Wednesday, September 14, 2005

The Tragedy Of The Commons

Truly excellent analysis here (H/T Instapundit).


Now that everyone is preaching their Lessons of Katrina, let's conduct a little thought experiment with variables. The laboratory stretches from ground zero in Louisiana hundreds of miles up the East Coast, along crippled gasoline supply lines. What if the buses in New Orleans had been privately owned, and the gasoline supply had been a nationalized, government-run quasi-utility?

We know that New Orleans' infamous municipal and school buses were left to be destroyed at the very instant they were needed most. Over 400 were left idle when they should have been pulled back to higher ground for use in those tense days after Katrina hit.

Had there been a futures market on buses in New Orleans, the value of the buses would have skyrocketed as Katrina approached, signaling their increased utility in the emergency. But even without such an overt market signal, any private owner of the vehicles would have exhausted all opportunities to save his or her property. Nobody who owned such a potentially valuable product would have done what New Orleans Mayor Ray Nagin did: let it all go to waste on the assumption that drivers would be impossible to find. Greyhound, after all, did not leave hundreds of its buses to be destroyed. And, of course, this very fact caused Nagin to scream for "every doggone Greyhound bus line in the country" to come to the aid of his city. And it should go without saying that no private employer would long tolerate a workforce that, in Sen. Mary Landrieu's memorable description of New Orleans public sector workers, has trouble coming to work even on sunny days.

Now to the flip side. Gasoline prices are nothing but one big futures market, constantly transmitting both the current value and the expected replacement cost of the stuff to consumers. Would a government-run monopoly have permitted prices to zoom past $3 a gallon, reflecting both reduced refining capacity along the Gulf and, more importantly, power outages on key gasoline pipelines to the East? Or would a government decree have muted this powerful conservation signal to everyone on the supply chain? There is little question that, judging from the hys terical ravings about "price gouging," that a system of rationing and price controls would have been instituted, thereby guaranteeing long, costly lines to get gas and quite likely an exhaustion of the limited supply as consumers bought too much gas at artificially low prices.

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