Panic Is Worse Than Useless

RALEIGH – Don’t panic. That’s easy to say, but so difficult to do.

Difficult when thrust suddenly into a situation fraught with danger or despair, as so many on the Gulf Coast were earlier this week. Difficult when one’s own distant acts of compassion, sometimes verging on propitiation, seem pitifully inadequate when faced with a disaster so massive that it leaves one’s mind reeling. Difficult when others, believing rumors spreading like wildfire along the dry kindling that is the Internet, become panicky themselves, as we have seen here in North Carolina during the past couple of days of skyrocketing gas prices.

But tempted though we may be to panic, it is a temptation well worth resisting. Even in response to a monstrous turn of fate, even when contemplating the staggering implications of what may be the most devastating natural disaster in modern American history, panic is worse than useless. It risks making a bad situation worse.

Panic is one reason why law enforcement and rescue officials in Louisiana have had a hard time doing their jobs. While thugs and amoral teens have greeted some peace officers with gunshots, many other refugees have succumbed to panic and terror, forming mobs that loot stores and obstruct rescue personnel and equipment. They have mobbed helicopters trying to land supplies on rooftops. They are terrified, and the resulting panic is making it harder to help them.

Soaring prices are another source of panic, on the part of consumers and on the part of politicians who either don’t know better or don’t want to seem uncaring. The latter group, not just in the immediate disaster area but also closer to home in our own state, are reviving the old suspicious talk of “price gouging.” State and federal lawmakers are talking about hearings to investigate greedy oil companies and colluding retailers.

It is critical to remember that regulatory efforts to cap rising prices in the aftermath of natural disasters create more problems than they alleviate. Prices are not fixed, arithmetic tallies of the cost of making goods. The retail price at the gas pump is not necessarily related to the wholesale price paid by the service station. It reflects the interplay of supply and demand. When demand rises precipitously, or supply falls precipitously, prices can suddenly jump. They should, because the good is worth more. A gallon of gas – or water, or any other commodity – is worth more during a time of shortage.

Yes, it is likely that gas prices have spiked in part because of panic. Fearing the exhaustion of gas supplies just before the Labor Day weekend, some motorists have rushed out to top off their tanks and created the very short-term shortage they feared. If stations aren’t allowed to let their prices rise, shortages translate into gas lines and empty tanks. If a station jacks it up too far, other stations will sell and the higher price generates no profit. There are laws against collusion, against fixing prices to inhibit these competitive pressures, but frankly there is little evidence such laws are needed. The profit motive erodes cartels quite effectively.

So don’t panic. As we watch the horrifying events of Katrina from afar, we should do what we can and not fixate on what we can’t. And on shortages at home, we should react rationally to higher prices, by limiting our driving, rather than irrationally seeking to quash the very markets that are sending us this critically useful information.

Hood is president of the John Locke Foundation.