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.

  • Jacqueline Kruger

    We talk about greed in high places, like the politician who wants the most he can get for his constituents mostly for inconsequential purposes like preserving the Marsh rats in San Francisco, etc. while we complain about the greed of the business man who sees the opportunity to make some fast cash. The greed at the bottom is no more acceptable than the greed at the very top….the ruling class for instance who want to rule the world. Greed is ugly Greed, period! Greed will not get anyone into heaven…..Burning for eternity is not my idea as the way to go. Name it for what it is….Greed. Our forefathers were compassionate and helpful to one another who came upon hard times….What happened to us? From one, senior, who suffered that week in New Jersey without a generator for warmth and light and prayed a lot.

    Dr. Ron Paul, you indeed are presidential material and I am totally disgusted with the voting process in this country. I refuse to vote again until the voting process is corrected and the electoral votes are eliminated thereby eliminating the few swing states that actually call the election….how totally unfair causing corruption a reality.
    I hope and pray that we have the opportunity to vote considering that we have a fraudulent, dictator in office and more of the same behind him. God bless America!

    Like or Dislike: Thumb up 1 Thumb down 1

  • Tom D.

    Don’t forget rising prices would accelerate supply, which would quickly bring prices to equilibrium. Free people are ingenious – high-margin profit-taking doesn’t last long. There were diesel generators sitting unused because gas was artificially cheaper than diesel.
    It’s stupidity masquerading as compassion.

    Like or Dislike: Thumb up 2 Thumb down 0

  • Greg

    LET’S SIMPLIFY THE CHRONOLOGICAL ORDER OF EVENTS RON PAUL DESCRIBES HERE: Supply goes down. Demand goes up. Gas stations try to capitalize on this by jacking their prices up really high. As prices get ridiculously high, outside business owners say, “Hey, look at them. All those gas stations are charging $25 per gallon of gas. If we go in with our oil tankers we could sell it for $5 per gallon… then everyone would buy gas from US instead and we’d make a nice profit”. Essentially, COMPETITION between gas stations would start up and they would COMPETE for each others customers by trying to bring their gas prices down as low as possible.

    I saw someone saying that Ron Paul is forgetting that business owners are not naturally selfless & altruistic; they’re out to make a profit. Ron Paul didn’t forget that. It’s the DESIRE TO MAKE A PROFIT that compels gas stations to jack up their prices, and it’s the DESIRE TO MAKE A PROFIT that would compel outside gas companies to ENTER the disaster area to compete with the extra high gas prices that are already in that market.

    Like or Dislike: Thumb up 4 Thumb down 0

  • J.F.

    I sincerely appreciate the contributions Ron Paul has made to our country and hope he continues his crusade. But in the best interest of that crusade I think it wise to inject more behavioral reality into the argument so as to increase the odds of real success. Specifically regarding the argument for abolishing price controls surrounding the hurricane Sandy crisis and less specifically regarding the Libertarian platform in general.
    I suggest that one consider the irrational demands of the public as the driving force behind the price controls. If the public is not educated to understand the impact of their choices, in this case to accept price controls in the first place, then they themselves are the real cause, not the Federal government.
    If price controls had not been put in place, the people would have cried foul over price gouging (this you can be sure of). And, in an election year, all candidates seeking election or re-election would have offered their own “bribe” to the public in the form of relief. A “bribe” that the public is always willing to accept. So is this really the fault of the politicians? No, not really. It’s the fault of the citizen who wants immediate relief or gratification regardless of the long term consequences.
    Call it what you will, but the public fails to understand the impact of their own demands and when politicians don’t respond to those demands, no matter how self defeating they may be, elected officials face the likelihood they will be voted out of office.
    Understanding this underlying dynamic is essential to building a platform that might enjoy political success.

    Like or Dislike: Thumb up 2 Thumb down 0

  • Michael

    I can understand what he is saying. However, I also cannot agree. I am a New Jersey resident so I admit bias. My experience with Sandy and the gas lines should at least grant me a bit of credibility. Hurricane Sandy hit and we were left without power for roughly a week. It may not sound so terrible but it definitely wasn’t a pleasant experience either. NJ residents were desperate for gas. Not because they wanted to fill their SUV but because they required it for their generators. Generators consume quite a bit of gas. My family and I maintained a 2 hours on 5 hours off schedule, which I would consider conservative, and we were burning through more gas then we originally had planned for. Other’s I know needed their generators to power their water pumps for well water, sump pumps to prevent flooding, heating baby bottles for newborn children, and many other reasons which I consider essential and not a matter of luxury. Lastly, keep the fridge on a few hours was a must. After a few days, the grocery stores were empty. Entire aisles were gone. Keeping the refrigerator on a for a bit became pretty important as well as food was getting harder to come by.

    Raising gas prices would have been dangerous. People looked to the gas stations to get their gas. Had gas prices skyrocketed… trust me when I say,people would have started stealing gas from cars and trucks. That would have lead to a true wild west scenario. People were frightened and desperate. People do crazy things when they are in that state. While I agree with Ron Paul on many issues… I can’t on this one.

    As for the person who mentioned public services, in my experience, public services had precedence over the general public. Some stations were only serving Police, Fire, Ambulances, and Electric Repair vehicles.

    Like or Dislike: Thumb up 3 Thumb down 4

    • http://gmail David J. Sanchez

      Michael, you are not completely understanding what Ron Paul is saying. Basically he mentioned that there came into being a black market situation where certain individuals would purchase more fuel than necessary, then turn around and charge much higher prices for the same fuel. If the stations involved would have been allowed to raise the price to a higher supply emergency demand level, people would truly conserve (buying less and allowing others access) which would mean that the stations to stay open longer, and serve more of the citizens, who needed fuel, but faced an empty station, because of those who hoarded the gasoline. I do feel compassion for all the people who faced this disaster, as my oldest son who was living in Hoboken, N.J. faced losses from this storm and we have made contributions to the Red Cross.

      Like or Dislike: Thumb up 3 Thumb down 0

    • Dane

      I can understand the issue of looting but when the prices go up they are very temporary. When supply comes in it will lower the demand and reset or at least offset the cost. This idea is very important though. If prices are held to low it does not show the scarcity of the product. People are less likely to conserve what little they have and instead just overstock on the product. Let me give you an example, if you go into a grocery store in a disaster area such as this and they have a sale on water what will happen with the water? The first few people in will have bought up all the water leaving nobody else with any. If prices on water remained the same people will not consider the need to conserve nearly as much as the prices do not show that there is a real problem in the disruption of the product. However, if prices go up, now you have to calculate how much you need with how much you can afford of that product so that you and yours can live. However, with lower prices, since water is vital for life the first few could only get the product now everybody is left with increased risk of death from no water or increased risk of sickness from drinking bad water.

      Like or Dislike: Thumb up 2 Thumb down 0

  • Brent

    I think one of the premises of Libertarianism is that governments cannot be trusted and governments do not do things for the better of the people. Governments are fire. Like controlled burnings, small governments have the function of consuming what big governments need to grow-power. Governments of any side will pretend to ally with the people to fight off competition.
    What people often do not realize is that our own government is really just the biggest corporation of all. It has no need to appease the people so when price controls are put in place, this is done for ulterior motives. Mostly it is done as an ongoing way of keeping large corporations in their place because the more powerful any corporation gets, the more independent and competitive it becomes from the biggest corporation of all.
    One real easy way to ease the burden and lower the price of gas would be for the largest profiteers of gasoline-that would be federal government and it’s state franchises to stop gouging consumers in times of need with gas taxes.

    Like or Dislike: Thumb up 4 Thumb down 0

  • MC

    Mr Paul,

    I have been and AM a supporter of your platform, however I cannot agree with this article “abolish all price controls”. In times of economic calm this may work to some extent but in times of crisis it does not. I went through hurricane Katrina. While sitting in evacuation traffic we watched as gas station attendants changed the cost of gas before our eyes. Removing trees from rooftops and yards became a $2000/hr business. Unskilled labor became a $50K /yr job. None for lack of supply. On the other side of the coin, grocery stores opened their doors in the dark without power and sold their wares without price hikes, many with hand tools and heavy equipment worked tirelessly for average wages or none at all to help.

    My understanding of this is that the free market is great to a point however Some cannot restrain themselves, and will sacrifice the futures of their neighbors in order to “supersize” their personal accounts. We have all now endured this on a world wide level for several years now.

    Like or Dislike: Thumb up 2 Thumb down 5

    • http://gmail David J. Sanchez

      You are not fully understanding what he is saying, which is that with the higher prices people conserve, keeping the stations opened longer for everyone to have access, and as the situation changes the prices naturally will fall to the “normal” competitive level. Basically if one station charges way too much he will get no business whatsoever, which means that he will lower his price. The government never solves a problem, but ALWAYS DELAYS A PROBLEMS SOLUTION, by intervening and interfering the market solutions. I guess it all goes back to people being conditioned into never seeing the whole picture of the economy.

      Like or Dislike: Thumb up 3 Thumb down 0

  • http://www.youtube.com/profile?user=Corvus133 Corvus133

    Well thought up comment. Insightful. Deep.

    Like or Dislike: Thumb up 1 Thumb down 0

  • E. M.

    I think there should be a middle ground. I understand your stance and see that on a macro scale, it would be effective. However, we must recognize the human condition. It is not always altruistic and compassionate. Some may have really needed the gas, but would not have been able to pay for the gouging…and it could caused even more issues.
    Therefore, let’s try a more even-handed approach, but I respect your opinion and like where you are headed.

    Like or Dislike: Thumb up 4 Thumb down 1

    • Oliver

      Everyone really needed the gas. I could give hospitals and police/firemen that they would need gas to function in order to quell the damages and repair the systems, but which private person “needs” gas so badly, all other private persons become suddenly “unworthy” of getting their gas? Need really isn’t the determining factor here.

      Like or Dislike: Thumb up 2 Thumb down 0

  • http://www.youtube.com/profile?user=KellyMedley Kelly Medley

    We have planes of our own.

    Like or Dislike: Thumb up 0 Thumb down 0

  • http://www.youtube.com/profile?user=KellyMedley Kelly Medley

    Ron Paul is such an awesome teacher. Thank God we have him down here in Texas, I sure pray his son has his same values and carries them forward.

    Like or Dislike: Thumb up 0 Thumb down 1

  • http://www.youtube.com/profile?user=KellyMedley Kelly Medley

    Amen.

    Like or Dislike: Thumb up 0 Thumb down 0

  • French Canadian

    Robin,

    Yes, Oregon is on the list. It has 10,158 signatures.

    See this:

    Citizens from 34 States Petition the White House to Secede from the U.S.
    http://www.infowars.com/citzens-from-34-states-petition-the-white-house-to-secede-from-the-u-s/

    Like or Dislike: Thumb up 0 Thumb down 0

  • French Canadian

    Robin,

    You will have all your informations on these sites:

    The BBC
    http://www.londonfreelance.org/rates/owners/_bbc.html

    Who Owns NPR?
    http://elingreso.com/2009/12/22/who-owns-npr/

    Like or Dislike: Thumb up 0 Thumb down 0

  • French Canadian

    Robin,

    On the Alex jones Show today:

    “Government insider Steve Pieczenik will blow the lid off what he says is the truth behind the tragedy in Benghazi and the General Petraeus mega-scandal, then Larry Pratt, executive director of Gun Owners of America, will break down Obama’s plan to eradicate the Second Amendment in his second term.”

    Plus, these articles might interest you:

    Former CIA Officer: White House Is ‘Lying’ Over Petreaus Investigation (Video)
    http://www.infowars.com/former-cia-officer-white-house-is-lying-over-petreaus-investigation/

    “They are lying.” – Gary Bernsten, Former CIA Operative”

    Petraeus Affair: Another General Under Investigation for “Inappropriate Emails”
    http://www.infowars.com/petraeus-affair-another-general-under-investigation-for-inappropriate-emails/

    Paula Broadwell’s Father: ‘This Is About Something Else Entirely, And The Truth Will Come Out’
    http://www.infowars.com/paula-broadwells-father-this-is-about-something-else-entirely-and-the-truth-will-come-out/

    Like or Dislike: Thumb up 0 Thumb down 0

  • http://www.youtube.com/profile?user=PaxAeterna7 PaxAeterna7

    IN ANY WAR BETWEEN FREEDOM AND TYRANNY,
    SUPPORT FREEDOM.
    + + + SUPPORT PALESTINE + + +
    DEFEAT ZIONIST TERRORISM
    Google Boycott Israel Campaign and BDS Campaign dot net

    Like or Dislike: Thumb up 0 Thumb down 0

  • http://www.youtube.com/profile?user=PaxAeterna7 PaxAeterna7

    IN ANY WAR BETWEEN FREEDOM AND TYRANNY,
    SUPPORT FREEDOM.
    + + + SUPPORT PALESTINE + + +
    DEFEAT ZIONIST TERRORISM
    Google Boycott Israel Campaign and BDS Campaign dot net

    Like or Dislike: Thumb up 0 Thumb down 0

  • http://www.youtube.com/profile?user=PaxAeterna7 PaxAeterna7

    “We Jews, we are the destroyers and will remain the destroyers. Nothing you can do will meet our demands and needs. We will forever destroy because we want a world of our own.” -You Gentiles, 1924 by Jewish Author Maurice Samuel
    The Presidential Debate on foreign policy:
    Romney “I love Israel and Jews more than you do”.
    Obama “No you don’t, I love Israel and Jews more than you”.
    Romney “No you don’t, I do”.
    Obama “No you don’t, I do”.
    Romney “No you don’t, I do”.
    Obama “No you don’t, I do”.

    Like or Dislike: Thumb up 0 Thumb down 0

  • http://www.youtube.com/profile?user=PaxAeterna7 PaxAeterna7

    “We Jews, we are the destroyers and will remain the destroyers. Nothing you can do will meet our demands and needs. We will forever destroy because we want a world of our own.” -You Gentiles, 1924 by Jewish Author Maurice Samuel
    The Presidential Debate on foreign policy:
    Romney “I love Israel and Jews more than you do”.
    Obama “No you don’t, I love Israel and Jews more than you”.
    Romney “No you don’t, I do”.
    Obama “No you don’t, I do”.
    Romney “No you don’t, I do”.
    Obama “No you don’t, I do”.

    Like or Dislike: Thumb up 0 Thumb down 0

  • http://www.youtube.com/profile?user=AntonCallahan Anton Callahan

    You’re an idiot.

    Like or Dislike: Thumb up 0 Thumb down 0