A Cabbie's Case for Price Gouging

As we covered yesterday, gas shortages are becoming a serious problem for the New York City area. With oil refineries in New Jersey hit hard by Hurricane Sandy and distribution routes slowed by flooded roads and power outages at pipelines, lines of cars have stretched for blocks to get into gas stations across the five boroughs. The smart people have gotten portable tanks and just walked to the local gas station to fill up and walk back to their cars or generators. But still, reports are everywhere that pumps have dried up and it may be a few days or next week before they can get refreshed.

And yet, according to GasBuddy.com, the average price of gas in the New York City area remains below $4 a gallon.

Even the highest prices listed didn't get past $5 a gallon. The primary reason is NY law prevents distributors from charging an "unconscionably excessive price" during "any abnormal disruption of the market for consumer goods." In other words, if we regulators feel like that new price you're charging is too much, we're cracking down on you and your private business plan.

As ridiculous and vague as this law is written, I understand why many people see price gouging as in bad faith towards the community, and distastefully opportunistic. I fundamentally disagree with the spirit of entitlement that says we have any right to demand buying gas from any station at any time (disaster or not), but I understand the sentiment.

That said, the case for price gouging isn't just an ideologue's spiel for the wealthy elite. Allow prices to rise after a storm does not only help the "price-insensitive rich" as Felix Salmon suggested today in an otherwise well reasoned post. Lifting laws limiting the price of gas would help ration it to those who really need it at the prices they can afford, but these would not just be the rich. Plenty of paycheck-to-paycheck workers would gladly pay more for gas instead of sitting empty over the weekend missing out on work.

A cabbie told me today that he probably had three more rides left after dropping me off before he'd have to park his car and wait for service to return: "The lines are too long to wait for the gas. There are a hundred cars at every station with fuel left. And many of those people will just fill up their tanks and go home and not use the gas!"

He was clearly upset about the shortage because it meant he was going to lose work hours, which would lower his take home pay, and it was totally unnecessary because the gas he needed was going to sit idling in cars in parking garages along the Upper East Side. This was not a 1 percenter looking to fill his Maserati. Here was a lower- or middle-class guy needing to feed his family hurt because of the law preventing price gouging. If the price rose high enough, perhaps many of those filling up just to make sure they had it–because many people in the aftermath of a disaster gasoline rushes look like bank runs–then the people who really need the gas would consume the majority of it. 

I asked whether gas prices had risen in the wake of the storm.  "Nope. Normal prices," he responded.

I suggested it might be better if prices rose to $10 a gallon and he cut me off with a classic, "No, there outta be a law to prevent that."

Being the asshole libertarian that I am I pushed back and asked if gas went that high would he still buy it and be better off driving around to collect fares.

Apparently he'd not thought about that before because he sat silently, doing the math, and then ballparked a high price he'd be willing to pay for fuel that could still mean he'd make money driving his taxi. "Maybe the free market supply and demand would work it all out," he offered. I smiled at yet another victory for libertarian rationalism and smuggly notched my mental headboard with another convert.

By this time we had gotten through the traffic jam created in Queens by NYPD checking every car to ensure there was a minimum of three people—a special rule put in place by New York City government to reduce traffic into the city following Sandy as a way of rationing the use of the roads. As we crossed over the East River and its still flooded subway tunnels, I remarked how great it was that the bridge was clear of traffic because of the high occupancy limits and how wonderfully fast we were getting into the City.

Not skipping a beat my cabbie quipped dryly, "Yeah. You see, sometimes the government can make smart decisions."

Touché, Mr. Cabbie. Touché.