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.
And did not the Lord say that these fasts were to "release the captive" and "deal your bread to the hungry"? Cursed communist, private property hater He! (/sarcasm, in case anyone misses it)
(I know you're not dissing God) ;)
Seriously though, what you propose is that therefore all private ownership is sin, since we should give whatever we have to the neediest.
I don't think He wants that.
Further, if it is true, as I believe it is, that price gouging saves lives, then my way is doing the greatest good, and ensuring the widest dispersement of property to those in need, and ensuring against hoarding.
When God says deal your bread to the hungry, that means if a government could do that faithfully it should. Soviet Communism, to address one of your straw men like it deserves, didn't. It dealt its bread to the elite.
I don't believe that is true for a minute. If government could set up a "successful socialism" it still shouldn't because it would be based on the sin of theft.
PS I have to run, but it was enjoyable speaking to you.
I disagree, but I don't hold it against you. ;)
Peace.
When it is purported to supersede any and all other orders from God, this which would otherwise become a virtue becomes sin.
And in the case of gouging the "ownership" is a particularly poor example. The vendor is not being told to take a loss, the vendor is being told to be as humane as circumstances allow.
You have begged the question. If called for by God it cannot by definition be theft.
First you have nothing more than a "belief" -- no proof, no cloud of witnesses, no bible -- and secondly what happens when the gougee is forced to spend all the money he has on vital commodity A so cannot buy equally vital commodity B at all?
The wise ones and many you call "foolish" will understand $1 water becoming $1.50 and the new water rising to whatever it cost to get it, but they will not tolerate 1000% gouging.
And the more ad-hoc merchants delivering goods and competing with each other, the lower the price. That is why it is so important that there be absolutely no threats or intimidation from the law or angry mobs.
But if relief agencies can't respond and the free market is suspended, then water will be sold at $10 a bottle -- by criminals with guns.
What the wise neighbors gain by driving out the gougers cannot be measured by dollars and cents.
What will they gain? Not emergency supplies. Not a merchant willing to pay extra to maintain stocks. How wise is that?
what happens when the gougee is forced to spend all the money he has on vital commodity A so cannot buy equally vital commodity B at all?
Then he becomes dependent on charity. But the alternative is that everyone is deprived of vital commodities.
Maybe the problem here is the belief that there is a fixed supply of goods that must be distributed equitably. That is not the case -- even during an emergency supplies will appear if the price rises sufficiently.
If the price of plywood rises high enough, people will tear apart their storage sheds and sell the wood. If the price of water rises high enough people will drain their hot water tanks.
And did not the Lord say that these fasts were to "release the captive" and "deal your bread to the hungry"?
The only way you can insure that your bread goes to hungriest is to sell to those who are willing to pay the most.
You claim to be old but you are a grasping baby at heart.
Another point about this "greedy" or "grasping" issue is that a business that makes a large profit by selling at the onset of a disaster is not, over the long run, really making extra profit at all. If he uses the profit to pay extra for scarce supplies, when the crisis is over and prices return to normal, he will be selling for less than his cost. So it all evens out.
Suppose that somebody sees my storage shed and asks for the wood; I have no particular desire to rip it apart and tell him so, but offer that for $8,000 I'd be willing to do so. If the guy hands me eighty $100 bills and I accept them, would I be guilty of 'price gouging' for asking $5,000 for a storage shed that was only worth $1,200?
If the guy hands me eighty $100 bills and I accept them, would I be guilty of 'price gouging' for asking $5,000 for a storage shed that was only worth $1,200?
If you live in Florida, you would have to ask an lawyer to find out. And I bet five different lawyers would give you five different answers.
Point is, if there are legal hazards, people probably won't take the risk.
Sigh.
How do we all rise above the level and the shackles of "enlightened selfishness" being so bewitchingly preached here by some, though not under those precise words comprising the name.
I guess a start, is not to argue on its terms any more.
Well, either you factor charity into your picture, or you don't. You can't just call it out of the wings when you need it to save yourself from a charge of "oh my gouged prices DID kill some people" and deny it otherwise.
You know the price of everything and the value of nothing. You pilot your world only on the rudder of "enlightened selfisness". In truth, the merchants who found themselves loved for their humane practices, will start becoming the lookouts for the community in the future. They will watch for far advance signs of possible disasters and bring in more items well before they are needed. Then when they can sell $30,000 rather than $3,000 worth of vital commodity a day, not because they priced gougingly but because they had enough to sell at normal prices, they will. They'll sing all the way to the bank AND everyone will love them.
I'm sure you can find some "carnal wisdom" to contradict this, but frankly I don't care.
I'm sure you can find some "carnal wisdom" to contradict this, but frankly I don't care.
I am taking the quotes out. That's carnal wisdom, with no quotes.
Yes, it does. There is always a higher demand for smart, reasonable and compassionate suppliers.
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