Gouging and Desert

Cap'n Arbyte believes that even people who understand the economic arguments against anti-gouging laws will not be swayed, because ability to pay does not equate to need.

Most laypeople think ill of price gouging, as evidenced by the popularity of politicians who rail against it. Simple ignorance of economics may explain a great part of this, but what's particularly interesting is the large class of people who are confronted by the economic arguments yet remain unpersuaded by them. My point is this: they don't believe the economic arguments are wrong, they believe they're irrelevant. And that's why no amount of economic instruction will win them over.

After a disaster, there is severe hardship. Homes have been destroyed, daily routines disrupted, and loss of life. There has been widespread and expensive property loss, and due to "price gouging" they'll have to pay even more to get their lives back to normal. In plain language, it doesn't feel right that things that are so important to so many people are so expensive. When something doesn't feel right, people look for a reason — and they identify the proximate cause, the merchants and laborers who have raised their prices. "They're profiting from my hardship! How dare they!"

The physical reality of disaster recovery is that things have been destroyed and it takes time and resources to recover. It is physically impossible to satisfy everyone's wants immediately after a disaster. That option isn't on the table. There aren't enough resources to go around. The market impact is that the things that are "so important to so many people" are expensive precisely because they're so important to so many people.

I used a phrase earlier when describing market allocation: "goods are available to whoever is willing and able to pay." This is what upsets people. Ability to pay has no relationship with need. The rich are able to outbid the poor. A poor person must spend a huge part of their income or savings (or go into debt) in order to compete with the rich. Or, they must wait until prices come back down.

This seems ethically wrong to most people because they link need with desert. This is standard altruism. Need is the source of desert. A person's need creates an ethical obligation to help them.

But whether a person is rich or poor doesn't affect their needs. People are usually considered equal, so that if a fixed amount of resources could repair one rich person's home or the homes of two poor people, it is the poor people who should get the resources. For allocating based on dollars instead of people, the market fails, by this understanding of ethics.

Don Boudreaux gives one response to this argument by stating that in practice, rationing by prices is more fair than any alternative method.

Here’s what I would like to have said, had I the eloquence and the time; my concluding line would have been “market prices are the great equalizer.”

I would have reached this conclusion by pointing out that any alternative to freely adjusting prices involves some non-price method of rationing. Any practical, realistic method apart from rationing by price hikes will involve arbitrariness at least as great (I think greater) than whatever arbitrariness there is in income distribution.

One alternative method of rationing is queuing. But surely first-come, first-served is quite arbitrary. Perhaps the father with starving children will get to the front of the line, but who’s to say that the drug dealer won’t beat him to the front of the queue? Indeed, the father with starving children likely has lots of important tasks to carry out at home in the immediate aftermath of a natural disaster. These tasks might well keep him at home too long to get a favorable spot in the queue, or, if he does get a favorable spot, he’ll waste lots of time queuing rather than being at home with his family during an especially dire time of need.

An even more likely alternative to rationing by price is rationing by personal connections – family ties or political ties. The poor family with starving children is unlikely to have as many personal and political connections as are wealthier people in town. The outcome of rationing by connections will almost certainly be biased in favor of wealthier, more-prominent citizens.

One great advantage of rationing by market prices is that they reduce to a minimum the role of arbitrariness. Price are, in other words, a great equalizer. Anyone who is willing to pay the market price for a good or service is just as likely to get that good or service as is the seller’s mother, neighbor, or bowling buddy.

Both the Cap'n's protest and Boudreaux's response focus on the distribution of already existing supplies of scarce goods. However, I think they both overlook the most powerful argument against anti-gouging laws - that they fail to provide greater incentive for suppliers to provide additional supplies from locations not affected by the emergency. If the concern is for poor people during the emergency, the difference between having anti-gouging laws in place and not having them in place might just mean the choice between being able to buy a scarce good at a higher than normal price and having nothing to buy at all. Whereas market pricing might hypothetically yield a bottle of water for $10 during a hurricane, anti-gouging laws might yield no water at all if it is not profitable for suppliers to bring in water from outlying regions.

Most people I know who call themselves egalitarians are not willing to go that far to achieve equality.

Share this

I did discuss the incentive

I did discuss the incentive to truck in supplies. :cry2: But it was brief.

P.S. the commenting software doesn't like the apostrophe in "Cap'n". :bigcry:

One thing that's been

One thing that's been missed: pricing and sales are not some ebay-like automated bidding system in most cases. It's possible and reasonable for the vendor to use personal compassion to smooth out the seeming arbitraryness of pure price-based rationing, by eg: gouging the hell out of people they know to be rich, while charging less (or giving credit) to those they know to be poor but needy.

This kind of "discriminatory pricing" is another thing that's banned (or at least, a legal minefield) right now, but would be available in a freer society.

BTW: the reasons

BTW: the reasons discriminatory pricing is usually daft (loss of custom and loss of profit as favoured people seek you out while disfavoured people bypass you) don't apply in a crisis situation. Everyone has to deal with you because you're all there is. Rich people have to put up with you asking $100 per gallon for gas. So for the vendor it's both compassionate and selfish. For the buyer, it encourages those with the most resources to turn them towards fixing the crisis ;-)

Jonathan, While I believe I

Jonathan,
While I believe I now understand the economic reasoning for price 'gouging' and the 'anti-gouging' laws that seem to exist for no other reason than it [gouging] doesn't 'feel right' -- I am now even more perplexed by our government's structure.

Sometimes if it doesn't feel good, don't do it, and sometimes if it feels good don't do it[i.e. drugs] -- there seems little rhyme or reason to the laws that are tossed into the pot.

Diana

Price discrimination isn't

Price discrimination isn't usually "daft" and there are a number of examples that we see everyday in non-emergency situations: movie tickets, airline tickets, coupons, etc. It can easily be shown that price discrimintion can yield higher profits if those who are price insensitive (i.e. those who are willing to pay more) are charged more relative to those who have a lower willingness to pay, i.e. those who are price sensitive.

"Most people I know who call

"Most people I know who call themselves egalitarians are not willing to go that far to achieve equality."

And how is your argument doing with them? How have your arguments changed their behavior?

And how is your argument

And how is your argument doing with them? How have your arguments changed their behavior?

The argument for markets is doing better with egalitarians than it has pretty much for the entire last century. It's certainly doing better with those who don't value individual liberty as much as I do than appeals to the NAP.

Cap'n, You're right, you did

Cap'n,
You're right, you did discuss it, but in the end, I thought you included it among the rest of the economic arguments that wouldn't hold sway over people who equate need with desert.

Diana, While I believe I now

Diana,

While I believe I now understand the economic reasoning for price â??gougingâ?? and the â??anti-gougingâ?? laws that seem to exist for no other reason than it [gouging] doesnâ??t â??feel rightâ?? â?? I am now even more perplexed by our governmentâ??s structure.

Don't take anyone's word for it. Prove to yourself why you believe it, and if you don't, keep challenging those of us who hold the opposite view.

Sometimes if it doesnâ??t feel good, donâ??t do it, and sometimes if it feels good donâ??t do it[i.e. drugs] â?? there seems little rhyme or reason to the laws that are tossed into the pot.

There is little rhyme of reason to democratic government for a few reasons. First, the government is not a single entity with its own singular goals. A king might have a particular rhyme or reason, but millions of voters and special interest groups won't. It's not surprising that laws conflict. Selling things at high prices is called gouging. Selling things at low prices is called predatory pricing. Giving away things for free is called taking advantage of the dominant industry position.

Second, as Patri pointed out, because voting does not have any substantial costs associated with it, people often vote for dumb things that 'feel good' but fail to see the true consequences. People have direct consequences from buying things in the market. If I don't research a particular brand of car, I will be the one who suffers the consequences of spending my own money on a clunker. But I will also reap the benefit of making a wise choice. It pays to know about cars because the buyer is directly affected by his purchase.

Instead, voting has little direct effect on people. Your single vote won't count, no matter what state you live in, no matter how often you vote. You don't pay the consequences of voting for bad policy or reap the benefits of voting for good policy. Thus, people usually don't think about the consequences of their votes very deeply.

As a result, people know much more about cars than about policy.

Third, politics is simply an auction to the highest bidder. It's a battle for various special-interest groups (the Drug War lobby, the AARP, the NEA, corporate welfare, etc) to pay the politicians that will best benefit them at the expense of the rest of us. It's no wonder that the laws are often contradictory.

"The argument for markets is

"The argument for markets is doing better with egalitarians than it has pretty much for the entire last century."

Then why are both presidential candidates socialists?

Democratic inertia and

Democratic inertia and filtering. Socialists rise to the top of the democratic system from the general population. Politics always lags ideas.

However, at least these guys pretend they are not socialists and go out of their way to deny the fact that they are socialists. And that's an improvement, albeit a small one, over guys like FDR and LBJ.

Aren't the three points you

Aren't the three points you just cited to Diana all reasons why economic arguments won't work?

No, it just means that we

No, it just means that we have an uphill battle. The battle of free-market ideas is one that libertarians have been winning, albeit slowly, for the last 50 years. The battle for the positive-sum worldview is one that libertarians have been slowly winning over the last 300 years since Hobbes.

"Democratic inertia and

"Democratic inertia and filtering. Socialists rise to the top of the democratic system from the general population. Politics always lags ideas.

However, at least these guys pretend they are not socialists and go out of their way to deny the fact that they are socialists. And thatâ??s an improvement, albeit a small one, over guys like FDR and LBJ. "

How is it an improvement when both of these guys is promising more socialism than LBJ and one of them is widely characterized as a conservative?

" The battle of free-market

" The battle of free-market ideas is one that libertarians have been winning, albeit slowly, for the last 50 years."

Imagine my relief, because I was under the impression that state regulation and power was increasing over that last 50 years.

How is it an improvement

How is it an improvement when both of these guys is promising more socialism than LBJ and one of them is widely characterized as a conservative?

Neither is promising a Great Society to cure all ills. Neither is promising to "rebuild the entire urban United States." Neither is declaring a War on Poverty. Neither is proposing a program as dangerous as Medicare or Medicaid. Neither wants to create a new department with the stature of the HUD. Neither is proposing OEO, Vista, or Head Start. Bush pretended to be a small govt advocate in 2000. Clinton declared the era of big govt over. The 1994 Republican win was built on the revolt against Hillary Clinton's socialized medicine proposal. Reagan spoke the rhetoric not heard since the Founders, and he actually slowed down socialism a bit.

That is not to say that these guys are not socialists, but they have to strain and make effort to cover that fact up.

Covert socialism is a marginal improvement over overt socialism because it means that the prevalent ideas have changed marginally.

â?? The battle of

â?? The battle of free-market ideas is one that libertarians have been winning, albeit slowly, for the last 50 years.â??

Imagine my relief, because I was under the impression that state regulation and power was increasing over that last 50 years.

It has, overall. Where did I deny it?

"It has, overall. Where did

"It has, overall. Where did I deny it?"

You said libertarianism was winning the battle of ideas over those 50 years. With winners like that, what state needs losers?

You said libertarianism was

You said libertarianism was winning the battle of ideas over those 50 years. With winners like that, what state needs losers?

Yes, it is winning the battle of ideas, albeit slowly. I never denied that state power had overall increased during those same years.

Food is a need- yet its

Food is a need- yet its provided at almost every corner. Why don't we need anti-gouging laws for food?

Shelter is a need- yet there is a massive housing price bubble. Why don't we need anti-gouging laws for housing?

because we're filled with

because we're filled with love Brian...thats all you need to know...:roll:

Jonathan, I said I

Jonathan,

I said I understood the reasoning behind 'gouging' -- it doesn't mean I won't be hard pressed to convince myself it's somehow for the greater good should another power outage take place, and I find myself beaten to the grocery store that's running on a back-up generator by the scurrilous bastards who will charge me 6 bucks a jug for water.

I have truly been frustrated with the voting practices, particularly in my region. I think you know my opinion of public schools by now, well the local schools wanted the voters to agree to tax business owners in the area additional taxes to 'keep the school running.' This is the school district with the superintendant that earns 275k a year, and embezzeled money from the district, as did members of the school board. Everyone I spoke to voted for this tax, as the school threatened to raise personal property taxes if it wasn't approved. I don't recall now which month that vote was, but it was the first time I didn't go to the polling station for a vote probably ever.

Sorry, kind of ranting as none of that pertains to gouging at all. Rant off. :)

You write that the rich are

You write that the rich are able to outbid the poor. That's true but it overlooks that the richest are able to outbid the less rich as well.

The richest rich man can just as easily outbid the second richest man. So let's be clear that in opposing anti-gouging laws, or better still, anti-"gouging" laws, one is not so much a champion of the "poor", but instead merely offering up an alternative way to triage an immediate, cataclysmic, traumatic, aberration of a previously existing well balanced market on a very temporary basis until the stasis of the local market can be restored.

Now to your discussion of "need" and the altruism involved in asserting that "need" trumps the ability to pay.

You say that in standard altruism the person's need creates an obligation to help them.

I agree with this basically with certain arcane reservations we can save for another time.

But you have seriously mis-defined "need".

Desert is not a need.

Re-varnishing a shingle is not a need.

A new carpet isn't a "need".

So gouge away if you must, in matters of pleasure, vanity, or esthetics.

FOOD.....IS A NEED.

SHELTER IS A NEED.

So with respect to REAL NEEDS I affirm an "altruist" bias in favor of providing them to suffering people who would otherwise perish.

However, I make the distinction between a real NEED and a mere DESIRE.

I don't think you made such a distinction between legitimate dire exigencies and more routine matters.

Cast in the light of a true necessity for life, a three day period where the laws of supply and demand are abated in favor of keeping innocents alive while the routine market balance is restored is not to my mind a material intrusion on anyone's freedom or a serious impediment to the resumption of adequate supplies.

Concurring with Jonathan

Concurring with Jonathan Wilde: leftism "won the battle of ideas" in the 19th century back when things were as solidly capitalist as they've ever gotten, and yet even now a hundred years later we're still hearing the socialist echoes. Political impact lags ideas but definately follows them.

I said I understood the

I said I understood the reasoning behind â??gougingâ?? â?? it doesnâ??t mean I wonâ??t be hard pressed to convince myself itâ??s somehow for the greater good should another power outage take place, and I find myself beaten to the grocery store thatâ??s running on a back-up generator by the scurrilous bastards who will charge me 6 bucks a jug for water.

If I was in that position, I would not convince myself that it's for the "greater good" for someone there charging $6 for a jug of water. Rather, I would be glad for my own good the price was $6, because at that price, it is profitable for someone to supply that water in times of emergency when water is scarce, and at normal prices, it would not be profitable for someone to supply that water. In other words, I would be thanking my lucky stars that there were no anti-gouging laws in place, because there was a good chance I would go thirsty if there were. At least at $6, I have a choice of buying or not. At $1.25, there probably would not be any water at all.

This is the school district with the superintendant that earns 275k a year, and embezzeled money from the district, as did members of the school board. Everyone I spoke to voted for this tax, as the school threatened to raise personal property taxes if it wasnâ??t approved. I donâ??t recall now which month that vote was, but it was the first time I didnâ??t go to the polling station for a vote probably ever.

Realize that when libertarians point out the inherent tendency toward corruption involved in government, we are simply making the same argument as you did above. Your anguish might be with the superintendent and school system; ours is with the public school system, the FDA, the social security system, regulatory agencies, etc. The key is that the incentive problems are systematic, not merely "bad" people getting into important positions. Anytime people are prevented from making voluntary choices about obtaining the goals they have, corruption will tend to arise.

Cast in the light of a true

Cast in the light of a true necessity for life, a three day period where the laws of supply and demand are abated in favor of keeping innocents alive while the routine market balance is restored is not to my mind a material intrusion on anyoneâ??s freedom or a serious impediment to the resumption of adequate supplies.

Your three day waiting period where the laws of supply and demand are "abated" will simply lead to a drawing out of shortage and more pain and suffering than otherwise. More innocents will suffer.

"Abating" the laws of supply and demand is simply "abating" remedy and palliation.

It is precisely "needs" that "abating" the laws of supply and demand hurt most. "Wants" can be tampered with less disastrous consequences. "Needs" need supply and demand in order to get where they are most urgently demanded.

Jonathan, There may well be

Jonathan,

There may well be 'gouging' laws in my State[Michigan], I know there are for gasoline at least. But, in such a situation -- you either want a guy fined/arrested or you want water. I'll take the water!

Diana

Okay, Jonathan, This from a

Okay, Jonathan,

This from a friend in Florida who is about to be hit by yet another hurricane any moment:

"I went to pick up some extra bottled water this afternoon. The shelves were empty. The store manager said that a truck load had already come in and was gone. People bought it before it could be shelved. I got 5 gallons from the last couple of buggies that had the water on them."

Hopefully I won't go through another blackout or other such crisis -- but if I do, and I have to pay 6 bucks a gallon for water -- I WILL be glad to do so! I won't call the seller an evil bastard, even when I get to my car where he can't hear me.

Diana

Diana, I'm not sure how much

Diana,

I'm not sure how much can be concluded from your friend's note. I have no idea if gouging laws are in place or not in that particular location. What he/she describes is simply a snapshot in time. My argument against anti-gouging laws is more about the process of recovery that follows emergencies, not about a fixed point in time.

And after reading my own comments above, perhaps I have been misleading about my argument. It's not that I believe that anti-gouging laws would result in no water; it just that they would result in less water available than if no anti-gouging laws were in place. The time till full recovery of water supply would also be drawn out longer.

Also, I would not be happy to pay whatever price the vendor asked. I would only be glad that he was allowed to ask whatever price he wanted; it would then be my decision to buy or not buy at that price. If I am morally disguisted by that price, I would forego buying. Others might go ahead and buy. This kind of discrimination is esential for prices to ration water to those who most urgently desire it.

Jonathan, Here I was saying

Jonathan,

Here I was saying 'Uncle, Uncle, Uncle!' and you add a twist on me. :)

Diana

[...] ans, and with no

[...] ans, and with no additional guarantee that the distribution will have any more relation to desert than through price-based allocation. [...]