More on "Gouging" -
"...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."
cafehayek.typepad.com
"...What’s needed most urgently in the aftermath of a natural disaster is a quick infusion of replacement goods and services. Keeping post-disaster prices artificially low will slow this infusion, making the people who are least-wealthy in terms of connections and ability to bribe much worse off."
cafehayek.typepad.com
"Why does rationality fly out the window when people think about oil companies? The relevant measure of profitability is return on investment, and the oil industry is only middling in that respect over the long haul–though it is cyclical. No one mourns the producers, refiners, distributors, and gas station owners during their periodic bust years. From time to time the industry has good years, sometimes very good years. So what? Google’s return on investment has been many times Exxon’s; why not punish Google, and all the other companies that have done as well as, or better than, the energy companies? Dumb question, I know, thought I’d ask anyway.
Comment by enronal — September 19, 2005 @ 3:37 pm "
catallarchy.net
"There’s no such thing as gouging.
If you are a gas station operator with a supply that won’t get replenished for possibly weeks, your gas just went up in value. The value TO YOU went up. Why on earth would you sell for $2 gallon?
If you were able to get in line and fill up a tank and some cans at $2/gallon from an operator being foolish and/or charitable, would it be immoral for you to park outside the exit and offer your surplus for $5/gallon?
What if as you were pulling out someone in a limo offered you $10/gallon to siphon? Would you sell a little? At a a $100? Are you then immoral for doing so?
“Price gouging” is a nonsense policial term, nothing more.
nmg
Comment by nmg — September 02, 2005 @ 10:18 am "
catallarchy.net
"To prevent the price of some staple good (say, lumber) from rising to its market level in the wake of a natural disaster is to camouflage the underlying reality. The underlying reality is that the disaster (1) appreciably reduced supplies of lumber available in the devastated area – both by destroying inventories of lumber and by destroying supply lines; and (2) appreciably increased the demand for lumber in these areas. In short, the underlying reality is that the value of lumber to people in these devastated areas is now significantly higher than it was just before the tidal waves hit. These people need lumber more than they did before, and there's less lumber immediately available.
This reality is unfortunate, but it is, well, real. Being real, it must be dealt with. It cannot be hollered, hoped, dreamed, prayed, or legislated away. And it means that the welfare of the people whose homes and businesses (not to mention love ones) were destroyed is much lower than it would have been had the tsunamis not hit...
...If the price of lumber is currently below its market-clearing level, the quantity of lumber demanded at that price will exceed the quantity of lumber supplied at that price. With no controls on prices, this "excess demand" will cause price to rise. As price rises, some quantity of demand is choked off and the quantities supplied are increased. That is, the chief means of allocating available supplies among the demanders is the higher price.
But if regulation keeps price from rising, some method other than higher prices must be used to determine which of the many demanders of lumber get the relatively few supplies of lumber.
What are these other methods? They include principally queuing, black-market transactions, and use of political or commercial connections. They might include even violence.
An inevitable consequence of price caps, therefore, is to raise the value of the skills and other assets useful in carrying out these other methods of rationing – skills at queuing; skills at successfully conducting black-market exchanges; skills at manipulating personal and political connections.
Even if you’re concerned only with ‘the poor,’ therefore, the correct question is not "are the poor less able to pay higher prices than lower prices for staple goods?’ The answer to this question is all too obvious: yes.
The relevant question instead is "are the poor less able to pay higher market prices than they are able to pay to take advantage of the other methods of rationing that necessarily replace higher prices?"
The answer to this question isn’t at all obvious.
The poor might be better able than others to pay the cost of queuing – the time and aggravation of waiting in long lines. But not necessarily.
Even though no monetary cost is paid to wait in line, the poor might well be less able than others to be away from their families (in order to wait in a queue) following a disaster – say, because they have young children who must be watched, or because they must personally repair their plumbing and their roofs, unable to afford to hire repairmen even at normal rates.
But while the poor might conceivably be better able than the non-poor to afford to queue, it’s unlikely that the poor can outbid the non-poor for the assets that are necessary to compete in other ways for supplies of goods or services in short supply.
Are the poor likely to have a comparative advantage over the non-poor at creating and protecting black markets? Are the poor likely to have a comparative advantage over the non-poor at taking advantage of personal and political connections? Are the poor likely to have a comparative advantage at deploying violence as a means of acquiring goods?
Unlikely. Very unlikely..."
cafehayek.typepad.com
"...Suppose that a natural disaster hits. It causes demand for staple goods (lumber, bottled water, fuel, etc.) and certain appliances (for example, household electricity generators) to rise appreciably while simultaneously destroying existing supplies in the devastated area – and destroying supply lines. The underlying reality – the unfortunate but undeniable fact – is that the marginal value of staple goods and many appliances in this area is now suddenly much greater than it was before the disaster struck.
Left unregulated by government, prices of these goods will rise correspondingly, to reflect this higher value. In other words, these higher prices will tell the truth about the underlying reality.
But many people dislike truth-telling in these circumstances. It smacks of greed and – being presumed bad and unsocial – greed should not be tolerated, apologized for, or rationalized using cold-blooded economics. Greed should, in the view of many, instead be roundly condemned and emphatically prevented from operating in the aftermath of disasters.
.........
Suppose that all merchants who regularly sell staple goods in the area now devastated voluntarily act as moralists would have them act. That is, merchants refuse to raise their prices above pre-disaster levels.
By doing so, these merchants would certainly avoid being labeled "greedy." But would they serve the public good as well as they would serve it if they raised prices to the levels that the market would bear?
Maybe. But if so, these magnanimous merchants would have to possess immense amounts of knowledge, much of it about the personal and intimate circumstances of their actual and would-be customers.
Remember, the fact is that the quantities demanded of many goods far exceed the quantities immediately available to sell. Many people who want to buy these goods at the pre-disaster prices simply must do without. The question is – which people will get the now-scarcer goods and which won’t?
First come, first served? Few would agree that this method ensures that those who most need the goods actually get the goods. It's too infused with chance.
So the magnanimous merchants take it upon themselves to choose which of the many aspiring buyers will be lucky enough to become actual buyers. A magnanimous hardware-store owner might, for example, survey his many potential customers, asking them – what? – "How much do you really need an electricity generator?" What answers would a customer who really needs, say, an electricity generator have to give in order to enhance his chances of actually enjoying the opportunity to buy it?
Would some potential customers lie? ("My new-born, sickly twin daughters will freeze to death unless I get a generator fast!" says the bachelor who merely wants to keep his illegal marijuana plants warm.) Knowing of the possibility of lies, perhaps the magnanimous merchant will devise some means of checking upon the truthfulness of his customers’ claims – or, as suggested above, this merchant will already have such intimate knowledge of his customers that he is really better described as a magnanimous and nosy merchant.
And regardless of how the magnanimous merchants acquire their knowledge of the different needs of customers for the now-scarcer goods on hand, what logic – what scale – does each magnanimous merchant use to rank these different needs?
Whether nosy or not, each magnanimous merchant must also be arrogant, cocksure, self-important – and, for a time at least, quite powerful.
These merchants, to avoid disturbing others with their greed, might indeed be magnanimous, but also possibly nosy and inevitably either brilliant in a god-like way or arrogant – and, to avoid taking advantage of their power, also somewhat saintly.
Sound like a reasonable alternative to ‘greedy’ price increases?"
cafehayek.typepad.com |
