Economics and history teach that free markets are the best means for allocating resources, in emergencies as well as in normal times. Unregulated prices ration supply to the most urgent demands, which is particularly important when supply is unusually scarce or demand unusually high. The situation in the U.S. petroleum industry this year, after two major hurricanes hit the Gulf Coast, offers a case study that illustrates the point. Despite standby price controls in Louisiana and Texas, debilitating shortages were for the most part averted, and oil product prices are now returning to pre-hurricane levels as infrastructure comes back on stream.
Policy reform for the next hurricane season—or other emergencies— should include repealing or amending “price gouging” laws so that economic markets better reflect economic reality. That will allow market forces to instruct consumers to conserve and tell producers to direct supply to the most needed areas.
- Full Study, PDF, 144.1 KB
by Robert L. Bradley, Jr. and Thomas Tanton