Governor Sonny Perdue's economic illiteracy

The economic illiteracy of politicians and their proxy media never ceases to amaze me. In case you are unaware, Georgia is amongst a few Southeastern states suffering from a gas shortage, with runs on gas stations. Many gas stations around the Atlanta area have no gas. As usual, the free market and gas sations are taking the blame. Having recently left Las Vegas for Atlanta, I am in the middle of this, and so I write from a first-hand perspective.

First of all, I would suggest that while Hurricane Ike was certainly a contributing factor to the disruption of supplies, there are other causal factors. For example: the inflationary policies of the Federal Reserve. Americans - Southeasterners in particular - are starting to find out that while the Dollars are there, the supplies aren't.

All of the talk about drilling for oil - not something I am opposed to - misses the fact that we can't drill value back into the Dollar. We haven't been experiencing a scarcity-induced inflation, but an inflation-induced scarcity. If the rise in prices represented an increase in real profits - as opposed to the result of inflation - suppliers would be rushing to fill the gap.

Rising costs will curtail not only the consumption of gasoline at the pump, but also the ability of the entire chain of suppliers to supply gasoline. If you have paid attention to local news reports from around the country, you might be aware that gas stations have been going under for many months now. What is happening in Georgia is a manifestation of an overall diminishing stock of supplies.

Americans may want to take note of what it is happening in the Southeast. It is my prediction that this is going to become a creeping problem throughout the country, and then in other sectors of the economy - e.g., food supplies. Unless dramatic changes are made to revalue the Dollar and abate government spending, we will see the same thing that is happening to gas stations happen with grocery stores.

Last night's news coverage of the gas shortage in Georgia explained that "price gouging" at the pump - engendered by the shortage - is a problem. The same news broadcast also said that it may be necessary for government officials to ration gasoline. It is self-evident that many people have no understanding of the price mechanism and how it works.

The scarcer a good and the greater the demand, the higher the price should be. This is basic economics: i.e., supply and demand. Consumption runs inversely with prices. It is through the price mechanism, then, that resources are best managed. Government interference with the market prevents the setting of market-clearing prices. Depending on the form of intervention - e.g., subsidies or price-capping - this can lead to either surpluses or shortages.

What should the State of Georgia and Governor Sonny Perdue do? Get out of the way and let the market set prices pursuant to supply and demand. But that isn't what Governor Perdue is doing. Nope. Governor Perdue is busy supporting an "anti-gouging" law. Without belaboring it in this commentary, within the construct of the pure free market, there can't be price gouging any more than there can be wage gouging. Why? The unhampered market will always move towards the market-clearing price.

Any prices above "normal," pursuant to the discretion of central planners, is considered to be "gouging," and thus illegal. This disallows the market from obtaining higher-priced fuel. Suppose, for example, the only gasoline available must go through a longer shipping route, and is thus more expensive. By fixing the price of all gasoline at the same level, an artificial scarcity will then ensue.

Not only will there be an artificial scarcity, but there will be an uneven distribution of resources. Just tonight a friend of mine explained to me that there were no long lines - nor shortages - at the gas stations many miles northwest of Atlanta. When all gas stations throughout the state of Georgia must sell gas at the same prices, there will be no incentive to supply gas to where it is needed most. There will be no distinction made between Atlanta and Ellijay.

The unhampered free market is the most efficient way to "ration" resources. Disallowing the market from setting market-clearing prices not only distributes resources unevenly amongst regions, but also amongst people.

You could, for example, blow all of your money on booze. But then you won't be able to eat, and you will starve. Apply this to the price of gasoline. If the price of gasoline rises, you will have to use greater discretion in your consumption. By allowing the market to raise prices, people will naturally curtail consumption for discretionary purposes. Driving to the other side of town to watch a baseball game will be less likely. Suppose, however, you are a doctor, who must drive to the other side of town to treat patients in need of medical care. Since there is a market demand for your service, you can pay for the higher-priced gasoline. This is the market's way of ensuring that resources are used for the most necessary purposes first.

Government price-fixing and rationing obfuscates the distinctions made between the producer and the non-producer, between the vital and the non-vital. Whether you are going to party at the pub, or you are a doctor treating a patient, there will be no distinction made. It is only the market-clearing price that directs the use of resources efficiently.

So why are politicians so willing to inflict such damage on the market? Because it is about the government wanting to control resources for its own purposes. If the market could set prices freely, the government would have to curtail its own consumption. Thus, while rationing and price-fixing schemes may inflict damage, the government's purpose is to be able to redirect scarce resources away from the vitally-important free market and into the parasitic state apparatus at all costs. I guess you can sleep comfortably knowing that when you are homeless and out panhandling, police officers will have enough fuel to come arrest you.

That Governor Perdue would support artificially low prices at the pump, while simultaneously admonishing consumers for generating runs on gas sations, is paradoxical. My message to Governor Sonny Perdue: stop interfering with the market and let the price mechanism do its work!