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.
“they KNOW the people will HAVE TO pay it”
Is that another way of saying it’s the market price?
“they see thus as an opportunity to dramatically increase their profit”
Yes, because demand has shot up and their supply is worth more than what it was before. And tgrh shouldn’t take advantage of this opportunity because...?
“This ISN’T about market price”
Then why are people willing to pay it? Is the “gouger” holding a gun to their heads? No, if anything the storm is.
“This is about seeing disaster victims as a source of dramatically increased income”
Why are they such a source? Because the market price has gone up, duh. You say you’re not being moralistic and that I brought up good and evil, but there really isn’t any alternate explanation for your condemnation of perfect fly normal market operations but that you hold to some system of morality which I do not. You certainly aren’t making an economic argument here.
“Monopolies are bad, whatever their form”
Wrong. Oh so much economic ignorance would disappear had not that term been so abused.
“some people think anarchy is great too”
The reason it isn’t is mostly because people would quickly fill the force vacuum with all manner of coercion. For instance, like laws condemning voluntary exchange at prices freely set and agreed to.
What a pant load. If the market could support $20gal gas then you'll have more people trying to bring it in and sell at that price. Who will take a risk at the much lower profit margin offered at pre-storm prices? Not a soul.
You folks against all forms of "price gouging" will be the first to decide that it's not fair that "preppers" have all that stuff when the SHTF and that it should be distributed equally.
yes they are perfect in utopia
“Monopolies are bad, whatever their form”
For instance in the form of arbitrarily setting the price of bottled water by legal fiat rather than by a position of advantage due to sudden adverse weather? It never ceases to amuse me that the great enemies of evil monopoly only ever offer as solution a different monopoly. It monopolies are bad, period, then monopolistic legal solutions to private monopoly are bad, too.
“yes they are perfect in utopia”
I have no idea what this is supposed to mean.
“Charging extra doesn’t mean more people get water”
A demand that generates profit will attract supply. If someone finds the potential gain sufficient, they will bring more water to the area. The resulting competition will further effect the unit cost.
The same goes for generators or fuel.
I live in a suburb of New Orleans. I stayed through Katrina and many other hurricanes. My post 34 has a nonbook-learning discussion how a free people could solve the problems we see after hurricanes. My discussion wasn't "book learnin" It's a realistic discussion of how freedom and a free people's response to crises can solve problems.
Believe me, I have nothing but contempt for professor type eggheads -lol.
Monopolies are bad, whatever their form.
Huh? Monopolies? I don't believe monopolies are part of the discussion. No monopoly can exist long-term in the marketplace without government providing assistance in keeping out the competition. Have a good day.
I saw repairs gouging in Houston.
I was there when Houston had a freakish freeze of 5 degrees, and it froze the non-insulated copper water pipes all over the city, plumbers made many millions gouging the customers, but the state made the companies refund millions.
I was a plumber and have never seen anything like it, it was straight out theft, the companies had to deal with rebelling plumbers.
So you’re proposing anarchy
There’s no supply to attract. That’s part of why they get to charge extra, there’s a natural disaster, they’re cut off, replacement supplies are NOT on the way. As soon as the supply lines are open again then the prices have to go back to normal because they’re no longer cut off.
No you won’t. Because they CAN’T get the supplies there. It’s a disaster area, they’re cut off.
Are you saying there is no bottled water in any of the adjacent states?
If there are reasonable opportunities to make money, entrepreneurs will fill the vacuum. When several show, competition will drive down the price. This is how free markets work, even in the aftermath of a natural disaster.
It has been this way since the dawn of civilization. On the other hand, Marxist central planning and government control stifles the free market.
Doesn’t matter if it’s in the adjacent states, it can’t get INTO the disaster area. Last I heard Red Cross and FEMA had yet to actually get to Staten Island, if they can’t get there then a water truck from Connecticut can’t get there either. And if a water truck from Connecticut can get there, then the supply flow is open and there’s no market for jacked up prices.
It’s a simple either or. If supplies can get in then demand isn’t outstripping supply and there’s no ability to gouge. If people will buy at gouge prices then demand is outstripping supply because supplies can’t get in.
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