Ron Paul: Abolish all Price Controls – Let the Free Market Function!




by Ron Paul

As the northeastern United States continues to recover from Hurricane Sandy, we hear the usual outcry against individuals and companies who dare to charge market prices for goods such as gasoline. The normal market response of rising prices in the wake of a natural disaster and resulting supply disruptions is redefined as “price gouging.” The government claims that price gouging is the charging of ruinous or exploitative prices for goods in short supply in the wake of a disaster and is a heinous crime. But does this reflect economic reality, or merely political posturing to capitalize on raw emotions?

In the wake of Hurricane Sandy, the supply of gasoline was greatly disrupted. Many gas stations were unable to pump gas due to a lack of electricity, thus greatly reducing the supply.  At the same time demand for gasoline spiked due to the widespread use of generators. Because gas stations were forbidden from raising their prices to meet the increased demand, miles-long lines developed and stations were forced to start limiting the amount of gasoline that individuals could purchase. New Jersey gas stations began to look like Soviet grocery stores.

Had gas stations been allowed to raise their prices to reflect the increased demand for gasoline, only those most in need of gasoline would have purchased gas, while everyone would have economized on their existing supply. But because prices remained lower than they should have been, no one sought to conserve gas.  Low prices signaled that gas was in abundant supply, while reality was exactly the opposite, and only those fortunate enough to be at the front of gas lines were able to purchase gas before it sold out.  Not surprisingly, a thriving black market developed, with gas offered for up to $20 per gallon.

With price controls in effect, supply shortages were exacerbated.  If prices had been allowed to increase to market levels, the profit opportunity would have brought in new supplies from outside the region.  As supplies increased, prices gradually would have decreased as supply and demand returned to equilibrium. But with price controls in effect, what company would want to deal with the hassle of shipping gas to a disaster-stricken area with downed power lines and flooded highways when the same profit could be made elsewhere?  So instead of gas shipments flooding into the disaster zones, what little gas supply is left is rapidly sold and consumed.

Governments fail to understand that prices are not just random numbers. Prices perform an important role in providing information, coordinating supply and demand, and enabling economic calculation. When government interferes with the price mechanism, economic calamity ensues. Price controls on gasoline led to the infamous gas lines of the 1970s, yet politicians today repeat those same failed mistakes. Instituting price caps at a below-market price will always lead to shortages. No act of any legislature can reverse the laws of supply and demand.

History shows us that the quickest path to economic recovery is to abolish all price controls. If governments really want to aid recovery, they would abolish their “price-gouging” legislation and allow the free market to function.

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175 Comments:

  1. Capitalism really only goes wild when it's manipulated by politicians. They are able to win votes by promising to steal from one group of people to give to another in the jopes of earning their support. When the price of capital (AKA interest rates) is set by the Fed instead of allowed to move with the market, asset bubbles are formed that first make and then break people that would have otherwise been innocent bystanders.

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  2. The other thing I wanted to say is that prices for gasoline or for labor aren't set arbitrarily by anyones greed or altruism but by the aggregate supply and demand for that commodity. You don't pay a Walmart clerk $10/hr because it's "fair" or enough to support his 8 children, but because that's what the going rate for people with those skills happens to be. In an emergency the choice isn't between "fair" gas or expensive gas, it's between no gas or expensive gas.

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  3. First I want to acknowledge your sincerity, don't think I don't hear what you're saying. But you need to recognize that the very thing that has made our country so rich is that we adopted a system of economic orgnization that that took advatage of the fact that people will be the most productive when they know that they and their families will reap the benefit. Each person trying to better their position contributes to the success of the whole. They don't do this for altrusim.

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  4. First I want to acknowledge your sincerity, don't think I don't hear what you're saying. But you need to recognize that the very thing that has made our country so rich is that we adopted a system of economic orgnization that that took advatage of the fact that people will be the most productive when they know that they and their families will reap the benefit. Each person trying to better their position contributes to the success of the whole. They don't do this for altrusim.

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  5. I understand it better than you do. I see the results of it. I see most people having to take two or three jobs just to get by, leaving fewer jobs for everyone. I see the need for a welfare state simply because the rich won't pair fair wages and give proper benefits. Selfish desires do not, in any way, benefit society, not in any way. That's just ludicrous. They're greedy hoarders, nothing more. No one benefits except the person doing it. My partner works for Walmart. I see unchecked Capitalism.

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  6. You obviously don't understand capitlism. It depends on people acting within the law to better their own position in life. In seeking their own self interest, society benefits. I'd rather have gas at $10/gallon than none at all.

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  7. It could have been said nicer, but it's true. Let the prices go up? That's sheer insanity. Letting capitalism run wild only encourages greed, which is the default human instinct most businesses run on. Hell no!

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  8. Thank you Dr. Paul

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  9. Thank you Dr. Paul

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  10. AMAZING performance by Ron Paul!

    ABSOLUTELY MUST WATCH AND HEAR EACH SENTENCE HE UTTERS — STUNNING, in less than 60 min Ron Paul LAYS THE PATH to our Nation’s Salvation, that in decades no-one else had been able to state!

    Ron Paul not only dissects the rotten, crooked Government we have, but PRECISELY gives the ACTIONS needed to COUNTER this INSANITY in DC, and bring us, We The People, back to Liberty and Prosperity!

    This is truly an AMAZING interview — Ron Paul’s statements are not just spot on, they are brilliant and self-evident to all that still have a mind of their own!

    MUST WATCH — AND SPREAD THIS LIKE WILDFIRE (before it’s too late America)!

    http://www.youtube.com/watch?v=C8GWTljMw_M&feature=player_embedded

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  11. I love Ron Paul

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  12. I love Ron Paul

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  13. Dear Mr.Paul.We have to do something to save this country from the junk.American people open your eyes save your family and your home from devils.
    The french leader DANTON during the french revolution said:
    The heroes do the revolution, the crooks enjoy and the prepotents take over.
    Romney and Obama are so lucky having some blind people that voted for them.This is the tragedy of the 21st century.
    Roman Empire will collapse soon.Love you Mr.Paul.

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  14. Understanding the free market idea of Mr. Paul is not hard. Responding repeatedly with how the free market works is not necessary. What is necessary is to listen. Listen to the few people that were there..."there" being Sandy, Katrina, etc...etc...when it wasn't just a theoretical conversation but matter of survival.

    I think Mr. Paul and his loyal fans with their economic theories fail to take in consideration the irrationality of human nature in moments of fear and panic.

    When prices are allow to be grossly inflated preventing most people from being able to acquire the needed goods, strange things start to happen. The person that over-purchases to create a black market is the same person that would pull a gun, knife, baseball bat on you and take your $30/gall gas for free. Why? Because either he is a criminal or because is a desperate human under distress without the $300 day in is pocket (5000watt generator uses approx. 1gal/hrs. 10 hrs use per day = $300). By the way, how are you paying for this $30/gal gas for the next week or even 4-5 days?. No Visa/MC remember? No power. No ATM to get cash, no banks…sorry, flooded.

    Sure, I totally agree, free market will absolutely rebalance the demand and supply. The question is when? 24 hrs, 48 hrs, 72hrs, more? With roads blocked by fallen trees, downed power lines, impassable road due to flooding, do you believe 'free market' would casually show up in matter of minutes to make that profit? What happens when word gets out the last 'free market' tanker truck has been stolen and the driver shot. What then? "Free market' would sit on the sideline because suddenly $30/gall is not enough profit to risk loosing a truck and get sued because your driver was asked to enter a dangerous situation.

    So, all I am saying is….easy up with the theory and consider a measured solution, where both free market and disaster reliefs are allowed to participate.

    Peace.
    DC

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    • I think it's -you- that needs to listen. Despite your disagreements, you turn around to say we need a "measured solution, where both free market and disaster reliefs are allowed to participate". Which is exactly what Paul said and meant, is it not? He did not say to get the government out of helping the disaster relief. The whole topic of his speech was to not have PRICE CONTROLS.

      Let me repeat the points Paul has -already- stated. Suppose we go along with the price controls (oh wait, already did and have done many times before in history!). Do any -more- people get gas? No, price controls do not magically fix everything or produce more gas or reduce the demand. All the price controls change is -who- gets the gas. In this case, the people at the front of the gas rationing lines get the gas. Everyone else behind the person who gets the last drop is SOL. Is that really any more fair? Especially considering if some people may have been more than willing to pay more?

      Some of the same "criminals" and "desperate humans" will still exist and will be in desperate need regardless of how we decide to deal with the shortages. But yes, I agree... the question is, "For how long?" Paul's logic is sound. If prices were allowed to increase, it would be worthwhile for companies to transport needed goods there and sell them. We'd still have aid coming in from the government and other organizations. There'd be no other difference whatsoever EXCEPT: with other businesses chipping in doing the "heinous act" of trying to make a buck, recovery would be FASTER.

      But instead, anyone that would try to transfer gas over and sell it while maintaining a profit would be branded as some sort of cut-throat, black-market, unpatriotic criminal and probably be thrown in jail. So alas, the poor victims can only rely on charity for help, and not the free market or their wallets.

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  15. ***ALL 50 States have started Secession Petitions!***

    The cracks are beginning to show — Secession is but a precursor!

    http://www.2012presidentialelectionnews.com/2012/11/secession-petitions-growing-at-whitehouse-gov/

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