Posted on 08/17/2004 3:49:10 PM PDT by beaureguard
In the evening before Hurricane Charley hit central Florida, news anchors Bob Opsahl and Martie Salt of Orlando's Channel 9 complained that we "sure don't need" vendors to take advantage of the coming storm by raising their prices for urgently needed emergency supplies.
In the days since the hurricane hit, many other reporters and public officials have voiced similar sentiments. There are laws against raising prices during a natural disaster. It's called "price gouging." The state's attorney general has assured Floridians that he's going to crack down on such. There's even a hotline you can call if you notice a store charging a higher price for an urgently needed good than you paid before demand for the good suddenly went through the roof. The penalties are stiff: up to $25,000 per day for multiple violations.
But offering goods for sale is per se "taking advantage" of customers. Customers also "take advantage" of sellers. Both sides gain from the trade. In an unhampered market, the self-interest of vendors who supply urgently needed goods meshes beautifully with the self-interest of customers who urgently need these goods. In a market, we have price mechanisms to ensure that when there is any dramatic change in the supply of a good or the demand for a good, economic actors can respond accordingly, taking into account the new information and incentives. If that's rapacity, bring on the rapacity.
Prices are how scarce goods get allocated in markets in accordance with actual conditions. When demand increases, prices go up, all other things being equal. It's not immoral. If orange groves are frozen over (or devastated by Hurricane Charley), leading to fewer oranges going to market, the price of oranges on the market is going to go up as a result of the lower supply. And if demand for a good suddenly lapses or supply of that good suddenly expands, prices will go down. Should lower prices be illegal too?
In the same newscast, Salt and Opsahl reported that a local gas station had run out of gas and that the owner was hoping to receive more gas by midnight. Other central Florida stations have also run out of gas, especially in the days since the hurricane smacked our area. Power outages persist for many homes and businesses, and roads are blocked by trees, power lines, and chunks of roofs, so it is hard to obtain new supplies. Yet it's illegal for sellers of foodstuffs, water, ice and gas to respond to the shortages and difficulty of restocking by raising their prices.
If we expect customers to be able to get what they need in an emergency, when demand zooms vendors must be allowed and encouraged to increase their prices. Supplies are then more likely to be sustained, and the people who most urgently need a particular good will more likely be able to get it. That is especially important during an emergency. Price gouging saves lives.
What would happen if prices were allowed to go up in defiance of the government?
Well, let's consider ice. Before Charley hit, few in central Florida had stocked up on ice. It had looked like the storm was going to skirt our part of the state; on the day of landfall, however, it veered eastward, thwarting all the meteorological predictions. After Charley cut his swath through central Florida, hundreds of thousands of central Florida residents were unexpectedly deprived of electrical power and therefore of refrigeration. Hence the huge increase in demand for ice.
Let us postulate that a small Orlando drug store has ten bags of ice in stock that, prior to the storm, it had been selling for $4.39 a bag. Of this stock it could normally expect to sell one or two bags a day. In the wake of Hurricane Charley, however, ten local residents show up at the store over the course of a day to buy ice. Most want to buy more than one bag.
So what happens? If the price is kept at $4.39 a bag because the drugstore owner fears the wrath of State Attorney General Charlie Crist and the finger wagging of local news anchors, the first five people who want to buy ice might obtain the entire stock. The first person buys one bag, the second person buys four bags, the third buys two bags, the fourth buys two bags, and the fifth buys one bag. The last five people get no ice. Yet one or more of the last five applicants may need the ice more desperately than any of the first five.
But suppose the store owner is operating in an unhampered market. Realizing that many more people than usual will now demand ice, and also realizing that with supply lines temporarily severed it will be difficult or impossible to bring in new supplies of ice for at least several days, he resorts to the expedient of raising the price to, say, $15.39 a bag.
Now customers will act more economically with respect to the available supply. Now, the person who has $60 in his wallet, and who had been willing to pay $17 to buy four bags of ice, may be willing to pay for only one or two bags of ice (because he needs the balance of his ready cash for other immediate needs). Some of the persons seeking ice may decide that they have a large enough reserve of canned food in their homes that they don't need to worry about preserving the one pound of ground beef in their freezer. They may forgo the purchase of ice altogether, even if they can "afford" it in the sense that they have twenty-dollar bills in their wallets. Meanwhile, the stragglers who in the first scenario lacked any opportunity to purchase ice will now be able to.
Note that even if the drug store owner guesses wrong about what the price of his ice should be, under this scenario vendors throughout central Florida would all be competing to find the right price to meet demand and maximize their profits. Thus, if the tenth person who shows up at the drugstore desperately needs ice and barely misses his chance to buy ice at the drugstore in our example, he still has a much better chance to obtain ice down the street at some other place that has a small reserve of ice.
Indeed, under this second scenario—the market scenario—vendors are scrambling to make ice available and to advertise that availability by whatever means available to them given the lack of power. Vendors who would have stayed home until power were generally restored might now go to heroic lengths to keep their stores open and make their surviving stocks available to consumers.
The "problem" of "price gouging" will not be cured by imposing rationing along with price controls, either. Rationing of price-controlled ice would still maintain an artificially low price for ice, so the day after the storm hits there would still be no economic incentive for ice vendors to scramble to keep ice available given limited supplies that cannot be immediately replenished. And while it is true that rationing might prevent the person casually purchasing four bags of ice from obtaining all four of those bags (at least from one store with a particularly diligent clerk), the rationing would also prevent the person who desperately needs four bags of ice from getting it.
Nobody knows the local circumstances and needs of buyers and sellers better than individual buyers and sellers themselves. When allowed to respond to real demand and real supply, prices and profits communicate the information and incentives that people require to meet their needs economically given all the relevant circumstances. There is no substitute for the market. And we should not be surprised that command-and-control intervention in the market cannot duplicate what economic actors accomplish on their own if allowed to act in accordance with their own self-interest and knowledge of their own case.
But we know all this already. We know that people lined up for gas in very long lines during the 1970s because the whole country was being treated as if it had been hit by a hurricane that was never going to go away. We also know that as soon as the price controls on gas were lifted, the long lines disappeared, as if a switch had been thrown restoring power to the whole economy.
One item in very short supply among the finger-wagging newscasters and public officials here in central Florida is an understanding of elementary economics. Maybe FEMA can fly in a few crates of Henry Hazlitt's Economics in One Lesson and drop them on Bob and Martie and all the other newscasters and public officials. This could be followed up with a boatload of George Reisman's Capitalism: A Treatise on Economics, which offers a wonderfully cogent and extensive explanation of prices and the effects of interference with prices. Some vintage Mises and Hayek would also be nice. But at least the Hazlitt.
"Price gouging" is nothing more than charging what the market will bear. If that's immoral, then all market adjustment to changing circumstances is "immoral," and markets per se are immoral. But that is not the case. And I don't think a store owner who makes money by satisfying the urgent needs of his customers is immoral either. It is called making a living. And, in the wake of Hurricane Charley, surviving.
--- David M. Brown, a freelance writer and editor, is a resident of Orlando, Florida. dmb1000@juno.com. Comments can be posted on the blog.
It's different when you're sitting on ten cases of water at $1.09 a gallon Monday and the same ten cases are worth $10.09 a gallon on Tuesday and you did nothing, or paid nothing, extra to obtain it.
But if you had sold the water at an inflated price you would have the money to replenish your stocks by paying the premium to the guy in the pickup truck who hauled a load of water one hundred miles.
If you want to do the best you can to serve the public then the logical thing to do is to raise prices.
No. The reason for anti-gouging laws is to make sure people don't die in the aftermath of major disasters because they can't afford the newly jacked-up prices for necessities
Capitalism serves the same purpose and does a better job than anti-gouging laws. If your life depends on something you are much less likely to die for want of money than you are to die because of zero supply.
If your life depends on perishable medicine, you had better hope that the local drugstore had access to ice or electricity for refrigeration to protect their stocks.
Walter Williams, once again, proves that the motivating factor in his life is profit.
Move on folks, no humanity to be seen here.
But a business can't exist without profits. If you go broke, how can you serve humanity?
To not kick someone when they are down is not anti-capitalism, it is an act of compassion and charity. To intentionally screw someone because of hard luck is just being a greedy bastard.
But it isn't kicking someone to provide him with something he needs. Doctors take money from people who are "down" all the time.
But I think some allowance should be made for the fact that costs of sellers go up during such periods, too. It costs more to operate your business and raising prices to compensate for your increased costs is not price-gouging.
Exactly. The value of a thing is what it costs to replace it. You should sell your water, your ice or your generator for what it costs to replace it.
Profitting off your neighbor's suffering has a nasty way of coming back on you.
But is it truly profiting if a merchant knows that he will have to use the profits to pay for the extra costs for his next shipment?
Um, just how many people are doing that? Or would be if they were allowed to sell at exorbitant prices?
That depends on the reception he they get. If people throw rocks at them few people will do it again. But if people understand economics, then the market will work and prices will remain low.
And if the price is exorbitant, people won't buy.
The locals are going to remember exactly who shoved it to them when it was really tough,
Sorry, but the merchant I am going to respect is the one who was able to supply the community when things got rough. The man who sells out his stocks in five minutes and shuts down the store when he it is needed most is no good to me.
The business who will pay whatever it costs to replenish critical supplies is best serving the community. The people who don't understand this principle are the pinheads.
Fortunately, we have an historical example of just such a situation. The government stepped in to prevent just such an occurrence with "rationing" during WWII. It worked then to check both the greedy merchant and greedy consumer; and it will temporarily work just as well in a disaster area.
My tag line used to say "capitalism works well amongst a moral people." It is the finest system ever devised; but when corrupted by immoral fools, it will falter and result in socialism.
Don't believe me...look around you, it's already happening.
Pure capitalists at that extreme can never win popular support. Nobody is going to vote for people who really believe that. They will be too busy hunting them down, burning their houses and hanging them for their pure profit exploitation in time of natural disaster. Do you want insurrection? Go ahead and allow "pure capitalists" to charge anything they want to victims of a disaster.
This is allowed now in most states. It was allowed in Florida before they had the anti-gouging laws. But they didn't have insurrection. If you want insurrection, destroy the free market.
Home Depot just sent loads of stuff down to Florida for free.
Good for them.
But, the flip side of of anti-gouging laws are protectionist laws that prevent selling at below cost. Home Depot could be in violation of those laws. Let's hope not.
Well gee, now I find myself agreeing with you. ;)
I wonder what they'd do if the people with the stuff that people wanted to buy would either 1) flat out refuse to sell it, or 2) agree to sell it, but only sell it via a salesman known as "the local auctioneer"?
Are they gonna outlaw auctions?
That would be quite a line in the sand for a lot of people. It would easly push some folks (i.e., "me") into category #1, i.e., "sorry, it ain't for sale."
Now, that said, I've no sympathy for the SOBs who renegged on contracted prices, canceled reserved hotel rooms so that they could jack up the price and sell 'em again for more money, and stuff like that.
But for simple "I have it, you want it, let's see what the market will bear" scenarios, the ones who should be prosecuted are the ones harassing the sellers.
I heard something out the corner of my ear, it was some "irate indignant instant expert" railing against some greedy "profiteer" who was selling a small generator (about 4KW, give or take), for about $700.
Excuse me?
I paid a lot more than that for my 4KW Generac -- in NON-crisis situation (I walked into the store and bought one out of the huge stack of cartons -- on sale!)
Sounds to me like someone was selling generators at a bargain price, and some self-righteous IDIOT who didn't know kilowatts from shinola decided to start screeching about "profiteering", probably tossing the poor bastard into a world of hurt, and teaching him a lesson he'll never forget (as in, "no good deed shall go unpunished.")
Wanna bet the next time mother nature takes a crap on Florida, there'll be at least one less guy driving down there with a load of generators to sell at a discount?
Every time there's something that demonstrates the sheer stupidity of mass numbers of people (what, me, prepare? For disaster? But, that would cost me some of mah beer money!"), the "public sector" is there, ready, willing, and able to "punish" anyone who "profiteers" (i.e., braves the elements, gambles with his OWN money, and brings in supplies that the idiots COULD have purchased any time before the not-unexpected disaster hit).
The same BS happened when they had the big ice storm in upstate NY. They prosecuted people for selling generators, at what I recall being not unreasonable prices. That seems to be a favorite of the tinhorn demi-dictators. There must be something about small gensets that upsets the cockroaches in their heads or something.
IMO a guy would be wise to roll into town with his own licensed auctioneer in tow, ready to set up a by-the-books bona fide auction, and let the petty despots stew in their own swill.
In the case of a disaster that is not true because it deprives the most needy of supplies. The market makes the most equitable distribution of goods and the high prices brings in more of the needed goods faster.
You seem to be contradicting yourself. First, you seem to say that in a disaster, people should be required to sell for less than market price because otherwise they would "deprive the needy". But then, you say that high prices will create "the most equitable distribution of goods" because the high prices will bring in the needed goods faster.
Which is it?
For myself, I can tell you that MY answer is "neither of the above".
In other words, that old saying applies. "Your failure to prepare does not equate to an emergency on MY part."
Or to put it another way, YOUR "need" does not create a "right" to take MY property at YOUR price.
If I own something, let's say a generator, and you "need" a generator, does your "need" create a "right" to take my generator? Or to obligate me to "sell" it to you at a price other than one mutually agreeable to the BOTH of us?
If the answer is "yes", then I submit that one of us is living in the wrong country.
Please don't reply to me in the future. I do not enjoy talking to you. Undoubtably you looked at my posts to determine if I was a troll because I disagreed with you about something else. Be satisfied that I am not and leave it at that.
I think compassion should rule the day.
True. But when the law tries to rule compassion we are in trouble.
Besides, he couldn't possibly pay their price if they had charged him the "free market rate" for the risks they took on that trip in -40 cold with a blizzard approaching.
Charity and heroics are fine but but do you think you should be required by law to risk your life or your business to help others?
during the big blizzard during the early 1990s. When the power went out they jacked the kerosene price up to obscene levels. They went out of business shortly thereafter for no other reason than everyone in the area remembered their greed.
That's better than going out of business because all your customers froze to death.
I once bought a few (VERY few, sadly) gold coins, when the price was about $275 an ounce.
A little later, the same coins were worth about $400 each, "and I did nothing, or paid nothing, extra to obtain it."
Question for the moralists: should I have sold them for what I paid? Or for what I paid, "plus a few bucks, a 'fair price'"?
Or should I have sold them for the market price, even though it was "unfairly higher than what I'd paid for them"?
Here's another question.
You tell me a funny story, it makes me laugh, and I say, "Thanks, that was great, I really enjoyed laughing", and I hand you an ounce of gold.
The gold cost you nothing.
Later on, you decide to sell it.
Do you give it away for free (what it cost you)?
Do you sell it for ten bucks? (You're making an infinite profit!)
Do you (*gasp*) sell it for a hundred dollars?
That would be a HUNDRED times more than you'd paid for it, IF you'd bought it for a dollar! But, you got it for FREE, so you're an even worse "profiteer".
Or, do you sell it at the "market price" of about $400?
Next question:
You're selling it to ME!
First words out of my mouth, right after you ask if I want to buy an ounce gold coin from you are, "How much did you pay for it?"
Do you tell me "I got it for free"?
Do you make up some price, and lie to me?
Or, do you tell me it's none of my f'n business what YOU paid for YOUR coin, the only queston is to I want to buy it at the price YOU are asking for it?
Sometimes simple thinks seem complex, and sometimes things that seem complex are simple.
And if that's not bad enough, both of those conditions are the same!
In a free country, what you PAID for your property has no bearing on what you SELL it for.
Sure, sure, if you consistently sell things for less than you paid, you will quickly be out of business -- but, just as you cannot compel people to pay more than they are willing to pay "because I NEED to make this much money so I can pay MY bills!", you should likewise NOT be compelled to sell for LESS than the market is willing to pay, simply because some nosey marxist determined that your "cost" is too low to "justify" the market price.
It is very easy to slip into socialism, and nearly impossible to slip out of it. So if there's any lesson at all in all this insanity, it's to watch our steps, and do whatever we can to avoid slipping into marxism.
For me, that would mean that if I'm told I cannot charge what the market will bear, I will simply refuse to sell, period. Or, I will hire an auctioneer, and let him determine the market value.
Sure they are. Profiteering by taking advantage people in desperate situations...jacking up prices to make obscene profits off people who have basically lost everything, is really a great example of "doing good to the community".
But it isn't really profiteering if you use the profits for emergency shipments of new supplies.
I'm presuming that in this little exercise, you would be a person engaged in a going concern, and not a charity or philanthropist or government agency.
When you rolled into town, and five merchants showed up at the back of your truck, all crying "Me! Me!", would you charge a price commensurate with the risk and effort you put into it, assuming the market would bear that price? Or would you become a defacto charity?
I've been to lots of auctions, and even though I knew the auctioneers, and the sellers were often local people like yourself, no one ever cut me a deal. I either offered the highest bid for an item, or else I didn't get that item.
Should I have gotten upset, offended that the seller, a guy I knew, insisted on making me pay the highest price of all, or else go home emptyhanded?
These are serious questions.
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