Posted on 08/24/2004 9:58:31 AM PDT by Tom D.
Bring on the 'Price Gougers'
Jeff Jacoby
August 23, 2004
Imagine a system that could instantly respond to a calamity like Hurricane Charley by mobilizing suppliers to speed urgently needed resources to the victims. Imagine that such a system could quickly attract the out-of-town manpower needed for cleanup and repairs, while seeing to it that existing supplies were neither recklessly squandered nor hoarded. Imagine that it could prompt thousands of men and women to act in the public interest, yet not force anyone to do anything against his will.
Actually, there's no need to imagine. The system already exists. Economists refer to it as the law of supply and demand. Unfortunately, too many journalists and politicians call it by a more pejorative and destructive name: "price-gouging."
Even before Charley made landfall last weekend, Florida officials had launched a campaign against "those who would seek to profit from the misery of others." Residents were urged to be on guard against any unscrupulous rise in prices, and to call a hotline with information about suspected profiteers.
Not surprisingly, the complaints poured in. By Thursday, Attorney General Charlie Crist's office had received 2,340 reports of price-gouging, and had filed a "first round" of lawsuits.
"It is astounding to me," Crist said, "the level of greed that someone must have in their soul to be willing to take advantage of someone suffering in the wake of a hurricane."
The media were similarly indignant. "After storm come the vultures," read a headline in USA Today. A Page 1 story in The New York Times offered examples of "those brazenly looking to make some extra money": vendors selling bags of ice for $10 instead of $2, gas stations "facing long lines of cars" charging $3 a gallon for gas normally priced at $1.78, and "a man with a chain saw" offering to clear a felled oak from one man's roof for $10,500.
"Some greedy merchants started ahead of the storm," reported The Washington Times. It cited "one complaint about a man in the Orlando area who normally leases generators for $250 a day with no requirements. He boosted the price to about $400 a day just before the storm hit, and implemented a seven-day minimum policy."
But why should it be news, let alone a crime, when soaring demand and/or tight supplies send prices through the roof? Air fares climb during peak travel periods, hotels charge more during the tourist season -- and yes, Virginia, ice sells at a premium when tens of thousands of Florida homes are without refrigeration and air conditioning in the middle of August.
It isn't gouging to charge what the market will bear. It isn't greedy or brazen. It's how goods and services get allocated in a free society in response to actual conditions -- without the chronic shortages and corruption that are the usual result of price controls and rationing. And never is the flexibility of an unhampered market more essential than in the aftermath of a catastrophe.
Of course price spikes are infuriating, especially to someone whose life has just been thrown into turmoil by a deadly storm. But unpopular or not, they do far more good than harm. Higher prices make it possible for victims to get the help they need to ride out the crisis and for the devastated region to recover as quickly as possible. They do so by sending the message that critical supplies and skills are urgently needed, and by inducing consumers with less-pressing needs to voluntarily defer to those whose needs are more exigent.
When customers in Florida are willing to pay $10 for ice that usually goes for $2, or $400 to rent a generator that usually fetches $250, producers everywhere have a powerful incentive to ship truckloads of ice and generators to Florida. The higher price is justified not only by the higher demand, but by the higher costs associated with doing business in a disaster area. Newsday last week quoted the owner of a tree removal company, who had driven down from Miami and was charging twice his normal rate "because I've got to deal with more aggravation."
"No one wants to come here when I can stay home and sleep in air conditioning next to my wife and kid, go to the gas station whenever I want and get gas," he said. "The ones who are willing to pay now know that they're not getting a great deal, but they're willing to pay a little bit more to get their lives together quicker."
At the same time, price increases perform what George Mason University economist Donald Boudreaux calls "economic triage," directing supplies and repairs to those whose need for them is most pressing. Someone who wants a generator so he can power his computer and TV might be willing to rent one for $250. At $400, he is more likely to decide he can live without it -- thereby making it available to the butcher desperate for electricity so he can keep thousands of dollars' worth of meat from spoiling.
When demand increases, prices go up. As prices rise, supplies do too. And with higher supplies eventually come lower prices. It isn't "gouging," it's the way the world works -- even after hurricanes. Demonizing vendors won't speed Florida's recovery. Letting them go about their business will.
©2004 Boston Globe
Moreover, consumers have a right to take revenge. If a retailer price-gauges during an emergency, consumers can just go elsewhere when there isn't one.
Jacoby... the one voice of sanity at the Boston Globe.
I don't think he adequately addressed the allocation principle involved. Using bottled water as an example, imagine that no price increase occured. The first few customers of the "water store" would buy all the water and none would be left for future customers with the same need for water. If the prices increase ten fold, the first customers will only buy enough water to meet their most basic need for bottled water, therefore more customers will be able to meet this most basic need. The high prices make sure that more people can meet their needs.
Where I went to high school it was, but unfortunately, it was taught by a socialist.
The "system that could instantly respond to a calamity like Hurricane Charley by mobilizing suppliers to speed urgently needed resources to the victims." The system that can" ...quickly attract the out-of-town manpower needed for cleanup and repairs, while seeing to it that existing supplies were neither recklessly squandered nor hoarded." And the system that..." could prompt thousands of men and women to act in the public interest, yet not force anyone to do anything against his will," is the Church and its many, many relief ministries that are down here right now dispensing grace and mercy right where they can meet human need!
Price gougers are buzzards and rank only slightly above the looters.
ping
But why take revenge against someone who is helping you?
But both buzzards and gougers perform a useful service. Without gougers, life would be much more miserable. Why hate someone who can make your life better?
I don't hate anyone. I simply call a buzzard a buzzard. The gougers aren't helping anyone. They're stepping hard on the truly helpless. Sorry, but I'm not buying the "gouger as filling a public interest need" line today. Perhaps I will after the sting wears off around here.
The sting it is going to take a lot longer to wear off if you have to wait a year before you can hire someone to get that tree off your roof.
If Loews gauges during a storm, and Home Depot doesn't, you should remember it and reward Home Depot. I remember a story long ago where HD did just that during a storm and ended up with a much bigger market share later.
I suspect that local businesses support anti-gouging laws. Without outsiders coming in and cutting into their trade, local establishments will have a nice steady business for months after a disaster.
Pity about the poor consumers though.
Good point. When gouging is outlawed, only outlaws will gouge. That means the people you will have to hire to dig yourself out of the mess are going to be seedy looking goons with tattoos.
There is no way that decent people are going to travel to Florida to do business helping people out if the law has a chip on its shoulder and the long knives drawn.
The decent people are already here. They're in the disaster response ministry teams which I already mentioned.
For instance, suppose I sell widgets. I can get $10 per widget at my home in Swan Quarter, NC. Suppose that I read that widgets are going for $100 apiece in southwest Florida. That might induce me to pack up my supply of widgets, leave my comfortable air conditioned house and my lovely wife, and drive a large truck or train load of them to Florida, so that I can sell them at a higher price.
The beneficial effect of this is two fold: first, it makes widgets available to the residents of southwest Florida at some cost; and second, it increases the supply of widgets in southwest Florida, thus putting downward pressure on the price.
If I cannot charge a higher price for my widgets in southwest Florida than I can get at home, I am going to stay home in my comfortable air conditioned house with my lovely wife and perhaps donate a dozen cans of food to the food drive that some church will have to help the victims of Charley. (N.B. Expect some snide comment from southernnorthcarolina about it being more pleasant in ravaged southwest Florida in the middle of a hurricane than being in Swan Quarter on the most pleasant day of the year.)
Perhaps this argument breaks down when you are dealing with something like insulin, but I have been through many bad hurricanes in 50 years of living in coastal North Carolina. In reality the absolute necessities of life are not in short supply for any significant period of time. The wonderful people of the Salvation Army, various churches, FEMA, the National Guard, and a raft other government and eleemosynary institutions are on the spot within 12 to 24 hours with food, clean water, diapers, medicine, etc.
It is unpleasant for days and weeks after a hurricane, but making goods available at some price cannot hurt the situation, and as stated by Jacoby, it almost invariably helps the situation immensely. If you still doubt what Jacoby says, read Adam Smith's Wealth of Nations
If private charities and government relief efforts could do the job alone, then the "gougers" would not be able to do business.
Very true. And the best ration coupon is the dollar bill.
Another benefit of allowing prices to rise is that it discourages hoarding and tends to cause supplies to appear that otherwise wouldn't.
"And perhaps the sting won't wear off the gouger when he finds out his county jail cellmate is named "Meat" (and that's not a nickname). Oops! Did I say that? Gosh, maybe I do hate gougers......"
Excellant! What a wonderful philosophy of government intervention in the market! What other conservative platform planks do you wish to have removed?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.