The aftermath of the Christchurch earthquake has seen much of New Zealand pulling together to help out affected residents who are in need. It has also seen a scarcity of many essential items as supermarkets close and water is switched off. In particular, queues at petrol stations have been huge and that has prompted Eric Crampton — a Christchurch resident himself — to call for higher petrol prices. He is concerned that people with the greatest need for fuel will not get it if there is a shortage. Rather, the people most able to queue for a long time will get the limited amount of petrol and those may simply be the people with the least pressing need to be elsewhere. In summary, he is worried that the petrol will unfairly go to those who may not have the greatest need of it.
In reply, Keith Ng’s attack on economists mischaracterises the discipline and then erroneously attempts to refute Eric’s argument. First, Keith claims that higher prices won’t help those that need the petrol most. Secondly, he suggests that economists have no explanation for what’s going on in Christchurch so we probably shouldn’t listen to them anyway (at least that is what I infer from his offer of fisticuffs).
On the first point, Keith claims that the people who want petrol the most are the ones who are concerned about future supply and that they will be most willing to pay the higher prices. Regardless of the validity of his claim that’s not a good reason to keep prices low. If the hoarders are the ones who most want the petrol then why shouldn’t we put them first in line?
Keith seems to be implicitly valuing all immediate usage ahead of all future usage of the petrol; a valuation that he claims isn’t reflected in people’s willingness to pay for petrol. So either he thinks that he should be the one deciding who gets petrol, whatever people’s explicit valuation, or he thinks that it is the rich who are most likely to hoard and that they will be willing to pay the most for petrol. If it is the latter then we have a clear trade-off between equity and efficiency: people with the greatest desire for petrol would be more likely to get it if prices doubled, but it would also disproportionately go to wealthier people. Eric explicitly addresses that in his post and says that he thinks equity considerations are small in these circumstances. So, despite Keith’s claim that Eric’s a poor economist who doesn’t understand ‘waiting’ it seems that this is simply a case of differing normative judgments, which is a common theme of this blog.
On the second point, Keith claims that people in Christchurch helping each other out discredits economists’ explanations of human behaviour. I’m sure he’ll be thrilled to know that there is nothing in economic theory that suggests people should not be altruistic and value others’ wellbeing. Indeed, social preferences are a major topic of research among experimental and behavioural economists. If people care about the wellbeing of those close to them then it is perfectly rational to help them out when they’re in trouble. Economists assume that people act in their own best interests as defined by them, not as supposed by anyone else. If you think your interests involve being a good, caring community member then it would be decidedly irrational not to help others who you care about.