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Price Gouging - It's a Good Thing

Yesterday morning the Motiva refinery in South East Texas announced a controlled shut down due to the effects of Hurricane Harvey.

By 4:00 pm the same day, several gas stations in Austin posted "No Gas" signs and those that remained open saw lines form while people flocked to get "their share" before all tanks ran dry. At 10:00 pm last night I drove past a line of about 30 cars on the I-35 service road in line to get gas at one of the open stations on the freeway. These scenes played out all over the State.

This is, of course, a media driven self fulfilling prophecy. 

There are approximately 10 refineries closed due to Harvey. These closings reduce the refining capacity of the country by about 15%. Of course, there are typically between 5 - 15% of refineries in scheduled "shut down" in the country; and typically refineries run at something less than 100% of capacity.

In short, the possibility of Harvey making a significant impact on the supply of refined oil products in the United States is 0%.

Yet. We're out of gas. All because people feared, we'd run out of gas.

What could cure this insanity?

Some would call it "Price Gouging"

If the price of gas went from $2.00 to $5.00 yesterday, the only people who would be in line would be those that really need gas, and even then, probably only by what they need.

Same thing for water. Last Friday I watched shopping cart after shopping cart loaded with cases of water leaving the HEB. The store was out of water about in about an hour after Harvey was announced as at least a Cat 3 storm - and that was 200 miles inland.

Is $99 for water a crime?

Hell no. When water is scarce, it's value rises. If public water supplies are temporarily shut down, selling a case of life sustaining fluid at an inflated price is not criminal. At least no more a crime than sprinting to the store an hoarding all the water you can carry - despite the fact that you couldn't drink it all in month. To hell with those that would be placed in need during the following week.

In short, what people criminalize as "price gouging" is often just a rational market response required to control the allocation of a scarce resource. No, it's not perfect, but it's rarely a crime; and it's probably the best allocation control we have.