I suppose I have a libertarian slant and am generally pro "price-gouging" (AKA, free market capitalism during disasters). I also read Chris' article and felt it was based on very simple theory/idealized systems.
I know some enterprising people, but I've never heard of anyone loading up their truck with water bottles, and driving them into a disaster zone with the intention of making a profit. Half of Chris' article is based on this premise, which is just not a real phenomenon (even if you apply it to real businesses at scale). Most of the price gouging examples I can think of (masks, hand sanitizer, and toilet paper during the onset of COVID), follow your example of a monopolized supply during a limited time frame. Walmart might slightly up the costs of water bottles before/after a disaster but I'd imagine they have internal procedures restricting this practice to preserve the brand reputation of their stores.
I agree w/ your comment about inequality sort of breaking the market, but to take it to its full logical conclusion-- if a billionaire is bartering for water bottles shoulder-to-shoulder with normal people, I'd guess the situation is so bad that currency is barely valued at all and the billionaire is going to be hesitant to wash their feet with water that might otherwise save lives.
Your point, "If forbidding gouging destroys valuable pricing information, then so would people merely choosing not to gouge." is a great point I had not fully considered. Per conventional economics, you'd imagine that this would result in a market with many inefficiencies and would therefore be less effective at meeting needs than a gouged market. This is obviously not the case. The basic, idealized market that Chris uses to make his arguments rely on the traditional business perspective of a market in which transactions follow logical price laws. Charity, empathy, & human kindness dominate in disaster markets. It's interesting Chris can make these points in good faith-- I can't think of any disasters which were ultimately fixed due to gouging. The VAST majority of help & support comes from charity/governmental aid. Gouging is a niche practice that does not contribute much at all to economies even during disasters.
“ If forbidding gouging destroys valuable pricing information, then so would people merely choosing not to gouge.”
Sorry, this is NOT a good point.
The fact that some fraction of people selectively choosing to sell a good/service at below-market prices - for whatever their own reasons are (a form of charity, a desire to maintain their brand/reputation in an economically-ignorant world filled with politicians who demagogue about price gouging, etc…) is NOT. AT. ALL. the same as a price gouging law that destroys the price signal completely, let alone prevents transactions at market-clearing prices and thus destroys [timely!] supply incentives.
When such people do as you suggest, it just means that the market-clearing price will be somewhat lower than if none of them chose to do so.
>If price gouging provides such important corrective incentives, how can an act of kindness or charity like this be tolerated during a crisis? If forbidding gouging destroys valuable pricing information, then so would people merely choosing not to gouge.
This seems trivially answerable. If Alice gives away (or sells at below what the market will bear) her product, then the recipients have a corresponding incentive to resell at the market-clearing price! If they don't do that, there's no law of classical or neoclassical economics that falsifies their revealed inframarginal preference for the product over the market-clearing price, even if before receiving Alice's gift they were too poor to pay that price in the first place.
Trivially answerable for an economist operating in the theoretical.. It's already a stretch to assume that the sale of supplies during a crisis would follow traditional economic theory-- even more of a stretch to assume that participants in a crisis would also participate in the market according to traditional economic theory. If Alice drops off a case of water at someone's house shortly after a tornado swept through the area, the recipients probably are going to focus on finding their pets before shopping the case of water around to prospective buyers for a profit of $50/case..
…and even YOU write merely “probably” will focus on something else. If even *some* of them focus on reselling, than those desperate for water during the crisis will be able to have it! Yours is not a defense for anti-“price gouging” laws
Well, apologies that it’s difficult to tell where you come down. You attacked “an economist operating in the theoretical” and suggested that the person “probably” would choose not to “participate” in the market economy by becoming a seller. So you were making the arguments of those favoring anti-“price gouging” laws rather than the arguments of those of us asserting that such laws are always bad.
Your claim in particular that “it is a stretch to assume that sales …during a crisis would follow traditional economic theory” also suggests you are advocating for something other than allowing the invisible hand of the market to be able to act to make everyone better off.
This is a great point about secondary markets and an interesting wrinkle. But if we suppose that Alice gives away the supply to people with (roughly) perfectly inelastic demand (desperate and vulnerable to price gouging), is it straightforward that such reselling and secondary transactions would occur?
Either way, I think the philosophical/normative point is worth considering. I argued that people would find a moral obligation to price gouge repugnant, and I don't think mixing in the option of an obligation to price gouge by reselling something given/sold beneficently would be any less repugnant to them; I suspect people could find that even more objectionable (and I'm unsure this possibility would erase the initial obligation anyway). Even if you're right that goods can be resold, eventually someone still has to price gouge for the price signal to materialize (maybe the initial party is obligated in order to minimize the time/delay).
Perfectly inelastic demand just means that you can't find Pareto-improving trades, which means that there are many possible "efficient" distributions and if we want to make allocation decisions we need to use some criterion other than neoclassical economic efficiency. So while I agree that generally "moral obligation to price-gouge" both is really and is considered objectionable, I don't think you've successfully constructed such a case on theoretical economic grounds.
Incidentally, the union attitude towards "scab" labor seems to have some interesting relationship to intuitions about price-gouging. I find the whole thing makes more sense in the framework of expressing group solidarity and either punishing or predating on nonconformers, than in an economic framework.
The problem here is entirely in the framing - your choice to use the words “price gouge”.
In ordinary circumstances, no one in the U.S. is required to charge the price the market will bear. They are free to charge less (well, there do exist bad crony laws like in Wisconsin which force retailers not to charge too little for gasoline and alcohol and sell them as “loss leaders”, to maintain the margins of the small business cronies of the politicians).
Same is true during a crisis. No one is *required* to charge the price the market will bear. So you’re inserting a false premise that in no way argues the goodness or morality of anti-“price gouging” laws.
For morality, I submit the easiest way to look at it is to ask the question of whether or not it is more moral to charge less than the price that the market will bear - bestowing charity on those lucky few with whom you decide to transact at the below market price - or if it is more moral to bestow that charity on someone else.
But in order not to bias the question, at least change the term “price gouge” to “the price the market is willing to bear” before making assertions or assumptions about folks’ morality. As we well know, the answers you get on poll questions can be very different for the same factual question depending on how it is worded.
>A snowbound city faces a supply shortage precisely because suppliers can’t deliver new goods despite their anticipated profitability, so recommending that these folks leverage budgetary promiscuity to entice greater supply kind of misses the point if they’re shorthanded due to being closed off from receiving new provisions. Ultimately, for the free-market argument for price gouging to cut ice, the pricing information needs to propagate to would-be suppliers, and those suppliers must be capable of usefully reacting to those incentives within a helpful timeframe, and price-gouging scenarios are not guaranteed to satisfy those criteria.
This is a good argument against an ideological commitment to price-gouging being invariantly good under all conditions, but - as you admit later on in the essay - not a good explanation for the actually demonstrated opposition to "price-gouging," since people frequently are upset by it in cases where this condition does not hold. For any activity X, criticizing rigid ideological commitments to support X has to be a legitimate activity, but it's not legit to falsely conflate it with an explanation of a very different social basis for opposition to X.
I think you might be getting confused by inauthentic claims that "price gouging" as the term is used in practice is a natural descriptive category. When I look at what people apparently independently motivated to complain about "price gouging" say (distinct from people like you trying to explain an existing social phenomenon from the outside) when asked for an explanation, it generally adds up to, "it's price gouging when I'm upset about it." So in practice, it's "supply and demand" when we want to normalize it, and it's "price gouging" when we see an uncorrelated behavior that we think we can scapegoat and thereby score some sort of credibility within mob scapegoating dynamics.
If you want to redraw category boundaries in a way that better reflects classical economic prudence, you can either claim that the current (descriptivist) boundaries of "price gouging" are dishonest (if there's evidence of an original usage that was more principled in the way you like), or you might come up with a new term to describe the new category you care about.
There is an even simpler point. All anti-‘price-gouging’ laws are *bad* because the idea that the government knows best IN ADVANCE what prices should be is wrong/absurd. As is the idea that the government knows best in advance that the prices that applied immediately before a crisis are the best possible prices during a crisis.
To disagree with this is to suggest that during the Oil Crisis of the 1970s gas stations should have been required to sell gas at the price they sold it at before the crisis. Since their costs were then higher than the prices they had been selling at, no gas would be sold to any customers at all.
But, you say, at least that would be moral and fair, as everyone would be equally miserable, right? 😏🙄😏
If you don’t like my example, please explain how it is any different from any other “price gouging” law.
* this applies to anything that is akin to a free market in the first place. If you make a market heavily non-free (e.g. the health system in the U.S.), you can certainly come up with conditions where such a bad law is less worse than the absence of such a bad law.
Um… I guess you do reveal yourself a non-economist for all of your defenses of price gouging laws.
Price gouging laws assume that government knows best what the price should be at any given moment. It is absurd to think that this is true, don’t you agree?
Price gouging laws, you might try to argue, merely say that you can’t change prices during a time of crisis. But again, this means that you are arguing that government knows best how to price things during a crisis: exactly what it was before the crisis.
Your examples focus on supply (and when you do that you get it right, but then you back off of logic, and choose to ridicule the examples of people driving water into a crisis zone, and effectively argue that you “know” that things will return to normal at the identical pace even when prices are not allowed to fluctuate…), but ignore the other half of the equation: demand.
At artificially low prices, people have incentive to hoard - I.e. to buy more than they actually need at the moment. Do you remember the toilet paper shortages at the beginning of COVID? Such shortages would have been less severe had sellers jacked up prices when they realized what was happening, and then more people would have been able to avail themselves of the good than were able to when they couldn’t buy any at any price (few resellers actually raised prices, because of fear of harm to their own reputation from the economically-ignorant masses, but that , too, is/was the sellers’ own free choice). Why aren’t you arguing for anti-hoarding laws? With the government defining at any given moment who is and isn’t hoarding?? 😏🙄
Your billionaire example was specious, because there are no different forces stopping the billionaire from spending on the water at $100 than at $10. At best, at best you are arguing that randomness and lotteries/queues are more moral than allowing free people to make their own decisions. But is that what you really think?
And tell me why again it is immoral for the water seller to accept $90 extra from the billionaire to do with as the seller so chooses?
So your entire defense of price gouging laws boils down to the assertion that randomness and/or Soviet-style Communism with its associated lower levels of supply and quality is more moral than allowing free individuals to freely trade goods and services.
Perhaps you did the whole thing tongue in cheek, but it didn’t come across that way to me.
Thanks for reading and the thoughtful comments. My position is a little (too?) nuanced and maybe uncertain, so let me reiterate/clarify that the price-gouging laws are dumb and harmful in most contexts--as illustrated by the hurricane/ice example, where supply is reactive. Even conceding that such laws are frequently counterproductive and should be repealed, however, there's still an interesting question whether someone should encourage, discourage, or engage in price gouging.
In re hoarding: this is fair argument that people are psychologically predisposed to hoarding in these situations and rising prices discourage that, but again this could also be an argument for a lottery/rationing or whatever if the hypothetical billionaire would hoard anyway, given that he can stomach the lofty prices. Also, we must recognize that this argument recommends pursuing the highest possible price, so if we take the argument seriously enough, are we obligated (rather than just permitted) to price gouge in the extreme? If so, I'd say that's at least pretty interesting.
In re billionaire tycoons: in a situation with static supply over the relevant period, it appears arguable that alternatives to free market transactions would be more ethical, maybe supplemented with secondary market transactions after an initial distribution. If the billionaire's spending is a magnet for a timely influx of outside supply, however, then that's plainly beneficial.
“…price-gouging laws are dumb and harmful in most contexts”
Well, I appreciate that you understand that anti”price gouging” laws are bad most of the time.
I’m still unclear exactly which contexts they are NOT dumb and harmful, and the reasons why they are not dumb and harmful in this contexts? Could you explain?
The only thing I state with conviction is that in anything akin to the real world, so called “price-gouging” laws are bad. Period. In all cases. We could agree that it’s hard to know how relatively bad they are in different circumstances, but that’s about it.
As for the morality of what price you choose to charge, that’s of course far less black and white.
Of course no one in a free society is - or at least should be - forced to charge the top price the market will bear. But the question for you is, if one wants to be charitable, why wouldn’t it be better to charge exactly what the market bears, then give the “extra” money you’ve received to an even *more* worthy, down on their luck recipient? Surely you’re not suggesting that the particular person or persons to whom you sell at the below-market rate are the most deserving of charity, are you?
Your billionaire answers mostly don’t hold up. Do you ACTUALLY want to have a lottery during such a crisis? How is it managed / who sets it up? Do you not care about the lack of additional supply that results if you use such a mechanism?
The only obvious “morallity” answer is that the billionaire shouldn’t simply buy and hoard. But isn’t that true for non-billionaires as well?
And unless you are making the hard leftist arguments that billionaires shouldn’t be allowed to exist, the idea of any law or mechanism preventing them from buying at the market rate seems absurd. If you want to posit a callous billionaire who doesn’t care about their own reputation, then no law would prevent her from wreaking all sorts of “immoral”, “sub-optimal” havoc if she so chose, would it? So that seems a pretty poor rationale to argue for a non-market mechanism.
Your elucidation of important points is useful, but hampered by a black or white morality paradigm: good or bad? I think it’s important to debinaryize (or is it unbinaryize? lol) the morality from 'yes or no' to ‘best to worst': At an individual level, donating goods directly to the neediest and/or donating your time and effort trying to increase supply are best, selling at previous prices is worse, then price gouging, then not helping at all, then preventing help (and price gouging certainly helps), and worst, of course, are the old classics raping and pillaging. And we all know that moral agency can only exist at the individual level, don’t we?
Utilitarianism is bunk, and most libertarians know that prices aren’t everything.
Well, Kamala certainly believe that price gouging is an evil thing and plans to do something about it when she’s elected. So I guess you *must* be on the correct side of the price gouging issue after all…
“In her remarks Friday,” it concluded, “Vice President Harris will discuss her lifelong commitment to fighting for the middle class and tackling powerful interests by invoking her time as California’s attorney general and going after corporate greed and price gouging — and winning.”
It can be rational to prevent price gouging, even though doing so will reduce supply. While price controls on commodities will reduce the aggregate economic surplus (excepting monopoly suppliers or monopsonist buyers) it might still increase social welfare due to distributional effects. The counter argument is that you should just let the price gouging happen and then do compensation, but sometimes this is impossible for various reasons- political barriers to taxation, the sellers are from a foreign region you can't levy taxes on etc.
The easiest way to see this in terms of economic theory is that the populace can form a monopsony, and extract a monopsonists surplus e.g. from foreign grain traders during a famine. Doing so will reduce the supply of grain, but whether or not this is worth it depends on the rate the price is set to, and the price elasticity of demand. The enforcement of the price ceiling represents, in effect, a barrier against any individual defecting from the monopsonists cartel.
Whether or not such situations in which price gouging are social welfare maximising arise often in real life is an open question.
“ it might still increase social welfare due to distributional effects. ”
Please explain how anti-so-called-“price gouging” laws will increase social welfare due to distributional effects. Especially after taking into account the loss from lack of supply that will inevitably result.
In particular explain how an ex ante anti-“price gouging” law can make things better.
Or are you trying to say that when such a law is imposed after the fact by an omniscient authority (who knows exactly the single price that is appropriate, and the exact duration that prices not be allowed to change) enabled to be the all-powerful dictator on such matters when said authority determines that it is necessary, would increase social welfare?
“…arise often in real life…”
You mean, arise *ever*, don’t you? Can you cite even a single example?
Though Kamala Harris seems to agree with your take about social welfare maximizing - at least when taking into account that it might help her get votes from miseducated voters ignorant of economics who have been demagogued about the issue in the past.
“but I’m unsure that supply fixity perfectly correlates with camaraderie like that.”
As with several of your other arguments, you try to point out why the world without anti-‘price gouging’ laws might be imperfect, but you fail to show how the world *with* such a law would be better.
What exactly would the law say?
What is your definition of better?
How does the existence of that law actually make things better, during a crisis?
How can you be remotely sure that things would in fact be better during such a crisis, and that the crisis problems/conditions would be alleviated just as quickly, given the existence of the law?
I suppose I have a libertarian slant and am generally pro "price-gouging" (AKA, free market capitalism during disasters). I also read Chris' article and felt it was based on very simple theory/idealized systems.
I know some enterprising people, but I've never heard of anyone loading up their truck with water bottles, and driving them into a disaster zone with the intention of making a profit. Half of Chris' article is based on this premise, which is just not a real phenomenon (even if you apply it to real businesses at scale). Most of the price gouging examples I can think of (masks, hand sanitizer, and toilet paper during the onset of COVID), follow your example of a monopolized supply during a limited time frame. Walmart might slightly up the costs of water bottles before/after a disaster but I'd imagine they have internal procedures restricting this practice to preserve the brand reputation of their stores.
I agree w/ your comment about inequality sort of breaking the market, but to take it to its full logical conclusion-- if a billionaire is bartering for water bottles shoulder-to-shoulder with normal people, I'd guess the situation is so bad that currency is barely valued at all and the billionaire is going to be hesitant to wash their feet with water that might otherwise save lives.
Your point, "If forbidding gouging destroys valuable pricing information, then so would people merely choosing not to gouge." is a great point I had not fully considered. Per conventional economics, you'd imagine that this would result in a market with many inefficiencies and would therefore be less effective at meeting needs than a gouged market. This is obviously not the case. The basic, idealized market that Chris uses to make his arguments rely on the traditional business perspective of a market in which transactions follow logical price laws. Charity, empathy, & human kindness dominate in disaster markets. It's interesting Chris can make these points in good faith-- I can't think of any disasters which were ultimately fixed due to gouging. The VAST majority of help & support comes from charity/governmental aid. Gouging is a niche practice that does not contribute much at all to economies even during disasters.
“ If forbidding gouging destroys valuable pricing information, then so would people merely choosing not to gouge.”
Sorry, this is NOT a good point.
The fact that some fraction of people selectively choosing to sell a good/service at below-market prices - for whatever their own reasons are (a form of charity, a desire to maintain their brand/reputation in an economically-ignorant world filled with politicians who demagogue about price gouging, etc…) is NOT. AT. ALL. the same as a price gouging law that destroys the price signal completely, let alone prevents transactions at market-clearing prices and thus destroys [timely!] supply incentives.
When such people do as you suggest, it just means that the market-clearing price will be somewhat lower than if none of them chose to do so.
>If price gouging provides such important corrective incentives, how can an act of kindness or charity like this be tolerated during a crisis? If forbidding gouging destroys valuable pricing information, then so would people merely choosing not to gouge.
This seems trivially answerable. If Alice gives away (or sells at below what the market will bear) her product, then the recipients have a corresponding incentive to resell at the market-clearing price! If they don't do that, there's no law of classical or neoclassical economics that falsifies their revealed inframarginal preference for the product over the market-clearing price, even if before receiving Alice's gift they were too poor to pay that price in the first place.
Trivially answerable for an economist operating in the theoretical.. It's already a stretch to assume that the sale of supplies during a crisis would follow traditional economic theory-- even more of a stretch to assume that participants in a crisis would also participate in the market according to traditional economic theory. If Alice drops off a case of water at someone's house shortly after a tornado swept through the area, the recipients probably are going to focus on finding their pets before shopping the case of water around to prospective buyers for a profit of $50/case..
That would seem to reveal a preference under limited information. What's the problem?
…and even YOU write merely “probably” will focus on something else. If even *some* of them focus on reselling, than those desperate for water during the crisis will be able to have it! Yours is not a defense for anti-“price gouging” laws
I never argued in support of any sort of anti-price gouging laws.
Well, apologies that it’s difficult to tell where you come down. You attacked “an economist operating in the theoretical” and suggested that the person “probably” would choose not to “participate” in the market economy by becoming a seller. So you were making the arguments of those favoring anti-“price gouging” laws rather than the arguments of those of us asserting that such laws are always bad.
Your claim in particular that “it is a stretch to assume that sales …during a crisis would follow traditional economic theory” also suggests you are advocating for something other than allowing the invisible hand of the market to be able to act to make everyone better off.
This is a great point about secondary markets and an interesting wrinkle. But if we suppose that Alice gives away the supply to people with (roughly) perfectly inelastic demand (desperate and vulnerable to price gouging), is it straightforward that such reselling and secondary transactions would occur?
Either way, I think the philosophical/normative point is worth considering. I argued that people would find a moral obligation to price gouge repugnant, and I don't think mixing in the option of an obligation to price gouge by reselling something given/sold beneficently would be any less repugnant to them; I suspect people could find that even more objectionable (and I'm unsure this possibility would erase the initial obligation anyway). Even if you're right that goods can be resold, eventually someone still has to price gouge for the price signal to materialize (maybe the initial party is obligated in order to minimize the time/delay).
Perfectly inelastic demand just means that you can't find Pareto-improving trades, which means that there are many possible "efficient" distributions and if we want to make allocation decisions we need to use some criterion other than neoclassical economic efficiency. So while I agree that generally "moral obligation to price-gouge" both is really and is considered objectionable, I don't think you've successfully constructed such a case on theoretical economic grounds.
Incidentally, the union attitude towards "scab" labor seems to have some interesting relationship to intuitions about price-gouging. I find the whole thing makes more sense in the framework of expressing group solidarity and either punishing or predating on nonconformers, than in an economic framework.
Well, not to worry. border czar Kamala will make sure that evil/immoral price gouging is not gonna happen on her watch…
https://www.nytimes.com/2024/08/14/business/kamala-harris-price-gouging-inflation.html
“a moral obligation to price gouge repugnant”
The problem here is entirely in the framing - your choice to use the words “price gouge”.
In ordinary circumstances, no one in the U.S. is required to charge the price the market will bear. They are free to charge less (well, there do exist bad crony laws like in Wisconsin which force retailers not to charge too little for gasoline and alcohol and sell them as “loss leaders”, to maintain the margins of the small business cronies of the politicians).
Same is true during a crisis. No one is *required* to charge the price the market will bear. So you’re inserting a false premise that in no way argues the goodness or morality of anti-“price gouging” laws.
For morality, I submit the easiest way to look at it is to ask the question of whether or not it is more moral to charge less than the price that the market will bear - bestowing charity on those lucky few with whom you decide to transact at the below market price - or if it is more moral to bestow that charity on someone else.
But in order not to bias the question, at least change the term “price gouge” to “the price the market is willing to bear” before making assertions or assumptions about folks’ morality. As we well know, the answers you get on poll questions can be very different for the same factual question depending on how it is worded.
>A snowbound city faces a supply shortage precisely because suppliers can’t deliver new goods despite their anticipated profitability, so recommending that these folks leverage budgetary promiscuity to entice greater supply kind of misses the point if they’re shorthanded due to being closed off from receiving new provisions. Ultimately, for the free-market argument for price gouging to cut ice, the pricing information needs to propagate to would-be suppliers, and those suppliers must be capable of usefully reacting to those incentives within a helpful timeframe, and price-gouging scenarios are not guaranteed to satisfy those criteria.
This is a good argument against an ideological commitment to price-gouging being invariantly good under all conditions, but - as you admit later on in the essay - not a good explanation for the actually demonstrated opposition to "price-gouging," since people frequently are upset by it in cases where this condition does not hold. For any activity X, criticizing rigid ideological commitments to support X has to be a legitimate activity, but it's not legit to falsely conflate it with an explanation of a very different social basis for opposition to X.
I think you might be getting confused by inauthentic claims that "price gouging" as the term is used in practice is a natural descriptive category. When I look at what people apparently independently motivated to complain about "price gouging" say (distinct from people like you trying to explain an existing social phenomenon from the outside) when asked for an explanation, it generally adds up to, "it's price gouging when I'm upset about it." So in practice, it's "supply and demand" when we want to normalize it, and it's "price gouging" when we see an uncorrelated behavior that we think we can scapegoat and thereby score some sort of credibility within mob scapegoating dynamics.
If you want to redraw category boundaries in a way that better reflects classical economic prudence, you can either claim that the current (descriptivist) boundaries of "price gouging" are dishonest (if there's evidence of an original usage that was more principled in the way you like), or you might come up with a new term to describe the new category you care about.
There is an even simpler point. All anti-‘price-gouging’ laws are *bad* because the idea that the government knows best IN ADVANCE what prices should be is wrong/absurd. As is the idea that the government knows best in advance that the prices that applied immediately before a crisis are the best possible prices during a crisis.
To disagree with this is to suggest that during the Oil Crisis of the 1970s gas stations should have been required to sell gas at the price they sold it at before the crisis. Since their costs were then higher than the prices they had been selling at, no gas would be sold to any customers at all.
But, you say, at least that would be moral and fair, as everyone would be equally miserable, right? 😏🙄😏
If you don’t like my example, please explain how it is any different from any other “price gouging” law.
* this applies to anything that is akin to a free market in the first place. If you make a market heavily non-free (e.g. the health system in the U.S.), you can certainly come up with conditions where such a bad law is less worse than the absence of such a bad law.
Um… I guess you do reveal yourself a non-economist for all of your defenses of price gouging laws.
Price gouging laws assume that government knows best what the price should be at any given moment. It is absurd to think that this is true, don’t you agree?
Price gouging laws, you might try to argue, merely say that you can’t change prices during a time of crisis. But again, this means that you are arguing that government knows best how to price things during a crisis: exactly what it was before the crisis.
Your examples focus on supply (and when you do that you get it right, but then you back off of logic, and choose to ridicule the examples of people driving water into a crisis zone, and effectively argue that you “know” that things will return to normal at the identical pace even when prices are not allowed to fluctuate…), but ignore the other half of the equation: demand.
At artificially low prices, people have incentive to hoard - I.e. to buy more than they actually need at the moment. Do you remember the toilet paper shortages at the beginning of COVID? Such shortages would have been less severe had sellers jacked up prices when they realized what was happening, and then more people would have been able to avail themselves of the good than were able to when they couldn’t buy any at any price (few resellers actually raised prices, because of fear of harm to their own reputation from the economically-ignorant masses, but that , too, is/was the sellers’ own free choice). Why aren’t you arguing for anti-hoarding laws? With the government defining at any given moment who is and isn’t hoarding?? 😏🙄
Your billionaire example was specious, because there are no different forces stopping the billionaire from spending on the water at $100 than at $10. At best, at best you are arguing that randomness and lotteries/queues are more moral than allowing free people to make their own decisions. But is that what you really think?
And tell me why again it is immoral for the water seller to accept $90 extra from the billionaire to do with as the seller so chooses?
So your entire defense of price gouging laws boils down to the assertion that randomness and/or Soviet-style Communism with its associated lower levels of supply and quality is more moral than allowing free individuals to freely trade goods and services.
Perhaps you did the whole thing tongue in cheek, but it didn’t come across that way to me.
Cheers!
Thanks for reading and the thoughtful comments. My position is a little (too?) nuanced and maybe uncertain, so let me reiterate/clarify that the price-gouging laws are dumb and harmful in most contexts--as illustrated by the hurricane/ice example, where supply is reactive. Even conceding that such laws are frequently counterproductive and should be repealed, however, there's still an interesting question whether someone should encourage, discourage, or engage in price gouging.
In re hoarding: this is fair argument that people are psychologically predisposed to hoarding in these situations and rising prices discourage that, but again this could also be an argument for a lottery/rationing or whatever if the hypothetical billionaire would hoard anyway, given that he can stomach the lofty prices. Also, we must recognize that this argument recommends pursuing the highest possible price, so if we take the argument seriously enough, are we obligated (rather than just permitted) to price gouge in the extreme? If so, I'd say that's at least pretty interesting.
In re billionaire tycoons: in a situation with static supply over the relevant period, it appears arguable that alternatives to free market transactions would be more ethical, maybe supplemented with secondary market transactions after an initial distribution. If the billionaire's spending is a magnet for a timely influx of outside supply, however, then that's plainly beneficial.
“…price-gouging laws are dumb and harmful in most contexts”
Well, I appreciate that you understand that anti”price gouging” laws are bad most of the time.
I’m still unclear exactly which contexts they are NOT dumb and harmful, and the reasons why they are not dumb and harmful in this contexts? Could you explain?
Thx for the reply.
The only thing I state with conviction is that in anything akin to the real world, so called “price-gouging” laws are bad. Period. In all cases. We could agree that it’s hard to know how relatively bad they are in different circumstances, but that’s about it.
As for the morality of what price you choose to charge, that’s of course far less black and white.
Of course no one in a free society is - or at least should be - forced to charge the top price the market will bear. But the question for you is, if one wants to be charitable, why wouldn’t it be better to charge exactly what the market bears, then give the “extra” money you’ve received to an even *more* worthy, down on their luck recipient? Surely you’re not suggesting that the particular person or persons to whom you sell at the below-market rate are the most deserving of charity, are you?
Your billionaire answers mostly don’t hold up. Do you ACTUALLY want to have a lottery during such a crisis? How is it managed / who sets it up? Do you not care about the lack of additional supply that results if you use such a mechanism?
The only obvious “morallity” answer is that the billionaire shouldn’t simply buy and hoard. But isn’t that true for non-billionaires as well?
And unless you are making the hard leftist arguments that billionaires shouldn’t be allowed to exist, the idea of any law or mechanism preventing them from buying at the market rate seems absurd. If you want to posit a callous billionaire who doesn’t care about their own reputation, then no law would prevent her from wreaking all sorts of “immoral”, “sub-optimal” havoc if she so chose, would it? So that seems a pretty poor rationale to argue for a non-market mechanism.
Your elucidation of important points is useful, but hampered by a black or white morality paradigm: good or bad? I think it’s important to debinaryize (or is it unbinaryize? lol) the morality from 'yes or no' to ‘best to worst': At an individual level, donating goods directly to the neediest and/or donating your time and effort trying to increase supply are best, selling at previous prices is worse, then price gouging, then not helping at all, then preventing help (and price gouging certainly helps), and worst, of course, are the old classics raping and pillaging. And we all know that moral agency can only exist at the individual level, don’t we?
Utilitarianism is bunk, and most libertarians know that prices aren’t everything.
Thanks for the read.
Well, Kamala certainly believe that price gouging is an evil thing and plans to do something about it when she’s elected. So I guess you *must* be on the correct side of the price gouging issue after all…
https://www.nytimes.com/2024/08/14/business/kamala-harris-price-gouging-inflation.html
“In her remarks Friday,” it concluded, “Vice President Harris will discuss her lifelong commitment to fighting for the middle class and tackling powerful interests by invoking her time as California’s attorney general and going after corporate greed and price gouging — and winning.”
You must be so proud… 😏
It can be rational to prevent price gouging, even though doing so will reduce supply. While price controls on commodities will reduce the aggregate economic surplus (excepting monopoly suppliers or monopsonist buyers) it might still increase social welfare due to distributional effects. The counter argument is that you should just let the price gouging happen and then do compensation, but sometimes this is impossible for various reasons- political barriers to taxation, the sellers are from a foreign region you can't levy taxes on etc.
The easiest way to see this in terms of economic theory is that the populace can form a monopsony, and extract a monopsonists surplus e.g. from foreign grain traders during a famine. Doing so will reduce the supply of grain, but whether or not this is worth it depends on the rate the price is set to, and the price elasticity of demand. The enforcement of the price ceiling represents, in effect, a barrier against any individual defecting from the monopsonists cartel.
Whether or not such situations in which price gouging are social welfare maximising arise often in real life is an open question.
“ it might still increase social welfare due to distributional effects. ”
Please explain how anti-so-called-“price gouging” laws will increase social welfare due to distributional effects. Especially after taking into account the loss from lack of supply that will inevitably result.
In particular explain how an ex ante anti-“price gouging” law can make things better.
Or are you trying to say that when such a law is imposed after the fact by an omniscient authority (who knows exactly the single price that is appropriate, and the exact duration that prices not be allowed to change) enabled to be the all-powerful dictator on such matters when said authority determines that it is necessary, would increase social welfare?
“…arise often in real life…”
You mean, arise *ever*, don’t you? Can you cite even a single example?
Though Kamala Harris seems to agree with your take about social welfare maximizing - at least when taking into account that it might help her get votes from miseducated voters ignorant of economics who have been demagogued about the issue in the past.
https://www.nytimes.com/2024/08/14/business/kamala-harris-price-gouging-inflation.html
So you’ve got THAT an your side… 😏
“but I’m unsure that supply fixity perfectly correlates with camaraderie like that.”
As with several of your other arguments, you try to point out why the world without anti-‘price gouging’ laws might be imperfect, but you fail to show how the world *with* such a law would be better.
What exactly would the law say?
What is your definition of better?
How does the existence of that law actually make things better, during a crisis?
How can you be remotely sure that things would in fact be better during such a crisis, and that the crisis problems/conditions would be alleviated just as quickly, given the existence of the law?