The gasoline shortage in parts of the Southeast is nationwide news. Everyone has an opinion: It’s hurricane Ike. It’s refineries being off-line. It’s dumb car owners “topping off.” It’s gas companies restricting supply. It’s the media spreading the story. It’s crowd behavior. It’s irrational panic. Robert Prechter answers some questions about the gas shortage. Robert Prechter takes questions and answers them. FULL ARTICLE
Source link: http://blog.mises.org/8728/is-the-gas-shortage-due-to-irrational-herding-or-just-economics/
Is the Gas Shortage Due to Irrational Herding or Just Economics?
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Another excellent article by Bob Prechter. He has a wonderful way simplifying the apparently complex and making facts lost in the confused debate obvious.
IT’S ALL OF THE ABOVE !
I’ve often performed a thought experiment wherein I try to think of the best answer to the question:
If I could impart a single piece of knowledge to everyone in the world, what would it be?
Depending on the circumstances at hand the answer can vary, but there’s one bit of knowledge that I think would have the single greatest impact on economic freedom:
Earning profits is good!
If the masses understood this simple fact and recognized the benefits bestowed upon everyone by the search for profit, many of the abuses we suffer at the hands of government would disappear. There would never be a shortage of anything. Everyone would be better off, financially, emotionally, spiritually.
My friend and co-workers alway is correct when he explains the real problem to me. I have REAL SCIENCE on my side but he says I don’t care enough. See politicians and other un-producing people produce feeling and caring. This of course trumps rationality and certainly trumps pricing mechanisms.
They feel so much that I have to listen to them as I feel less. The suppliers of gasoline should listen to as they feel less that those producing feelings.
You and I as rational people are the ones doing the hurting. People have to have esteem that comes from paying artifically low prices. If they have to wait in lines then that is better for society as the rich will experience the same feelings as the poor.
Im with Ron….
Earning profits is good!
I keep a similar maxim in my verbal armoury, and its partricularly useful for wheeling out in front of earnest well-meaning socialistsx because it presses their welfare buttons:
‘In a free market, profit is a direct reflection of the value you have placed in the hands of others’.
Good article, as far as explaining how the shortage is caused by the laws that prevent the price increase that would re-establish equilibrium between supply and demand.
However, the article does not address what disrupted the equilibrium that existed just prior to the shortage conditions. I realize that doesn’t matter as far as the principles discussed in the article, but it is the question that some people are trying to answer by saying “the shortage is caused by the hurricane” or “the shortage is caused by the refineries being offline (because of the hurricane)” or “the shortage is caused by the gas companies restricting supply”.
It’s like a fire marshall describing how a fire spread through a building, when what I (people) really want to know is what started the fire in the first place.
If you have reliable information on that topic, I’m very interested.
Great to see a Bob Prechter article here. It is through Bob that I discovered this website.
His work on forecasting and herding behavior fills in a lot of the gaps in the Austrian Business Cycle Theory. I highly recommend his websites — socionomics.org and elliottwave.com.
Excellent interview!
I have read many explanations of why price controls are stupid, but none as direct, simple and hard hitting as this one.
I will circulate it as much as I can.
Mary,
In your analogy, if the shortage is the fire… then what started the fire in the first place IS the price controls.
The hurricanes, etc. are just the building being made of wood or dry weather in the forest.
Also, understanding that gasoline is flammable is usefull knowledge for a fire marshall not to make things worse.
Quote from Mary: “However, the article does not address what disrupted the equilibrium that existed just prior to the shortage conditions.”
There is no equilibrium. Equilibrium in economics is a myth. You might as well ask what disturbed the equilibrium in the atmosphere that resulted in the hurricane.
There is always scarcity, but shortages are due to government interference with the market processes that allow accurate measurement of the level of scarcity (i.e., prices).
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