Sunday, November 25, 2012

Sandy, Part 4: Economics 101, New Jersey Style!

In Sandy, Part 2 I noted that restrictions on post-catastrophe price gouging forced consumers to trade gasoline in time instead of dollars.  This resulted in many lost hours, as consumers waited in long lines, and wealthy gas guzzlers bought gas from their neighbors long on time and short on cash.

I proposed an elegant solution: Gasoline backed contingent claims, freely tradeable, but only usable after the governor declares an emergency.  Governor Christie hasn't called for my help.  However, his colleague from Parsippany, BettyLou DeCroce, has proposed her own solution: The government should price gouge the gas stations instead!

That's economics New Jersey style!  DeCroce sponsored the New Jersey Residents Power Protection Act that would require gas station owners to buy generators that would power their operations for 72 hours or more.

The legislation also applies to all new grocery stores and convenience stores.  (Gee, what about Starbucks? Oil refineries?  Why not DeCroce's house??  I know how she's getting re-elected!)

Just for good measure, she says generators must use natural gas to ensure uninterrupted, safer and cleaner power supplies.  (Yes, the gasoline station must use natural gas to power its generators because gasoline could be difficult to obtain, and gasoline is dangerous.  It's no wonder we don't have self serve gas in New Jersey because it's unsafe!)

Here's an idea for our fearless politicians to consider: Let gas stations that want to install generators install themThen, let them charge more for gasoline after a catastrophe to recover the cost of the generator. 

Oh, but that's price gouging.