Rudy Giuliani Teaches Economics 101

Here is a puzzling Rudy Giuliani quote from the June 2000 radio show I mentioned in my column yesterday. Mayor Giuliani had this to say regarding gun manufacturers:

They've acted negligently by overproducing guns, way beyond the number that's necessary for hunting and for law enforcement, maybe by factors of 3 and 4 to 1. In doing that, they have knowingly made a calculation that they're selling to an illegal market, and that's negligence….In fact, it would be more in their business interest to produce less guns, because the price of guns would go up if there were less guns, just like we were talking about with OPEC, you know, Economics 101. Instead of producing less guns, they produce 6, 7 times more guns than the legal market actually would demand. Therefore they have to know that they're supplying an illegal market.

Notice, first of all, that the ratio by which gun production supposedly exceeds the legitimate market increases by 100 percent or so in the space of a few sentences. And what are we to make of Giuliani's claim that manufacturers could make more money by producing fewer guns? Presumably he imagines that gun makers have formed a cartel that can in effect dictate prices, without fear of defection by existing companies or competition from new ones. Granting this implausible scenario, why would gun makers choose not to exercise this power? By Giuliani's account, instead of producing fewer guns at higher prices, which would be in their financial interest, they are producing lots of guns at relatively low prices (almost as if they are competing against each other for customers). What could account for such seemingly irrational behavior? Either gun makers don't know their own bottom lines, or they are so determined to make sure criminals are well armed that they are willing to lose money in the process.