15 September 2008

Economics versus Politics

Economics says that if you want the swimming pool deeper or shallower, you have to add or remove water respectively. Politics "reassures us" that an unchanged volume of water can be made deeper or shallower; whatever you like, my dear voter:

Hurricanes along the Gulf Coast are likely to do two things. First, they are likely to increase demand for gasoline as people flee the storm and look for fuel to power generators. Second, a hurricane that hits a major oil-producing region will almost certainly knock supply offline in the short run. An increase in demand coupled with a reduction in supply means that the price will go up.

Higher prices tell people to economize on gas and other essentials by cutting out nonessential driving. They also have the benefit of attracting supplies from elsewhere: profit-seeking entrepreneurs in regions that are not affected by the hurricane would, in anticipation of higher profits, redirect their supplies from unaffected areas toward places where they are most desperately needed.

The process by which equilibrium is restored is rendered inoperable — indeed, made illegal — by price-gouging laws. This has several surely unintended but negative consequences.

Read it all, unless you are prone to headaches when presented with the truth.

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