Hurricane Harvey and its widespread destruction is a blessing to energy producers. Flood waters from the Category Four storm have disrupted production at refineries and created temporary shortages in gasoline and other refined petroleum products, thus signaling futures traders to bid up prices in anticipation of rising prices. Confronted with normalizing prices due to the potential realization of peak demand, overproduction across the globe, and a persistent supply glut, the energy sector stands to gain from the losses of so many. Like socialism in the face of corrupt and abusive government, capitalism and its rationing mechanisms break down in abnormal conditions, such as the aftermath of hurricanes.
Economies exist to serve the needs of people. Infamous Blackwater Founder Erik Prince’s plan to profit on the seemingly perpetual Afghanistan War, which offers no viable end-game strategy and further incentivizes the continuation of conflict, serves as another example where capitalism actually conflicts with human need. When profit making encourages behavior that causes harm to people and fosters hazardous situations, market forces must be overridden for the public good, not relied upon. Under such circumferences, military engagement, disaster relief, regulation, and other government interventions are needed. Social interventions, such charitable donations and the public shaming of exploiters, are also needed.
There will always be those who benefit and those who seek to exploit the maximum benefit possible without regard to the suffering of victims. Police, firemen, and paramedics often see the profit of their overtime wages. These heroes are, of course, taking a greater risk during times of crisis while the cost is often shared by society instead of just the victims. This type of profiting is, therefore, justifiable. Unfortunately, there are always fraudsters poised to capitalize on disaster-related spending and unscrupulous businesses hoping to hide their efforts to gouge consumers when they are forced to spend. The futures markets are, however, an unsettling and legitimate means to gouge people during a crisis.
Under normal circumstances, market exchanges can help properly price commodities like oil to ensure viable production. Under abnormal circumstances, however, the limited ability of these mechanisms to discern between perpetual threats to the long-term supply and temporary disruptions to production can often lead to unnecessarily price hikes. During times of temporary crises, such as hurricanes, governments and people tend to engage in deficit spending. When those crises pass, they start to rebuild their supply of capital. If they must borrow money at an inflated interest, they will struggle to pay off that sum and prepare for future crises, thus threatening their future. This is analogous to the social need for stable commodities prices in times of temporary crises.
Gasoline prices should not skyrocket, because there is a hurricane in Texas and production is reduced The long-term impact of the hurricane may well force prices to rise over time as disruptions to production constrain supply and the industry fails to adapt, but there is no tangible need for the price to spike overnight when there is a supply glut. The reality that commodity prices are overly sensitive to temporary crises shows when and how capitalist mechanisms become misaligned with social and human needs. Short of shutting down commodity exchanges during crises and limiting price swings caused by speculative trading with a small transactional tax, which may well be a sound policy, little can likely be done.
Recognizing the limits of capitalism, market forces, and economic mechanisms is, however, essential to developing sound public policies. When extreme market conditions suddenly appear and economic mechanisms start to break down, i.e. they no longer serve human need, it is helpful to have some recourse. Even when the economy fails, the needs of society and people do not suddenly disappear. Where capitalism cannot provide for the needs of people, public policymakers and community leaders need to find solutions. The benefits of capitalism are massive, but there are limits to what capitalism can do. Alternative approaches are needed when capitalism fails.
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