Response on Price Gouging-BECKER

Although I am a little late, I would like to respond to a few comments on my discussion of price gouging. Judge Posner's and my discussion of our new topic on childcare and paid leaves follows after this response. Two of the comments questioned my assertion that President Carter introduced price controls on gasoline that produced long lines. I am right, as shown by the following entry from Wikepedia on the 1979 energy crisis: "In the United States, the Carter administration instituted price controls. This resulted in long lines appearing at the gas stations as they had six years earlier. As the average vehicle of the time consumed between 2-3 liters of gas an hour while idling, it was estimated at the time that Americans wasted up to 150,000 barrels of oil per day idling their engines in the lines at gas stations." To be sure, Nixon introduced various inefficient controls over energy prices that Carter began to dismantle. However, Carter introduced controls over gasoline prices that produced I believe longer lines at gasoline stations than those under Nixon. Of course, I agree that Nixon had terrible policies on energy prices, especially his misguided efforts at price controls over oil, natural gas, and some of their products. Although search is required to discover prices at different gasoline stations, in any major city or suburban area, search costs are small relative to the gain from sizeable differences in gasoline prices. This is why the retail gasoline market is on the whole very competitive, as indicated by the strong central gasoline price tendencies in major cities and other extensive markets. In such competitive markets with rather constant costs per unit of output, the effect of a rise in input prices on retail prices is largely independent of the elasticity of demand for the retail good. Unfortunately, many Indians, Chinese, and others in poor countries live on the equivalent of less than a few dollars a day, and many of these suffer from malnutrition. But this has nothing to do with price gouging during crises since most of these persons live in rural areas and work on farms. It is the result of their very low productivity. As India and China have progressed rapidly during the past decade and half, the fraction of their populations living at such low levels has declined dramatically, and so has the degree of malnutrition. Gasoline prices have returned close to pre-Katrina levels because most of the damaged refineries have been repaired, and the undamaged ones have increased their production. Both effects are in part responses to the (temporary) high gas prices. So my conclusion is that these high prices served a very useful purpose in increasing gasoline supplies more quickly that would have been the case if price controls on gasoline had been introduced again.

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