Posted on 11/02/2012 12:06:38 PM PDT by NevadaPolicyResearchInstitute
One unfortunate aspect of tragedies, like this week's Hurricane Sandy, is that wrong-headed government policies so often prolong the pain experienced by disaster victims.
Exhibit A are laws, like those in New York and New Jersey, prohibiting "price gouging" — defined as a merchant using the demand created by a natural disaster to charge more for items like gasoline, bottled water or generators.
Before the hurricane hit, New Jersey Gov. Chris Christie issued a stern warning against raising prices, stating, "The State Division of Consumer Affairs will look closely at any and all complaints about alleged price gouging. Anyone found to have violated the law will face significant penalties."
While this makes for good politics — with news stories portraying Gov. Christie as standing up for the "little guy" — it's terrible policy. Especially for the "little guy."
It should be noted that, in a free country, the government has no business telling private parties what they can or can't charge for an item.
But the problems with anti-"gouging" laws aren't just philosophical; they also hurt the very disaster victims they're supposed to protect.
Before Sandy hit, many stores in the storm's path ran out of food, bottled water and emergency supplies, and the customers who didn't get to the store earliest faced empty shelves. This makes sense. If the demand for bottled water skyrockets (as it does before a storm) and the price stays the same, stores will run out of bottled water quickly. That's because early-arriving customers will take more than they need to survive the storm, since there's no financial reason not to.
Now consider the unseen: the customers at the back of the line who aren't able to purchase any bottled water because it's all gone. There will be no news stories written about these folks. Yet they face real danger.
But what if the price of bottled water were to increase exponentially? You must remember that prices serve as a signal telling customers how scarce a product is compared to the demand for that product.
If a gallon of water went from $1 to $5 or even $10, customers at the front of the line would be forced to decide how much water they really needed to survive the storm, and would purchase accordingly. This would leave more resources for the customers at the back of the line.
Now in this case, the business owner would start making a large profit. And this is a very good thing. Just like high prices serve as a signal to consumers that a particular product is in great demand, profits signal to an entrepreneur that he or she can make money by providing more of that good or service.
So allowing high prices is the most efficient way to ration goods, and allowing high profits incentivizes others to provide more of those goods — which will eventually drive prices down.
The same is also true after a storm hits. This story from John Stossel perfectly illustrates the folly of anti-gouging laws.
After Hurricane Katrina, Mississippi Attorney General Jim Hood announced a crackdown on "gougers."Ideas have consequences. And anti-"gouging" laws have very bad consequences — for the very people these laws are intended to protect.John Shepperson was one of the "gougers" arrested. Shepperson and his family live in Kentucky. They watched news reports about Katrina and learned that people desperately needed things.
Shepperson thought he could help, so he bought 19 generators. He and his family then rented a U-Haul and drove 600 miles to an area of Mississippi left without power.
He offered to sell his generators for twice what he had paid for them, and people were eager to buy. But police confiscated his generators, and jailed Shepperson for four days. The police kept his generators.
Did the public benefit? No.
“He’s saying with the prices up to gouge level people will buy less because they can’t afford to buy as much”
Some people will buy less, yes, which means more people will be able to buy. Not only that, the ones who do buy will value it more.
“I just pointed out that some of those not being able to afford as much will not be able to afford any”
Some, surely. But mire will buy with higher than lower prices. Your posts make it sound as if the same number of people will go thirsty with empty shelves due to underpricing than with the price being too high fir some. Which is wrong.
That is, assuming the seller hasn’t set the price above market. But since this is all about obscene profits, again, we can assume it was set to where the supply still ran out.
“One way or another somebody is not getting water”
Can you understand the concept if more or less people getting water? Yes, in both cases probably not every person who wants water will get it. But one way (higher prices) more people get water, and another (lower prices) less people do. Do you understand why the former way might be preferable?
I belonged to a free-market economic discussion group years back. We had heated discussions with people over this exact issue.
We had complex thought experiments that went through the entire process under the conditions of a truly free market-system and true Liberty. We used only ice as the product delivered.
What was concluded was that a system without any government interference whatsoever (i.e. let prices be what the may) that what your call greedy was in fact the superior method to deliver needed goods in the most timely fashion and at the least cost.
Space does not permit me to explain in detail, but the fallacy of blaming "greed" is strictly the result of the indoctrination of progressive ideas.
“One way or another somebody is not getting water”
Can you understand the concept of more or less people getting water? Yes, in both cases probably not every person who wants water will get it. But one way (higher prices) more people get water, and another (lower prices) less people do. Do you understand why the former way might be preferable?
Because part of setting the price for something very high is pricing some people out of the market.
It’s not about setting the price “well enough”. When you have a captive audience you always get to artificially inflate prices because people lack the ability to buy from somebody. The problem with that in a disaster area is the audience is captive because of the disaster, rather than because they chose your amusement park.
The shelves are going to be empty one way or the other. That’s what happens when a disaster is predicted, the shelves get emptied. The question is did you inflate prices to take advantage of the people that are trying to survive the disaster or not.
No the guy that jacks up the prices of his goods by hundreds of a percent is punishing them. Almost everywhere faces some form of natural disaster, so the idea that it’s punishment from God or nature is just stupid. The punishment comes from the guy who has decided this is a profit making opportunity. He’s basically a looter that decided to do his looting first.
You might find it distasteful, but that’s the distaste of truth. When people jack up their prices like this they are deliberately taking advantage of people in a bad situation. They know there are people that will have to stay, they know those people need supplies, they know they’re going to sell out their entire store to these people. And knowing that they have this group who MUST shop from them they decide to drastically increase their price. That’s taking advantage of people, that’s punishing people.
It’s not a good thing they’re doing. They’re taking advantage of people in a bad situation. That’s not good. Good would be giving it away free, like WalMart did after Katrina. Evil is quintupling your prices because you know they have no other choice. They aren’t saving lives, they’re GOUGING. Selling somebody $1 of water for $5 hasn’t saved a single life anywhere ever.
Gee, is it really so difficult for people in the Northeast?
Even picking up some water for an emergency is too difficult for them to figure out?
They don’t know how to rinse out jugs or pull out the lobster pot and fill it for water from the tap in case the storm shuts down the power?
Are they really tormented and overwhelmed by trying to decide between having 3 day, or 5 days worth of drinking water and juices and soda pop?
Do they have trouble figuring out how much beer, chips and ribs that they want for a 2 day weekend, or a 3 day weekend, do you think many of the smokers ran out of cigarettes?
How helpless and stupid are you claiming that these people are?
I just spoke to my son in Brooklyn and he said it didn’t effect him at all, he already had food and water, and he filled his car tank and an extra 5 gallon gas can before it blew in.
It’s not more or less. Charging extra doesn’t mean more people get water, it just means DIFFERENT people get water, and you make a bunch more money on it. The overall math on how many live or die stays the same, the gouger is just making money picking and choosing.
“The gouger may make a buck screwing his neighbors”
I’d normally say there’s no such thing as gouging, but it is possible to screw customers, in a manner if speaking, if you knowingly take advantage of their hysteria over certain future events which you know to be a fantasy. Then it’s somewhat akin to a con game, though far short of criminal. After all, information is never equal throughout the marketplace, and we’re always trying to get one up on the other guy by better predicting the future in trade.
Getting back at the seller later for capitalizing on your ignorance is another form of hysteria. It’s not their fault you were wrong, and if like I said it was knowingly on their part that they “screwed” you it was really your fault for being stupid. We are responsible for our own stupidity.
Then again, in a free market sellers are responsible for their customers’ irrational grudges. No getting around it if they want to punish you for their stupidity, and I guess you gotta take the bad with the good.
As someone who buys in bulk when I can, I know that stores limit purchases on many items that are temporarily a good buy.
Our neighborhood store knows that we rich hoarders would clean out the shelf if we could, so they make limit rules to have the goods reach a larger number of their customers and get wider dispersal.
You apparently can't read and process when it comes to an issue that raises an emotional note... the article is quite clear. That generator... or medical kit, or box of food... won't magically save more people just because it retains a certain price. It is still just ONE item. It's price is irrelevant, and it will not save more lives simply because there is a lower price tag on it.
However, as the article states, higher prices WILL cause those who are buying the items to make some measured decisions, and leave more available for OTHERS. THIS is how MORE lives are saved... and NOT by just allowing those who are first to the store to grab all of the supplies.
(Although, I think what could be the wisest pricing system would be to have the price increase for every subsequent item purchased. The first gallon water jug is $1. The second is $2. The third is $4. That will make one pause before buying the 8th gallon jug for $128. That leaves many more jugs for the rest of the people that have not yet gotten to the store, but does allow a somewhat rationed purchase for the ones who got there first. Just my idea formed on the spur of the moment.)
Note: Removing the "gouging" laws also allows for the "greedy" folk OUTSIDE of the disaster zone to bring their supplies in! Just like the Kentucky man who brought those generators down to NOLA, as mentioned above. Without the very moderate 100% increase in price, he never would have done that. The price increase used the simple mechanics of capitalism to draw MORE life-saving goods to the area! But instead of listening and processing an important and interesting point, you read the word "gouging", form pre-conceived conclusions, and refuse to allocate a single brain cell to the actual point being made. Typical of a Lefty, to be honest. See the Global Warming debate sometime. That's you, here.
Which is great. I don’t have a problem with that, even right before a disaster. It’s the argument others are putting forth that jacking the price way up acts as a limiter that I’m pointing out as false. Folks who come in to buy all the water they can carry will so long as they can afford it, jacking up the price just changes who buys all the water they can carry from the people there first to the people there with fatter wallets, in the end there will still be a bunch of people who don’t get any. If an owner wants to spread their stock among more people the limit is the way to do it, they don’t take advantage of people in a bad situation AND they accomplish what the gouging defenders say gouging will do but it actually doesn’t.
“Charging extra doesn’t mean more people get water”
Yes, it does. Price has an effect on demand, and it discourages people from buying more than they need. Are you not aware of the rationing function of price? How long has it been since you cracked an economics book?
“it just means DIFFERENT people get water”
Not just, but yes, they are different. Namely, now the people who more highly value water will tend to get it. Also more people overall will get it, because below market prices ensure the market will not clear where supply meets demand, but rather demand will suffer and remain unfulfilled when supply runs out.
“the gouget is just making money picking and choosing”
But his does he make money? What is the mechanism whereby who he chooses bakes him more money under higher prices if more people aren’t buying? Or in other words, what color is the sky in your world?
“Charging extra doesn’t mean more people get water”
Yes, it does. Price has an effect on demand, and it discourages people from buying more than they need. Are you not aware of the rationing function of price? How long has it been since you cracked an economics book?
“it just means DIFFERENT people get water”
Not just, but yes, they are different. Namely, now the people who more highly value water will tend to get it. Also more people overall will get it, because below market prices ensure the market will not clear where supply meets demand, but rather demand will suffer and remain unfulfilled when supply runs out.
“the gouget is just making money picking and choosing”
But how does he make money? What is the mechanism whereby who he chooses makes him more money under higher prices if more people aren’t buying? Or in other words, what color is the sky in your world?
Here is a simple thought experiment. Assume no laws against price gouging. For the first time there is the delivery of ice by truck after a storm knocks out power to an area.
Assume a truck load of ice is 4000 blocks of ice. Normal price .60 with a profit of .50/blk or $2000.00
The storm hits in the heat of Summer. Power is out, people are badly in need of ice. Some entrepreneur gets an ice truck and delivers the 4000 blocks of ice into the affected area. People are desperate. He first tries to see at $30/blk, few takers. He finally settles on a price that moves the product. The price is $8.00/blk. His profit is nearly $32,000!
In a free society, the media reports unbiasedly. People grumble, but buy the needed ice. The media reports the fact of the $8 price and make an assumption of the profit. They say he likely profited nearly $40k. The guy is interviewed and strongly supports his position and the fact of the delivery of a vitally needed product.
The simple fact that his profits are reported widely is a good thing. Others see his "profit" and say to themselves, "we need to get in on the action."
The next storm hits and lo and behold, there are quite a number of trucks delivering ice. Because of competition, the price falls to $3.00/blk. Some guys decided it isn't worth it for the next storm. Assume the profits for all those delivering are $12k for this storm.
It is realized that the guys first on the scene sell the most. The media reports the activities and other enterprising people gleam an opportunity.
Still for the next storm even more suppliers want to sell product. The greed is a good thing. One smart guy knowing those first profit the most preposition his trucks right near the storm's edge. He moves in first and is able to charge $4/blk before dropping his price back to the common price of $3/blk when the competition arrives a few hours later. At $4/blk for half his product, his profits are higher.
Other sellers late to the scene sell their blocks are only $2/blk, but still make a good profit. Other sellers see this and take note.
The flip side is the suffering buyers. knowledge is power. Over time people gain knowledge of the process. They realize that if they really don't need the ice they can wait few hours and have confidence that enough ice would be delivered that they can get it at $2-3 per block. The would have great confidence that there would NOT be a shortage of ice.
In a true free society we wouldn't call the sellers greedy. We would realize they are providing a needed service. What would happen over time is some people would form companies that would deliver ice, water and other commodities.
In a truly free society, after natural disasters the peoples needs would be most efficiently met by people delivering products and services at the greatest profit possible.
What would reduce the high prices that most people associate with "greed" would be the brutal competition that would arise between those wanting to sell.
Instead, we have sadistic bureaucrats running around saying only government can truly help. All the while, people are stressed waiting in long lines for needed goods. Imagine the hard earned taxpayer money sucked up by the vast Federal bureaucracies such as FEMA, TSA: salaries, pensions, material cost, energy. That's the evil greed of the State. Government at all levels works to prevent the rise of companies that could solve the current problems associated with the aftermath of natural disasters.
The same thought experiment applied to ice can be made to all other things people need. Freedom is a wonderful thing! Sorry for the long post, maybe I should have made it my first vanity -- lol.
See my #19...
“hacking up the price just changes who buys all the water they can carry from the people there first to the people there with the fatter wallets”
That is unmitigated BS. I knew someone would dig up this stale, old argument. It doesn’t happen that way for the same reason rich people don’t outbid us the rest of the time: there are more of us. There’re only so many rich people, and they can buy only so much. With fatter wallets I’d imagine them having more options and less need to stock up, but anyway our only guard against ones who are ignoring common sense and setting their hearts on buying as much as pleases them is to raise the price. Whatever else is there to disuade them?
Higher prices impose thrift, even on fat wallets. Numbers outbid deep pockets, as you’d know if you’ve paid attention in times of extreme scarcity instead of to your wild theories about what happens.
It’s not about rich, it’s just about not poor. That’s the key to the gouge. If you jack up the price to $100 yeah the people have to be rich, and now even at that price you’ll be finding a way to not sell stuff. But if you only jack a $1 bottle $5 plenty of non-rich people can still buy all they can carry, you just happen to get 5 times as much money. There’s gonna be a small handful of people that can’t afford the new price, they’re screwed. So the same number of people don’t get water, only instead of it being only the slow that arrived too late you add some poor that got there early.
The only difference is your profit. That’s why it’s called price GOUGING, because you’re using the unusual market situation to maximize your profit while not actually doing anything that helps any more people that you were before.
The higher prices don’t impose thrift, they just keep some people out of the market. The people that can afford your new prices will still buy all they can carry. All that you do is swap early people who could have afforded your old prices with late people who can afford your new.
I thought the definition of this argument was that there was a true, life threatening shortage of everyday needs, like water in a 7-11, or ice at the Safeway to save food in the fridge, someone could definitely buy all of the product off the shelf, say ice for luxury and partying, under that condition.
Obviously there are quite a few stupid and helpless people in nyc area.
“part of setting the price for something very high...”
What is “very high”? There’s the market price, which no one ever really knows. Then there’s above and below the market, which out themselves through surpluses and shortages (ceteris paribus). While a price might be “very high” relative to yesterday, if supply and demand changed since then it might be just right.
“...is pricing some people out of the market.”
Good. Some people should be priced out. Ideally the supply should go to those who value it most highly.
“When you have a captive audience you always get to artificially inflate prices”
There’s nothing “artificial” about it. Like I said, they didn’t kidnap the customers. The customers aren’t legally mandated to buy from them. This is a “natural disaster,” and therefore the prices are naturally inflated.
Why is it that people have terms like “captive audience” or “monopoly” do their thinking for them? As if once you’ve established normal market operations are out of whack, bam! No economic laws apply whatsoever, and we can tell sellers to do whatever we want them to do. But even if one man controls the world’s supply of oxygen, for whatever reason, rules would still apply. He’d still want to make the most of it.
“The problem with that in a disaster area is the audience is captive because of the disaster”
So? I’ve got news fir you, customers are never in a store solely because the seller is so damnable inarguably good that he attracted them with hus efforts alone. Nevertheless, just because extraordinary conditions gave a boon to the seller outside of anything he did to deserve it aside from being in the path if the storm does not mean profit should be redistributed from him to tgr customers. And it certainly doesn’t mean the laws of supply and demand aren’t in effect in his store.
“The shelves are going to be empty one way or another”
Yeah, no one ever heard of distributing goods more or less efficiently. Gone is gone. “Rationing”? What’s that?
“The question is did you inflate prices to take advantage of the people that are trying to survive the disaster or not”
If you did, good for you. You did the community a kindness.
By the way, I love the “take advantage” part. Would you say they took advantage however they set prices before? No, that was when economics applied. Now is a free-for-all.
What you’re actually advocating is some customers taking advantage of the seller, whether or not you realize it. That’s what anti-gouging amounts to, aside from causing shortages and depriving needy people of what they want.
As for the rest if your “punishing people” nonsense, it reminds me of how Marx used to refer to “wage slavery.” Which is simply condemning things as they aren’t by redefining words. Okay, they were paid beyond subsistence level and could quit if they felt line it, but they’re “slaves.” The idea was that competition for work and employers’ desire to buy laborious as cheaply as possible depressed wages sufficiently to make it little different than slavery. Also, enclosure laws and the crushing mass of the proletariat made it impossible to light out for the territories, so you were stuck begging for pay.
In that situation it wad not so much the employers that were enslaving you, or even the economic system as a whole. It was the population explosion of the 19th century, the demographic revolution, and the lag time in capital formation to provide a better living.
Same with disaster zones: it is not the greed of sellers or the free market to blame for high prices, it’s the disaster. Granted, the seller will benefit from it without any particular personal virtue. But that’s his the market works. It does not reward on any basis other than fulfilling market needs. You can dream up all sorts of more morally righteous systems of allocating scarce resources but not ones more efficient.
Just because the seller is rewarded a.orally does not mean he us immoral. Pretending he’s punishing customers because he happens to benefit from the storm’s punishment is as wrongheaded as Marx’s “wage slavery.” But of course to understand that you have to understand the economic system as a whole. And if you dud that you couldn’t pretend the rules don’t apply in an emergency.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.