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.
Letting merchants who happen to have gasoline and the power to run their pumps increase prices to "market price", will do nothing to solve the supply problems
But price affects demand. When prices are high, people tend to conserve. So supply meets demand and therefore there will always be a supply. And that is the most important thing in an emergency situation.
And don't anyone start on me with any "communism" BS.
As long as it was YOUR choice to sell your property at that rate, how could anyone rationaly impute "communism" into the equation?
On the other hand, if the government steps in, and dictates "thou shalt sell...", well, then that's a different kettle of fish.
But the people who who cannot afford (or who are outraged that the price is higher than usual) can bunk together. Each pay $50, close to the regular price and get what they desperately need.
Two motels are being investigated for charging $109 a night, when on nearby interstate billboards they advertised a $39.99 nightly rate. Over the one, or two week course of a disaster when demand for hotel rooms is extreme, the pure free-market model breaks down again.
But the supply of lodging is not a constant nor is the demand. If the prices are allowed to increase, people may rent spare bedrooms. And if prices rise, people who don't really need the room will move on.
Everyone has different needs. Someone who lost his car in the hurricane may have no other option. But a tourist who has an intact vehicle will be given an incentive to move out if the prices increase.
But a business can't exist without profits. If you go broke, how can you serve humanity?
Then you just work harder, make less money, and live on the street if you have to.
Remember, the main purpose of "business" is to provide "employment", and, secondarily, to "provide services (and products)" that government is not yet ready to provide.
The existence of private business is tolerated because it helps provide employment for situations where government is not able to meet the existing job needs, and likewise with services etc.
People who attempt to use private business as a vehicle for accumulating personal wealth are greedy bastards who deserve whatever happens to them, and it's necessary for a legion of governent regulators to ride roughshod over them to ensure that none of them are making "obscene" profits.
Welcome to Newmerica, by the way. :(
High prices were needed at the time to ensure the "right people" got the kerosene? You might want to rethink that elitist remark...
Even a Marxist knows that everyone has different needs. If you have a lot of expensive stuff that will be ruined if it freezes, you need kerosene more than someone else and you will be glad to pay the price.
Sure it does.
The guy who didn't charge the absolute top dollar "then and there", because he knew that he'd pay dearly for it later on, was indeed taking human nature into account, and maximizing his profit.
Maximizing long term profit is not anathema to property rights or capitalism.
By the same token, I rather suspect that his suppliers (commodities such as fuel, food, etc.) are charging him what the market will bear, and not being "mister nice guys" for his benefit.
Different strokes for different folks. Different markets take different marketting.
Local merchant doing local business on a long term basis, yeah, he's gonna have to market differently than a petroleum processor or a drug manufacturer.
But ultimately, the merchant that doesn't do what's in his own long-term best interest is not going to be around to have a "long-term" as a merchant, because someone else will come into his territory and cut him off at the knees.
Anyone who buys this will quit believing once they actually have to deal with price gouging and living disaster conditions.
Another way of looking at it would be that anyone who's actually had to "deal with price gouging and living disaster conditions" will make sure they don't get caught with their pants down the next time.
Don't want to pay more than market price for a generator when you need one? Then buy one when you don't "need it", when the prices are lower.
Although ironically, I heard some jerk raving on the news about "price gouging" on a generator -- the only problem was the price he quoted seemed to be if anything below market price for a generator of that size. I feel sorry for the poor bastard -- selling gensets at a discount-- who got harrassed for "gouging". I bet next time disaster strikes, you'll find him somewhere else, watching some other guy getting the "no good deed shall go unpunished" treatment.
Anyway, as long as we're a country populated with people who prefer to spend their money on beer and entertainment, instead of some cheap supplies that can save their lives (or at the very least, make their lives a LOT more livable when disaster strikes), we'll have to put up with loudmouthed statist jackbootiestoots ranting and raving about "gouging".
As for me, well, simple supplies are absurdly cheap, and absurdly easy to store until needed.
Unfortunately, the parable of the ant and the grasshopper has been largely replaced by the tale of the bureaucrat and the "greedy businessman". And we're ALL poorer for the substitution.
That's what's great about this country. You don't HAVE to associate with him.
Me, on the other hand... seeing as he's, as you put it, "a human being," he IS the type of person I'd like to associate with.
Once again, I am not arguing economics. I am pointing out the amorality in using capitalism to solve all of society's problems
Walter Williams is simply pointing out the amorality of using force of law to solve problems that could be solved by better means. By market solutions or by charity.
Charity, however, is limited by the wealth of the individual and is a very inefficient way of distributing scarce goods because the benefactor has no good way of accessing the needs of the recipient. The free market is much more efficient.
What about the family who had nothing left but $50? Is it compassionate that they should spend the night outside because market forces dictate a $100 per night rate to ensure the most even distribution of rooms?
In that case they would have to pay $50 for a room that normally would go for a lot less. But in a price-controlled market they would have to sleep in their car.
Having 1000 gallons of water available at $5 a gallon is better than having no gallons of water available at $1 a gallon. But apparently you'd rather have people dehydrate and die than some person who is motivated by evil 'profit' come in and fill their needs after the $1 a gallon water was sold out.
Bingo.
You're addressing the other side of the equation -- and without that side, there's NO equation, period!
When I hear that the price of gas is apt to get jacked up due to a crisis, I call my wife and say "Fill the tanks ASAP!"
Why?
To save money!
Should I NOT tip her off, because to do so means that we're costing the dealer money?
I mean, after all, is MY welfare more important than HIS welfare?
Well, yes, it is. To ME! :)
So, the astute buyer will purchase supplies at as LOW a price as he can manage, and, at as best a TIME as he can ascertain, to maximize his savings.
This is the inverse to the sellers' best interest. And between these two competing interests, we end up with "market value."
Merchants who pay better attention to the news than me, will raise their prices before I get to 'em. ;)
Customers who pay LESS attention to the news than me? They'll pay top dollar -- or, they'll do without, if there's a shortage, and I get there first.
I swear, sometimes I think there are people -- putatively "conservative" -- who live bitter little lives, gritting their teeth over the possibility of someone making a buck -- or saving a buck -- and nothing would make them happpier than to see Nixon raise from the grave and bring back his wage and price controls. Nothing, that is, unless the government decided to institute WWII style rationing books.
If that happened, they'd need to walk around wearing "24 hour" condoms to help keep their laundry expenses within reason.
Well I wouldn't be surprised if they do NEXT time around.
Hey, if sellers are getting skewered for "gouging" by selling generators for $700, why shouldn't they get a higher price anyway? If they're gonna take the hit for being "greedy", they may as well BE "greedy", n'est ce pas?
In for a penny, in for a pound, eh?
I'd like a second opinion on that.
emergency, and the increase in the amount charged is not attributable to additional costs incurred in connection with the rental or sale of the commodity or rental or lease of any dwe
I think that law would discourage a lot of people who otherwise would be willing to help. If you can be hauled into court to justify all your costs etc, then it really wouldn't be worth the risk.
Forgive me if I don't believe that.
Well, how about "[almost] nobody in Florida, having been through this before, knowing it'll happen again, has bothered to set aside even a modest supply of food, water, batteries, etc., because it would mean missing their fave TV shows, and it could cut into the 'beer-budget' for a couple of weeks?"
Forgive me if I DO believe that!
Hey, we're seeing it live on the news for the past few days, from the state that can't figure out how to vote if the ballot is complicated ("complicated" = "has two pages").
Frankly, given the above, they should be grateful that anyone would brave the BS wavefront to get down there long enough to sell them supplies at any price.
When someone selling ~4KW gensets for a mere $700 (most likely LESS than the normal price!) is derided on national teevee for "profiteering", well, if it was me, I'd pack up my gensets, head north, and advise 'em to "enjoy the dark" on my way out.
He also said he ran out of supplies in a couple of hours.
I wonder how many of his customers "set up shop" and "price-gouged" the stuff they hoarded from him during those two hours?
I wonder how much -- all in all -- MORE people might have saved, had he raised his prices enough to keep the hoarders away, and had the actual ultimate recipients buy direct from him? Yeah, they'd have paid higher than his normal price -- but, they'd at least GET something -- and, they'd pay LESS than they would if they purchased re-sold stuff from the hoarders.
Do you suppose that the price of oranges and orange juice will rise with the devastation of orange crops in the hurricane? If so, why? Is that immoral too?
Thanks for relating that story. Your action was commendable BUT completely voluntary. Did you limit the quantities that customers could buy?
If not, I hope that others were not harmed by shortages caused by the hoarding of supplies by those who bought more than necessary at artificially low prices. Perhaps when you sold at the pre-disaster prices, those buying them resold them at much higher prices. If the higher profits were earned by you instead, could you have been in a better position to restock and supply all of your customers?
I've been thinking of my parents, who have, generally, plenty of cash on hand. They are near retirement age and used to paying people to do things they don't wish to do, cannot do, or which are not "worth" doing themselves. In a disaster what might their needs be? Certainly, they might need labor for small repairs, or clearing downed trees. One person with enough resources to own a chainsaw could bring along those who only have strong backs.
The poster upthread with the store may also have a house and need someone to watch over his belongings while he sells his products. If he is running the store or watching over his house, maybe what he needs is someone with the time to travel across town to check on relatives?
The bottom line is that people with money are going to come through any situation better than those without. But in a disaster, with so many people needing so much, people without cash might not be completely out of luck.
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.