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.
I go out of my way to listen to Williams when he subs for Rush. I must be brilliant. ;-)
And not only that, but the "criteria" (if I can even use the term) used to determine "gouging" are completely subjective, and pave the way for grandstanding by some AH prosecutor looking to ease his way into reelection.
How do you define "unconscionable prices", or decide if the new price "grossly exceeds" the old price?
It's totally subjective, with no recourse other than to -- once you're hauled into court -- show some receipts, and hope that you're not the Designated Bogeyman of the day, because if you are, you're screwed.
Why?
Because after you finish showing your receipts, and pleading your case, the court then says, "Well, Mr. Outsider, you sing a good song, but when all's said an' done, it does appear to the court that your price was 'unconscionable'. Oh, and another thing -- my cousin Lester was charging five percent less -- last month. Tsk tsk tsk, you leave me no choice but to find that your price 'grossly exceeds' my cousin Lester's... um, I mean, the 'readily obtainable' price in th' last 30 days."
"This good court does find you screwed, Mr. Outsider. That'll be all yew got, and a bit more. Y'all come back now, y'heah?"
Having suffered under Rent Control for years.....I've also witnessed the increase in housing that it's abolition created.
This article has nothing to do with long term profits. It's about taking advantage of a desperate situation just to make more money.
I should have wrote: Walter Williams, once again, proves that the single motivating factor in his life is profit
This article is not about long term profit. It's about taking advantage of a desperate situation and gouging.
Capitalism in its purest form, like socialism in its purest form, do not take into account human nature.
I am talking about the theory and those who want to see it practiced as gospel. It's simply about numbers and does not include human nature in any of its calculations.
I think that you, and others that hold your view, are missing the point.
The wrath of consumers will be a factor in setting prices. If customers punish a retailer for bad behavior that will reinforce the beauty of free will and free markets. Government fiats do no such thing.
Stores should still be free to sell to buyers willing to pay at prices they both agree to.
Don't be silly.
Their "discretionary income" goes to items like 100 dollar sneakers, current-style clothes, beer, and so forth, because, being poor, it is very important for them to maintain their self-esteem. They have SO little, and you would deprive them of even feeing good about themselves?
You greedy bastard you!
As to the rest of it -- food, rent, fuel, transportation, and crap like that -- yeah, the gov't can pay for that. That's what it's there for. You've heard of the "safety net", haven't you? Of course you have. It's an "entitlement", in case you didn't know. So quitcherbitchin. It's free money anyway, it comes from the government.
You shouldn't complain anyway, being rich, like you are. You probably make over TWENTY thousand bucks a year, so shut up and pay your fair share. The disadvantaged are depending on greedy bastards like you. You CHOSE to be rich, so you gotta pay your dues. You understand? It's what America is all about. If you don't like it, then... well, it's best you DO understand it, you understand? You don't want to get into that "no justice, no peace" stuff, do you?
OK, now about "gouging" -- it's just not FAIR to make the poor people go paying for stuff they should be getting "on programs", just because some idiot screwed up and now the programs can't get their stuff taken care of right away when they need it. So here's how it works, OK? You "gouge" the poor (that means you take their money, you rich bastard), and you go to jail. Or something.
Welcome to Newmerica. Sucks, don't it.
My, but I feel cynical when I need sleep...
If you think Doctors are bad, you should take a look at what farmers are doing. Those greedy bastards are blackmailing the whole damn country. If we don't knuckle under and hand over our money to them, they'll make us starve to death!
What cruel, cold, heartless bastards!
Fortunately, our real friends -- places like Mexico and China -- are teaching those bastards a lesson they won't soon forget.
When the last farmer has been put on the street, then we'll see how much money they force from us! Yeah, that's the ticket!
It's evil scum like them that led up to the French Revolution, you know.
You'd think by now SOMEONE would have learned something from history, but nope, it ain't gonna happen, is it.
Since you have climbed up on your high sarcastic horse, answer me this.
You are talking about the government 'doing something,' aren't you? Where is the Constitutional authority for the US government to intervene? You may think that it is a good idea to do so, but why do I have to pay for your good ideas? Why does my son in the military for the defense of the USA and it's citizens have to risk his life for people in a foreign country because they can't live peacable amongst themselves?
If you think that rescuing the people in the Sudan is a noble goal, can you post your cancelled checks that show that you donated to the Sudanese relief effort? When do you leave the safety of the USA to pick up arms and defend the Sudan? Have you organized a mercenary force yet?
Well, sure, if he's greedy and all that.
Don "watching his country go down the drain" Joe
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.
Oh, you might be surprised.
There seem to be a proliferation of pinheads like nobody's business.
Some time ago, I encountered some folks who lived in a small town (a very small town) a few miles away from the "medium-small" college town where I lived.
They explained to me how proud they were about driving out any new business that came to town. Some guy would come to town, set up shop, "invest in the community", and the locals would intentionally avoid the guy like the plague, just to make sure he went belly-up.
Why?
Because he was an "outsider".
I am not making this up.
You can't make crap like this up.
Needless to say, that town did not -- and does not -- prosper. But, they're damn proud of their track record of keeping "outsiders" from setting up shop in their town.
Yes, they really would rather "do without" than tolerate some "outsider" setting up shop in their l'il town.
If you want to succeed in running a business in that town, rule one is that you gotta be from that town.
No, merely moving there, buying a house, opening a store, and patronizing the other businesses won't cut it. You're an outsider, because you weren't born there. So who are YOU to come to their town and think that YOU'RE gonna (*gasp*) make money in their town?
Now, it's obvious to anyone with the proverbial two synapses that it couldn't possibly have been that way forever, for the simple reason that if it was, they never would have had a town in the first place.
But, the decades of state-sponsored agitprop has taken its toll on rural America. The results are obvious: mass numbers of "po whaht trayush" on "the welfare", a visceral contempt for business -- expressed -- sublimated, if you will -- as a hatred of "outsiders" (not much worry of "insiders" starting a business, since they're for the most part either stupid -- and on welfare -- or, clued, and outta there as soon as they reach the age of majority).
I'm sorry, but I just don't see too much of a happy adventure for this country in the near future. Beyond that, I think it looks kinda bleak.
LMAO!!
Whatever.
Say something nice to a troll, and see whatchat get in return?
To everyone else -- as of this point, my post, to which this troll is objecting, is an "at large post", offered to the community as a whole, and Mr. Huffy is hereby prohibited from even thinking about it, let alone reading it (and certainly prohibited from mentioning it!)
Man, some days a writer's work is just laid in his lap, ready for folding, stapling, and casting upon the water...
Your point is admirably made. Nevertheless, the backlash you are forced to consider is the direct result of profound economic ignorance and bigotry on the part of consumers.
I do not think boycotting hotels that allow blacks to swim in their pool is an inappropriate analogue.
Well, that's your take on it, and you're entitled to your opinion.
And in my opinion, you're wrong.
"When someone selling ~4KW gensets for a mere $700 (most likely LESS than the normal price!) is derided on national teevee for "profiteering","
5.2kw generators are $619 at Home Depot, and obviously enough margin is there to make it worth their while, sincethey brought six truckloads to my area in the last few days.
"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."
Nothing is preventing businesses from paying whatever price necessary to bring in critical supplies, and state law specifically allows them to raise prices, during disaster conditions, if the cost of acquiring goods is greater.
Yes, I would have. It would be my decision and my risk.
Can I afford to buy it at his price? Can I move it after I've bought it?
These would be the two major determining factors.
We paid close to a grand for our Generac 4KW (OHV engine, oil pump, electronic regulation); an in-law paid about $600 for a 5KW, I think Homelite?, B&S pushrod engine, splash-oiler, conventional regulation, both were purchased in the same timeframe.
I also got a used Onan 4KW -- 2 cyl, 1800 RPM, propane carb, electric start -- for under $500 at a federal auction (sealed bid -- got two, and missed out on a big one, about 1500 KW, 4cyl diesel, someone else got it for about $775, I bid about $750. Still kicking myself...)
I have lousy health, bad heart, live in a hot, muggy region, if I don't have some AC on a bad day, I'm dog meat. Plus, we have a well pump, so without electicity, we have no water. We paid an electrician about... hmm... $150 or so? ... to install about another $100 worth of transfer switches (two of 'em, thank you ebay), and we turn the gensets on and off during outages, to keep the freezer going, have the pressure tank filled by the well, and so forth.
All in all, it's an "on the cheap" solution -- and if I had deep pockets, I'd have one of those nice big "whole house" units that look like a central AC on steroids and an automatic start/transfer switch, but I don't, so I didn't.
I could get by on on one sub-$500 buck used Onan. Having the "portable" Generac is a nice luxury, because we can also lug it around the farm when we need power somewhere for tools and whatnot -- but, the point is, it's possible to prepare for outages without spending yourself into a hole, but it does help to not wait until you're falling down the hole. (And the other point of course is that I don't think the guy on the news was gouging. If he'd been selling them for two grand, then yeah, the case could be made that he was a bit pricier than "normal times", but at $700 bucks, for something in that capacity range, I'll accept it as being a reasonable price.)
That would make sense if the situation lasted longer. The window for us was 48-72 hours. During that time Nothing was coming in or out.
Then the Ntl Guard came in (on the 5th day) and started giving away water, ice, baby food, hot showers, etc. Pity any merchant what was sitting on big inventory of those items after that.
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.