument against price gouging is that stores doing so will lose customers. But that's an argument about how individual firms should optimize - not an argument for legislation to accentuate already too strong incentives to avoid price hikes.

Max Stearns, currently visiting at the department, provided a nice anecdote about price gouging during Hurricane Katrina. After the hurricane hit New Orleans, a couple guys from a few states north of Louisiana loaded up a truck with some generators and hurried down, intending on selling the generators at a good profit. They were arrested for profiteering. Does that make it more likely that generators make it to where they're needed?

I'd argue further that economists have an important job here. Voters, very frequently, have very very wrong beliefs about the effects of policies. Policies that sound like they help the poor very frequently don't. Just because voters like protectionism doesn't make protectionism good policy; it's the economist's job to point out the very real costs of acting in accordance with protectionist preferences.

And just because customers may have misguided beliefs about the effects of price gouging doesn't make a store's holding prices constant (with consequent empty shelves) the best of all possible worlds; rather, economists ought to be pointing out that the beneficiaries of sticky prices in the face of crisis aren't the poor but whomever lucks into being first in the queue. If customer antipathy to price gouging stems from a misguided application of a laudable love for the poor, then jumping up and down a bit about the actual effects of such policies is important.

Bottom line: price gouging in a crisis hurts only those who would otherwise have been at the head of the queue, and there's no good reason to think that poorer people would disproportionately have been represented at the front of those queues. I'd rather expect the opposite.