As gas prices return to almost pre-Katrina levels, we get one more reminder that oil is a world market and local shocks have temporary, local effects. It doesn't matter that the southeastern U.S. states import their oil from the Gulf of Mexico region while the western states import from elsewhere. Oil is oil--consumers can import from the cheapest provider, and suppliers can export to the most generous buyer. The world-wide price changes hit everyone. And after the initial shock from Katrina hitting and causing massive but (on a world scole) local destruction, the world-wide price have adjusted precisely due to supply and demand. Given the extra supply from the US opening its oil reserves, prices on the world market (and thus all free-market locales) have even decreased below pre-Katrina levels.
The post-Katrina oil market is also an example where the market itself was the best solution to an economic problem, not regulation of the market. For example, reas that had a temporary shortage of gas experienced temporary spike in prices, which is precisely the moral and effective response that is desired: most people should buy less gas in a time of shortage, but some people need that gas a lot, and a great way to cause that to happen is to let people vote with their wallets. If they really need gas during the crisis, then they should be willing to pay for it.
Nevertheless, politicians have been quick to prey on people's belief in authority, their hope that someone Up There can solve problems, and stepped up in various ways to try and improve things:
The only way for price controls to be effective is to also start government rationing, thus stacking up even more regulations, having the government officials reaching tentacles further into the lives of citizens, and making the economy increasingly similar to that of the old U.S.S.R. -- presumably with similar results.
All in all, free commerce seems to be a wonderful mechanism for solving the economic problems caused by the post-Katrina oil shock, but that's no fun for politicians. No public official wants to come out and say, "the best thing to do is nothing special, and that's precisely what my office will do--absolutely nothing." Nevertheless, "nothing" is just what they should have done in this case. Focus on those directly hit by the tragedy, and leave the market to do its job of sorting out those who are indirectly affected.
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What is truly amazing is the relative equanimity with which the United States has endured a quick doubling of oil prices plus a calamity in its prime energy region. Markets adjust and, so ultimately, will the glorious city of New Orleans -- though the human cost of this tragedy can never be calculated.
But reality is not optional. You cannot have a sudden reduction [in] gasoline available to the market and low prices at the same time. There is no dial for gasoline prices. The result of these threats is easily predicted-suppliers are already rationing. Drivers are worried about shortages and in the face of threats to punish 'gougers' they are right to worry. As a result, lines are forming in some cities, and gasoline retailers are closing early in the day, out of gasoline, the same results we saw when explicit rather than implicit price controls were put in place in the 1970s.
What is it about the price of gasoline that turns seemingly normal politicians into barking economic demagogues? When Jill puts her house on the market for $450,000 -- triple what she paid 10 years ago, but the going price in her neighborhood today -- the politicos understand that the 200 percent markup is the result of supply and demand in the real estate market. Senators don't call press conferences to denounce Jill as a profiteer. Attorneys general don't threaten to prosecute her. Governors don't compare her to looters.