Don,
I have related question for you. You've used the example of price controls during hurricanes on this thread before. More generally, I think both neo-classical economists and Austrians would say that price-fixing during emergencies impedes the reduction in demand and increase in supply that a free markets allows.
For example, suppose that a hurricane is about to hit Florida. Prices of plywood dramatically increase. In normal times, the amount of plywood required to board a house might cost $200. However, when the hurricane warning is announced, this same amount of plywood now costs $1000. This dramatic increase in price is simply the result of demand greatly exceeding supply.
Suppose that, however the means may be, prices are capped at $200 by the government. I see two main negative effects:
1)Suppliers of plywood who are located outside of the path of the hurricane have no incentive to go out of their way to deliver plywood to the affected areas. In other words, price caps diminish supply in a market where demand already exceeds supply.
2)Consumers have no incentive to save plywood, conserve plywood, or not waste plywood. If plywood remains at the same low price, a consumer who had planned to buy plywood to build a shed has no incentive to wait until after the hurricane to make his purchase. So he makes a "frivolous" purchase of plywood and keeps plywood out of the consumers with more "important" uses (like protecting their houses). In other words, price caps fail to decrease demand in a market where demand already exceeds supply.
Intuitively, it seems to me that unfixed prices allow a more "deserving" distribution of scarce goods. Instead of plywood being supplied at remote locations away from the hurricane, high market prices shift supply of plywood to more "important" areas along the path of the hurricane. Instead of plywood being demanded for "frivolous" uses like building a shed, high market prices shift demand to more "important" uses like boarding up a house during the hurricane.
However, I don't think Austrian economists would approve the use of terms such as "frivolous" or "important" to describe ends, especially from an outside observer like me.
What would Austrian economics say about the hierarchy of buyers and sellers that market prices create in such a situation?
Wildstar |
