Put Down My Pet Goat; Pick Up Wealth of Nations

Leftish economist public policy prof Mark Kleiman is providing George W. Bush with remedial lessons in the virtues of markets. Bush said this morning:

I think there ought to be zero tolerance of people breaking the law during an emergency such as this, whether it be looting, or price-gouging at the gasoline pump or taking advantage or charitable giving, or insurance fraud.

Yep. In the same camp with looting and insurance fraud. The modern Bonnie and Clyde are, apparently, Supply and Demand. Kleiman replies:

The natural result of that situation is that the price of gasoline goes up. In the short run, that doesn't result in any additional supply, but it does reduce the quantity demanded, allowing the market to clear. Unfortunately, the short-run price-elasticity of demand for gasoline is low, so even a modest-sized supply crunch will naturally cause big price increases.

In economics, this is called "market clearing." In politics, it's called "price gouging."

Of course, it's possible by law to keep prices below their market-clearing levels. In politics and law, that's called "price control." In economics, the result of that policy is called "shortage." At any price below the market-clearing level, buyers will want to buy more gasoline than sellers have to sell. The result is either waiting in line, which is a very inefficient means of rationing compared to letting the price rise, or some sort of legal rationing system (no doubt with extra rations for SUV owners and others who "need" lots of gasoline).

The fact that this is Economics 101 material doesn't make it any less true.

ADDENDUM: Jane Galt has a good post on the same topic.