Put Down My Pet Goat; Pick Up Wealth of Nations

Leftish economist public policy prof Mark Kleiman is providing George W. Bush with remedial lessons in the virtues of markets. Bush said this morning:

I think there ought to be zero tolerance of people breaking the law during an emergency such as this, whether it be looting, or price-gouging at the gasoline pump or taking advantage or charitable giving, or insurance fraud.

Yep. In the same camp with looting and insurance fraud. The modern Bonnie and Clyde are, apparently, Supply and Demand. Kleiman replies:

The natural result of that situation is that the price of gasoline goes up. In the short run, that doesn't result in any additional supply, but it does reduce the quantity demanded, allowing the market to clear. Unfortunately, the short-run price-elasticity of demand for gasoline is low, so even a modest-sized supply crunch will naturally cause big price increases.

In economics, this is called "market clearing." In politics, it's called "price gouging."

Of course, it's possible by law to keep prices below their market-clearing levels. In politics and law, that's called "price control." In economics, the result of that policy is called "shortage." At any price below the market-clearing level, buyers will want to buy more gasoline than sellers have to sell. The result is either waiting in line, which is a very inefficient means of rationing compared to letting the price rise, or some sort of legal rationing system (no doubt with extra rations for SUV owners and others who "need" lots of gasoline).

The fact that this is Economics 101 material doesn't make it any less true.

ADDENDUM: Jane Galt has a good post on the same topic.

Comments

[Ruthless]

Let's put down the pet goat, and pick up Looting 101.

[Abel Winn]

Bush might know the economics, but just not care. Economist Vernon Smith once took Bush to task for his stance on steel tariffs. Bush's reply? "You worry about the economics, I'll worry about the politics."

[independent worm]

Yeah but is it really "market clearing", or just anticompetitive collusion?

In situtations of disaster, it is understood that everybody can and will get away with temporarily jacking prices through the roof. It is a tacit agreement not to compete.

Some will argue that since there's no actual discussion or meeting of the minds regarding price-fixing that there can be no collusion and therefore its just the free market at work.

In the real world, it is understood that everybody else is going to do it, and that "we can all get away with it if everybody keeps their mouth shut."

[Yogi]

In the real world, it is understood that everybody else is going to do it, and that "we can all get away with it if everybody keeps their mouth shut."

They only get away with it if people buy the gas, and then continue to take their business there. There were a couple of gas stations where I lived that doubled or tripled the price of gas on 9-11, and they got such a bad reputation from that they had financial trouble in the months afterward becuase people took their business elsewhere.

[Abel Winn]

"In situtations of disaster, it is understood that everybody can and will get away with temporarily jacking prices through the roof."

And yet even in situations of disaster each seller has an incentive to price slightly below his competition, if his aim is to maximize profits. Moreover, in times of disaster it would be impossible to detect and punish cheating. So how do you propose this nonverbal collusion is able to hold?

And even if it does hold, holding down the prices still prevents additional supply from being attracted to the affected area.

[Kwix]

As a homeowner living in "hurricane alley" I have seen this market action at work. Is it moral, probably not. Should it be legal, I think so. If you use your morals to overcome your business acumen and sell gas, generators, ice, etc at a below market value (but of course still pull a profit), then that is your choice.

[jf]

While I agree with the substance of the post 100%, a statement like

Yep. In the same camp with looting and insurance fraud.

betrays a deliberate misreading of Bush's quote to score some gotcha points. If I said "I'm not going to tolerate anyone stealing from my drugstore, whether they take one bottle of aspirin or the whole damn safe" am I saying that the two are equal?

Furthermore, while I agree with the economics regarding gas stations independently raising prices to bring supply and demand in line with each other, the fact remains that price gouging does go on in situations like this. I saw it in Cleveland, when a few gas stations doubled and tripled prices on 9/11. I say let the market deal with miscreants like that, but it makes the people feel good to think that the government is "doing something about it".

[Shannon Love]

The problem with gasoline prices is that few people understand the concept of replacement pricing.

Most people think that the "fair" price for the gas they buy is the wholesale price of the gas the station has already purchased plus a reasonable markup for profit. If this was actually how the stations set prices then watching the stations raise prices on gasoline already in their storage takes would be an obvious sign price gouging.

However, the price of a gallon of gas you buy doesn't reflect the cost that particular gallon but rather the expected cost of the gallon of gas the station will have to buy to replace it. As the expected replacement price soars, so does the cost to the customer for the gas already in stations tanks because that is where the station is getting the money to buy the replacement fuel. The station can only get a windfall if the the cost of replacement gas drops suddenly. Until that happens, its like bailing a leaky boat.

It might look like price gouging when the local station raises prices three times in one day but if they didn't you might have cheap gas today but none tomorrow.

[Aberforth Dumbledore]

But I -like- goats...

[Rich Ard]

I think what he said was "or taking advantage of charitable giving".

[cjohnson]

So if there's a temporary shortage in necessities instead of rationing, the poor people die off in order to decrease the demand?

Increasing prices during a shortage of necessities does not decrease demand unless people start dying. The market is there to serve people, we do not exist to sacrifice ourselves to the market.

Seriously, is the hurricane a market distortion being corrected by price controls and rationing during a shortage, or are price controls and rationing a distortion of a "post-hurricane free market"?

If you claim the former, then price controls and rationing are rational. If you believe the latter, then you've elevated this ideal of the market above the people it's supposed to serve.

The ideology of the free market is that it's the most efficient means to meet the needs of people, it's the most useful tool. You can't have a market without people and order, so how is it that you could rationalize the enforcement of what you percieve to be a 'free market' at the expense of lives and civil order?

Remember, hungry and uncertain people tend to be detrimental to any sort of market.

[mike_twincities]

I think this sums up the situation in NOLA well.

"An old man in a chaise lounge lay dead in a grassy median as hungry babies wailed around him. Around the corner, an elderly woman lay dead in her wheelchair, covered up by a blanket, and another body lay beside her wrapped in a sheet.

"I don't treat my dog like that," 47-year-old Daniel Edwards said as he pointed at the woman in the wheelchair. "I buried my dog." He added: "You can do everything for other countries but you can't do nothing for your own people. You can go overseas with the military but you can't get them down here."

A lesson in humanity that we will not soon forget, foreshadowing of a WMD incident, or whining by governement-dependants in the most corrupt state of the union?

The most likely answer will be a combination, I think.

Fair winds and following seas to the rescuers.

Live free, fall or fight.

[Abel Winn]

". . . the fact remains that price gouging does go on in situations like this."

Can someone give me a sensible definition of "price gouging?" And can someone tell me why we force gas stations to charge lower than market clearing prices, but don't force private citizens with full tanks of gas to sell off some of their surplus to citizens with empty tanks?

[Phillip Conti]

Hey Cjohnson, a few remarks. Hungry people dont eat gasoline, but in any event the price system is just one way of rationing scarce supply. The man at the pump doesnt have to sell to anyone he doesnt want to, he could always sell to someone who has bought more ration coupons illegally, or cheat the system in myriad other ways, or just refuse to sell until the disaster abates, after all why stay in business when a disaster strikes unless you seek to gain 'monopoly profits'. If gas is in short supply and coupons are not used somehow and the police powers of the state are used to just punish people who charge more because a supply is not forth coming immediately, then that simply allows the consumer to be wasteful instead. The first guy in line gets to consume the amount he buys in whatever fashion he likes and supply dries up that much sooner.

[Ammonium]

This crap in Atlanta is a direct result of underpricing gasoline. Demand is outstripping supply, hence there are shortages. Furthermore, people see the gas shortages and hoard the cheap gas, increasing the gas lines and further limiting the amount of available gas.

Price gouging will seem a much better option when we start seeing emergency response agencies running out of fuel and unable to purchase any from the market.

[independent worm]

This crap in Atlanta is a direct result of underpricing gasoline. Demand is outstripping supply, hence there are shortages

Given America's overall wealth, and dependence on oil, we could probably sustain a $5.50 national average. Enough people would still pay it. Others would suffer, like restaurants and retailers, but it could be done. The reason gas isn't $5.50 all the time is that there's competition keeping it down.

Do away with competition and you can extract exactly how much money people actually could pay for something if they really had to.

The rationale that "don't you know there's a war (or hurricane) on" doesn't fly. There is no real increase in demand here; people may be lining up for gas, but they'd be buying that gas anyway, and the stores would be selling it anyway. The process may be slightly accelerated by televised fear reports, but it's not like there was an influx of 500,000 new SUVs that all needed gassing-up into Atlanta overnight.

[Don]

Can someone give me a sensible definition of "price gouging?"

"Price gouging" is a price increase you don't like.

[joe]

Kleiman's showing the traditional problem with Econ 101 reasoning: he assumes the public will behave as rational, profit-maximizing machines, who are able to shop around in a competetive market and spurn prices they deem too high. Not exactly a view that takes into account the reality of what happens in the immediate aftermath of a catastrophe like this.

'Can someone give me a sensible definition of "price gouging?"' Raising your prices to gain windfall profits (not to make similar profits in a higher-cost environment, but to make much greater profits) in a situation in which events reduce or eliminate the consumers' ability to take their business elsewhere.

[Ammonium]

There are very few situations that could really be considered "price gouging".

I was in a place in Alaska with one gas station and the nearest station was 1.5 hours away in Canada. If they raised their prices really high, without reason, that could be considered price gouging. (But it would create a great opportunity to open a new station so that the locals can run the current station out of business.)

On the other hand, I was reading a guy complaining that he has only one gas station near his house, so they can charge whatever they like. Problem is, there are about 20 gas stations between his house and where he works.

[agentalbert]

How much is a "windfall"?

[matt]

"How much is a "windfall"?"

A profit margin joe doesn't like.

[Number 6]

Shannon Love-Thanks for the clarification. I hand't realize that, and always wondered why the pump price went up long before more expensive wholesale gasoline could possibly get there.

For once, I agree with Joe. His definition of gouging strikes me as accurate. Remember, though, that morality and legality are different concepts. Repugnant as the actions of the gougers are, I suspect a government remedy will just make things worse.

[A. Smith]

I would never have called the gasoline pricing structure in the US a "market!" Sounds like Bush isn't the only one who needs to read my famous book.

[paul]

I think Bush was speaking of price-gouging or profiteering in the affected areas which is illegal and is a problem in disaster areas

[thoreau]

I personally think that every American should take Econ 101, Statistics 101, Intro to Composition, Public Speaking, and an introductory class in biology, physics, chemistry, or geology.

Combine that with universal concealed carry and we'd have the foundations of a pretty good society.

(And no, I don't want to mandate any of this. But it would be nice if people did it, dammit!)

[thoreau]

Shorter version of what Shannon wrote was supplied the other day by Jennifer:

Better to be able to buy all the $4 gas that you want than limited or no $2 gas.

[Isaac Bartram]

I personally think that every American should take Econ 101, Statistics 101, Intro to Composition, Public Speaking, and an introductory class in biology, physics, chemistry, or geology.

Preferably before the 8th grade:)

[Don]

Increasing prices during a shortage of necessities does not decrease demand unless people start dying.

Let's consider food. Maybe I have enough food for my immediate needs, but I would like more just to hedge my bets. But, due to the price increase, I decide to forgo more food and save my money for something else. Meanwhile, you don't have any food, so you are willing to spend your money even though the prices are high. The prices dropped my demand for food, although they may not have dropped yours.

In the meantime, the higher food prices drive grocery stores and private operators to strive to meet the demand for food. It now makes economic sense to fill your truck with food bought someplace else and drive it down to sell.

The market is there to serve people, we do not exist to sacrifice ourselves to the market.

That's the wrong way to look at it.

The market is based upon freedom and property rights. I have a right to the fruits of my labor. If I work hard making some widget (or trucking oil or buying and selling food), I and only I have rights to my product. I can morally put any price on my product that I want, and consumers can morally choose to buy my product or not. But they have no right to demand that I serve them--that I put a certain "fair" price on my products.

Seriously, is the hurricane a market distortion being corrected by price controls and rationing during a shortage, or are price controls and rationing a distortion of a "post-hurricane free market"?

Price controls and rationing are a distortion of a post-hurricane free market. Hurricanes, the quantity of oil in the ground, the winter temperature, etc., can be simply considered "acts of god" that define the market.

[nmg]

"Not exactly a view that takes into account the reality of what happens in the immediate aftermath of a catastrophe like this."

The reality is that gas has become extremely rare, and there is lot of demand for it. Thus, the price goes up. Suppliers are strapped and cannot get more product, possibly for weeks.

Is it immoral for someone to sit in line and fill up a huge tank then park out front and offer to sell what's in their tank at a markup?

Unless you want to call for outright collectivist rationing of gas, then you must agree that the prices are a signal refleting supply and demand. Any definition of "gouging" is sheer nonsense.

nmg

[JACK]

Ever been to a baseball game and had to pay $6.50 for a beer or $3.50 for a bottle of water?

[Don]

'Can someone give me a sensible definition of "price gouging?"' Raising your prices to gain windfall profits (not to make similar profits in a higher-cost environment, but to make much greater profits) in a situation in which events reduce or eliminate the consumers' ability to take their business elsewhere.

Those "windfall profits" can drive competition. All of a sudden it makes sense to fill your pickup or SUV and head out to the disaster area, and compete with the local distributers.

Also, if prices are kept low like joe wants, then consumption will be high, the first people to the store will buy everything up. The truely needy coming later will not be able to buy the item at any price.

In any case, there is nothing wrong with making huge profits. Even the "windfall profits" that get joe's panties in a bunch. That food, gas, water, and so on all belong to someone, and only by denying their property rights can you claim that they have any obligation to sell at some "reasonable price".

[carl s]

I'll admit it, I am a slave to Friedman and the neo-classicals, and I worship at the shrine of the Chicago School. But of course there is such a thing as price gauging in this situation: taking advantage of increased transaction costs in order to charge monopoly prices. Since it'ss too expensive (read:impossible) to go to a competitors station, a station jacks up their prices. Perfectly rational? Yes. Immoral? Eh. Illegal? It should be, especially in a crisis situation.

[jc]

joe,

Kleiman is talking about people hundreds of miles from the catastrophe raising their prices and being accused of gouging. Their customers can still shop around like they always did. Supplies are going to be a little tight for a couple weeks, perhaps many stations are going to have to wait a few extra day to get their orders filled or maybe they're only getting 80% of their orders so that other stations don't go dry.

And if you're in the catastrophe, you may as well take those windfall profits now, because profit is going to go away for a month or two (but your mortgage and other bills or not going to disappear).

[Number 6]

It sounds like a party a Francisco D'Anaconia's house in here. Saying "the market will bear it" does not make an action ethically right.

Take the example of reselling gas, and recast it. Suppose someone went into the grocery store and bought all the available food, with the intention of reselling it at a highger price. Yes, it's the market in action. It's also a shitty thing to do.

[jc]

Yes, it's the market in action. It's also a shitty thing to do.

And isn't it strange how whenever there's catastrophic price gouging going on the Red Cross and loads of other volunteers are there to help those who are in most desparate need.

Sorry, but the people who bitch the most about price gouging are the ones who ain't doing too bad by comparison: "I can't believe I had to pay $60 to fill up my Lexus!"

[Russ D]

Jack,

I've been to Fenway Park where a 20-ounce Coke costs $4.50 and a 20-ounce bottle of water costs $4.75.

[Joey]

Price gouging: $30 for a bag of ice, $20 for a pack of batteries, $10 for a bottle of spring water.

I saw it after Hurricane Hugo hit the Carolinas, and the officials were quick to crack down. Rightly, it seems to me.

There's a vast difference between preying on desperate people searching for the basic staples of life in an emergency situation, and a gas station hiking their product 50 percent because of distribution problems.

[nmg]

As many posters have pointed out, there's no good result. Pick your poison.

1. The first buyers hoard everything at artificially low prices, and very quickly no one can get any gas.

2. The high prices curtail hoarding and more gas is available to those who are most desperate for it.

Neither scenario is great but ONE of those scenarios involves no state coercion, which is always a plus.

nmg

[Number 6]

JC- A non sequiteur and a generaliztion. I'm not swayed.

[Number 6]

NMG- Option 3: Increase prices to reflect increased costs, without engaging in the sort of thing Joey mentioned.

[JD]

A couple points: There's a lot of talk about how people in disaster-struck regions can't move around or comparison-shop. Perhaps not, but higher prices would serve as an incentive for other merchants to move in...except that that's probably illegal much of the time thanks to business licensing laws.

cjohnson - "the market is there to serve people"? No, the market is people. When you regulate "the market", you're regulating people. It doesn't have an existence independent of us.

We should remember, though that the law is not everything, and that the philosophy of capitalism doesn't cover everything. We can think things are despicable without thinking that they should be legally punishable. We should also remember incentives: if you punish something, you tend to get less of it. Punish people "gouging", and you'll probably get more people just shutting down and leaving instead of staying to do business, and that's even less of a win.

[lurker]

Why do people buy ice AND water like crazy during hurricanes?

[joe]

"The reality is that gas has become extremely rare, and there is lot of demand for it. Thus, the price goes up. Suppliers are strapped and cannot get more product, possibly for weeks."

Yes, I agree. Some rise in price in inevitable.

"Unless you want to call for outright collectivist rationing of gas, then you must agree that the prices are a signal refleting supply and demand." Really? You can't imagine any possible reason why gas station owners might raise their prices in a situation like this, other than a changing cost point in an open, functioning market? None at all?

Try real hard.

[jc]

Number 6,

Perhaps, much like your posts.

And your Option 3 is exactly what takes place during your so-called gouging when you consider replacement costs.

[joe]

"Those "windfall profits" can drive competition. All of a sudden it makes sense to fill your pickup or SUV and head out to the disaster area, and compete with the local distributers." That's a great idea! Let's encourage large numbers of mouths to drive into the area suffering from a shortage of food, water, and other necessities, in which the hospitals, emergency services, and roadways are a mess.

"Also, if prices are kept low like joe wants, then consumption will be high, the first people to the store will buy everything up."

This is indeed a threat, and any anti-gouging measures should include anti-hoarding measures.

"The truely needy coming later will not be able to buy the item at any price."

Only if they are left in place once the emergency ends, and intrude upon the normal, functioning market. This would be a terrible idea, for the reasons you give.

'In any case, there is nothing wrong with making huge profits. Even the "windfall profits" that get joe's panties in a bunch. That food, gas, water, and so on all belong to someone, and only by denying their property rights can you claim that they have any obligation to sell at some "reasonable price".' I gots me rights, now take you skinny assed kids and go cry somewhere else. Prick.

[Russ D]

This is indeed a threat, and any anti-gouging measures should include anti-hoarding measures.

One man's hoarding is another man's disaster preparation. But certainly you're not against disaster preparation.

[fyodor]

Any time someone charges less than what someone is willing to pay, that is charity, pure and simple. Whether the market that supports the price in question is long-term or short-term is irrelevant.

That said, charity can be a very GOOD thing, especially under circumstances in which people are in great and temporary need of help.

And so I say kudos to all the people out there, both in the immediate vacinity and elsehwere helping their fellow human in their times of need, in ways in which they do not have to.

But let's draw a distinction between complimenting people who are doing good and criticizing people who are doing no harm. And when someone gives someone something they want for a price that someone is voluntarily willing to pay, that is not harm. But when you interfere with a supplier's ability to provide goods and services for whatever price makes it worthwhile to that provider to do the supplying, then you ARE harming both the supplier and his potential customers. Because sure, some suppliers will be willing to supply the whatever under the restrictions, but NOT ALL will be. In addition to the fact that it is simply unwarranted (ie, uninitiated) coercion.

[joe]

As far as the "encourage competitors to move in, and undercut the gougers," have you SEEN any maps or photos of the area in question? Sure, tough guy, YOU go build a gas station there. And, by the way, make sure you get in functioning within a couple days.

Eventually, the market would do exactly those things - increase suppliers and create price competition. But we're talking about an emergency here - we don't have until "eventually."

"We can think things are despicable without thinking that they should be legally punishable." Just as, well, a tiny fraction of "us" can think capping gas prices at, say, $3.50 for a couple weeks is a "despicable" intrusion into the property rights of station owners, without the horrible, horrible harm of their making good profits instead of really, really incredible profits preventing us from having a sound public policy.

[joe]

"One man's hoarding is another man's disaster preparation. But certainly you're not against disaster preparation."

In the middle of an ongoing disaster I am.

I hear there are school buses being used to evacuate people, when they could be used to bring kids in the disaster area to school. But certainly you're not against kids going to school.

Priorities.

[jf]

Why do people buy ice AND water like crazy during hurricanes?

lurker: to keep their food cold and replace the drinking water that ain't coming out of the pipes anymore.

[joe]

fyodor, we're not trying to save the souls of gas station owners here. We're not trying to improve their karma.

We're trying to manage a freaking catastrophe. Boo fuckity hoo, coercion. This is life and death.

[fyodor]

joe,

So maybe you're the tough guy?

I don't claim to know how quickly gas retailers could move into the area.

But I know they are more likely to if they are allowed to charge what they like.

AND those already there are less likely to close up shop if they are allowed to charge what they like.

[Uncle Sam]

Is it OK to force anyone to sell anything to anyone who claims a need for it?

If no, then where does the right or authority come to say at what price?

[lurker]

jf,

Does hurricane ice last longer than regular ice? I assume it melts at roughly the same rate, which means in a couple hours you've got plenty of drinking water.

[jf]

lurker:

how much ice do you store at your house, anyway?

[fyodor]

fyodor, we're not trying to save the souls of gas station owners here. We're not trying to improve their karma.

Oh fuck you joe. There's people saying that charging a lot is a fucked up thing to do and I'm saying it's not. That's important cause if it's such a bad thing to do, then many will think why not make it illegal?

I know it's a life and death situation. Discouraging suppliers to provide what people need ain't gonna help. That's the point.

[joe]

"Is it OK to force anyone to sell anything to anyone who claims a need for it?" I would say that, sort of like harming or killing another person, it is only OK in the most dire situations.

"If no, then where does the right or authority come to say at what price?" From the same place as the authority to commandeer a private citizen's house as a field hospital in the middle of a battle.

[Uncle Sam]

The libertarian premise of a free market is that participation in transactions that do not violate the non-aggression principle are nobody else's business AT ANY TIME.

Now go donate to any charitable effort to help those who need it and quit complaining about the voluntary transactions of others. It none of your f'ing business.

[jimbo]

This thread reminds me why I distrust doctrinaire libertarians.

Keep talking about the morality of charging $10 for a bottle of water.

It shows your true colors.

[joe]

lurker,

Refridgerators remain insulated even when the power goes out. As to thermoses and coolers.

[joe]

jimbo,

You either "get it" that it's not ok to profit from others' suffering, or you don't.

[Yogi]

This is indeed a threat, and any anti-gouging measures should include anti-hoarding measures.

Okay, so before I do anything in a disaster area, I'll be sure to ask the government exactly what I should do. I don't know about you, but I wouldn't exactly want to take survival advice from the government at Louisana right now. They look like they're having enough survival problems of their own.

[lurker]

how much ice do you store at your house, anyway?

During an impending disaster, an amount proportionate to the amount of food I'm storing.

[MikeP]

We're trying to manage a freaking catastrophe. Boo fuckity hoo, coercion. This is life and death.

You make a point, but you don't follow through with it.

Aside from shelter, the actual widespread needs in a disaster situation are few and are very portable: drink, food, clothes, shoes -- pretty much those things that people don't begrudge the looters for.

No one should care if a gas station in the area -- or not -- charges high prices. That's not a life or death commodity.

And for those other goods that people really need? Gouging is the signal to suppliers all over the region that people need these goods and we should be bringing more to them.

Prosecuting gouging is yet another example of the government "Doing Something". As usual it is counterproductive, especially in a disaster situation when the government should be dealing with other priorities.

[Uncle Sam]

And when can we expect people to stop expecting everyone else (gov't) to bail them out for the consequnces of their choices.

Filters that can clean water of impurities have been available for a long time. Likewise, dry foodstuffs, camp stoves, etc.
If I lived in hurricane country, I'd make sure I had the fixins. I live in earthquake country and I do have meny of the things. Still must get a water filter. Maybe a spare. Maybe a dozen, I could sell a few if need be.

[fyodor]

I'll add this. Price "gouging" is only "bad" in the same sense that in certain extreme circumstances, not doing good can be considered bad. For instance, if you saw someone who's life was being endangered and you could save them easily but you don't, many of us would judge your action to be "bad" even though you didn't make anyone's situation worse. I think people who criticize so-called gouging are at some level thinking of it in these terms. At to a very limited degree, it is. But there's big differences, too. First, it may not be so easy to provide the goods and services that are in demand. It's not just coincidence that most of the people involved in search and rescue are paid professionals. Second, some of the people who want the goods & services may be in dire need, but others may not be. In other words, it's not as obvious as in the simplistic analogy. Also, the whole idea of capping prices to near where they were before is just arbitrary. Why not insist that people give it away for free, if you're going to insist on legally enforced charity?

[joe]

My last comment about "getting it" was not intended for people like fyodor of Kleiman, who make perfectly ethical (though, IMHO, wrongheaded) practical arguments, but to those boo-hooing about the property rights of gas station and convenience store owners, as if they trump the responsibility every human has to his neighbor in the face of catastrophe.

[Steve]

joe,

I "get it" that it's wrong to profit from the suffering of others. I have a question for you: do you "get it" that we shouldn't have laws against everything that's morally wrong?

I'm actually not sure whether anti-gouging laws would be a good or bad idea. I certainly don't think there's some inalienable right at stake to overcharge in a disaster. I DO think that fucking with the market usually makes things worse, so I'm not sure outlawing price-gouging would help.

But please, answer my question. This type of thing comes up a lot, and your answer seems to always be, "it's wrong. Of course there oughta be a law."

[Uncle Sam]

"You either "get it" that it's not ok to profit from others' suffering, or you don't."

It's not profiting from the suffering of others, it's profiting from their lack of preparation.

[jf]

joe

You either "get it" that pretty much everything good that we have in society has been driven by the profit motive, or you don't. There is a fine argument to be made that the profit motive in the case being debated acts as a regulative force on a local economy during a crisis, which allows goods and services to be distributed not on "first come-first served" basis, but based on measuring opportunity costs of spending limited money on gas, food, water, or plywood. Your only argument is that it is morally wrong to raise prices in a crisis, without even considering the economic argument. Unless I've missed it.

[fyodor]

This thread reminds me why I distrust doctrinaire libertarians.

Most of the people who have stabbed me in the back in my life were morally-righteous do-good liberals.

Of course, most of the people I've known in my life have been liberals! 🙂 But it has certainly seemed like the ones who were most morally righteous about their political views and their love of humanity were the ones could turn the most cold in the blink of an eye.

Better a $10 bottle of water than none.

[joe]

Yogi,

Anti-hoarding measures aren't intended for the welfare of the would-be hoarders, who are assumed to have access to what they need. They are intended for the welfare of everyone else, whose access to necessities is endangered by hoarding.

Mike P, I'd say gasoline falls a lot closer to food and water than to, say, Barbie dolls. Generators run on gasoline. Boats that could bring people to high ground, medical attention, and their lost children run on gasoline.

fyodor,

"First, it may not be so easy to provide the goods and services that are in demand." Agreed. The government needs to take this into account, either by allowing some increase in price to account for real-world increases in the cost of doing business, or by compensating owners who are forced to sell below (or at) cost by anti-gouging laws. I've got no problem with the argument that businessmen shouldn't be screwed.

"Second, some of the people who want the goods & services may be in dire need, but others may not be." This is where anti-hoarding rules (for example, no more than X gallons of gas per visit) come in.

"Also, the whole idea of capping prices to near where they were before is just arbitrary." It's not a perfect system. Neither is letting people die. In an emergency, you muddle through, and muddling through works best when people aren't working at cross purposes.

[Uncle Sam]

That being said, a wise business owner in many disaster situtations, might either rations goods cheaply, or distribute necessities to neighbors free of charge, with an eye to the future. Even business interests beneifts from being good neighbors and having good neighbors.

[joe]

"do you "get it" that we shouldn't have laws against everything that's morally wrong?"

Yes, of course. I would support a law forbidding people from singing "Let the Eagle Soar." We should only have laws against things that harm people - like price gouging.

jf, I am quite aware of the advers economic effects of price regulation, and only support them for limited periods during periods of extreme crisis. During a crisis, it often becomes necessary to do things that are normally a bad idea, as the circumstances throw new factors into the cost/benefit equation that should underlie every analysis of whether a regulation is "worth it."

In this case, the time frame of the regulations will be sufficiently short that the market would have been unable to respond in a meaningful way in the necessary time frame, and the harm of, say, jacking up the price of bottled water become much, much more serious.

[joe]

er, "I would NEVER support..."

[Uncle Sam]

"In the aftermath of Hurricane Katrina's devastation, we encourage our Mileage Plus members to make a donation to the relief effort. Channeled through respected charities, the monies will go to everything necessary to help those
affected rebuild their homes...and their lives.
To thank you for your participation and help, we will deposit 500 miles* in your Mileage Plus account for donations of $50 (USD) or more now through October 31, 2005."

[temp]

I've been to Fenway Park where a 20-ounce Coke costs $4.50 and a 20-ounce bottle of water costs $4.75.

Thank God for sugar subsidies.

[MikeP]

Mike P, I'd say gasoline falls a lot closer to food and water than to, say, Barbie dolls. Generators run on gasoline. Boats that could bring people to high ground, medical attention, and their lost children run on gasoline.

In that case, we should not impede those who fill up 5 gallon gas containers and motor around the affected area selling them for $100 a piece.

Even if the state imposed a $3.14 per gallon cap on gas, maybe they could still sell the canister for $85. But if the government said no gouging on anything, well, the people who needed the gas enough to pay $100 to a man in a boat to get it ... won't get it.

[temp]

You either "get it" that pretty much everything good that we have in society has been driven by the profit motive, or you don't.

Whoah whoah whoah! If that's where this ship is heading, I'm gettin' off.

I'm gonna dive right into the ocean, swim to shore, walk up onto the beach, lay down in the sand, soak up some sun while I wait for the stars. Maybe I'll pick up some cigarette butts along the way, and think really hard about this whole relationship between almost all good things and the profit motive.

[Evan Williams]

Joe,

By your logic, we should simply send in National Guardsmen (if are there any left onshore) to all the filling stations, and have them "seize" their gas and give it away for free to people who rrrrreeeeaalllly need it. How is "you can only sell your gas for what we say you can" really that much different from "you can only sell your gas for free"?

[jc]

I am quite aware of the advers economic effects of price regulation, and only support them for limited periods during periods of extreme crisis. During a crisis, it often becomes necessary to do things that are normally a bad idea, as the circumstances throw new factors into the cost/benefit equation that should underlie every analysis of whether a regulation is "worth it."

Spoken like Richard Nixon.

[Slippery Pete]

It's probably been said here a few times, and I don't have the patience to wade through all the libertarian propaganda to find it. But price controls, despite their market stupidity, do serve the social function of spreading the misery around. Let price alone dictate distribution in an emergency, and the effect is that the poor go without fuel and the wealthy skate by without a second thought. Of course, that's life. That's why being rich has always been preferable to being poor. But with regard to critical supplies (gas = transportation) in emergencies, many people (myself included) would rather see product rationed by queue than price alone.

[Evan Williams]

Temp:

you obviously didn't see the caveat of "in society". There's a difference between saying "everything good in the world is a result of the profit motive" and "everything good in society is a result of the profit motive". Then again, you also have to realize that "good" is extremely subjective. Man, I love cigarette butt litter...but I sure hate laying on the beach and watching the stars.

[jc]

If you don't like the price gouging now, wait til you see the overtime (and extra vacation) the city and state employees demand.

[joe]

Evan,

If "what we say you can" sell you gas for is kept at a reasonable level (and/or, if compensation for loss is made available), then gas station owners will choose to keep selling it. If they have to give it away, they will not. A pretty big difference, no?

Now, make sure you ask me "So what's reasonable, huh? Huh? THAT'S ARBITRARY!" before you accuse me of taking the absolutist position. 😉

[Russ D]

I appreciate all the people bitching about libertarians; there's so many of them in positions of public authority and all.

Even if we did have price controls, you'd have to pay someone to go around enforcing the controls instead of going around, you know, helping people.

But it's nice to see that even in emergencies joe still finds time to be a bureaucrat.

[fyodor]

or by compensating owners who are forced to sell below (or at) cost by anti-gouging laws. I've got no problem with the argument that businessmen shouldn't be screwed.

Well okay, then you're just talking about temporarily subsidizing businesses, at least in theory. I say "in theory" for a few reasons. One is that I wouldn't expect business owners to be as sure as you are that this bureaucratic scheme would work the way it's supposed to. Get screwed by the government? Unthinkable!! Next, there are other costs involved to doing business than what you can show on a spreadsheet. If a business owner has to consider tending to his own difficult circumstances, being able to charge way over what the anti-gouging law allows may be what's necessary to give him the incentive to open his business to the public. Allowing businesses to charge what they like is still the best way to keep or get those businesses open to provide the goods and services that SAVE PEOPLE'S LIVES, as you never tire to remind us is your supposed goal. But at least promising businesses some compensation afterwards will alleviate the problems caused by the anti-gouging laws to some degree.

[Stretch]

The problem here is that the best way to allocate scarce goods in this siutation is through unethical pricing. The truth is that rational action and ethics aren't always buddies. We have two possibilities here:

1. Prices are raised, which is awful, but doing so allows for market-based rationing which generally does the best job.

2. Prices are kept low and shortages appear.

That's it, you have no other options. High prices or low prices. You can debate the ethics of price gouging all you want, but it will ensure that more people have what they need (and, of course, only what they need). Again, I don't think that makes it ethically right necessarily, but mandating "ethical" prices will absolutely have a greater negative result.

[joe]

Holy Crap:

"Reporter: Regarding the president's zero tolerance for insurance fraud, looting, price gouging. Does he make any allowance for people who have yet to receive aid who are taking things like water or food or shoes to walk among the debris?

Scott McClellan: I think you heard from the president earlier today about his zero tolerance."

What the fuck is wrong with these people?

[temp]

you obviously didn't see the caveat of "in society"

Evan, you're horribly right, I missed that, sorry.

I don't disagree less now, but I could have chosen a better story. It's just way too broad of a brush, even w/ that caveat and w/ an agreeable definition of "good". It's like saying most gaming industry executives are corrupt. Maybe SOME of them are, but...er....

Seriously, if you're talking about man-manufactured objects, you're probably almost entirely correct. But I still appreciate the the exceptions, like box cars in amateur box-car-derby races.

[joe]

What's going to take longer: the construction and stocking of a new 7-11, and the gradual decline in prices as the market comes around

or

the death of a 10 month old whose mom can't afford the going price for milk?

[fyodor]

How long is it going to take for those merchants to move in too?

If the laws of supply and demand cannot work quickly enough to meet those needs, then another method must be used.

But as I mentioned previously, it's not just a matter of inviting competitors in. It's also a matter of giving existing businesses the incentive to be open. Capping prices reduces that incentive, allowing business owners the freedom to charge whatever they like (including prices below what they can get if they decide to be charitable) maximizes that incentive.

[Stretch]

or

the death of a 10 month old whose mom can't afford the going price for milk?

Joe, the problem is that if prices are much lower the the market dictates that 10 month old won't be able to buy milk anywhere at any price.

[joe]

fyodor, do you recongize that there is a countervailing force - that rising prices can, themselves, reduce the availability of necessary goods to the people who most need them?

[fyodor]

joe,

Yes.

[Xavier]

I honestly can't fathom why anyone would morally object to charging vastly increased prices for goods during a crisis. If the real social cost of consuming a bottle of water is $20, it makes no sense at all to me to sell the water for anything less. The price is at least as good a method of rationing supply as anything else that could be proposed. I see nothing wrong with allowing market forces effecting a sudden and significant wealth transfer from consumers to shopowners. If nothing else, that provides an excellent incentive to be a shopowner with a large stock of essentials when a crisis hits. Maybe my moral intuition is just unusual, but these ethical objections to price gouging simply make no sense to me.

But if, for whatever reason, you just can't get past the distribution effects, how about this for a compromise. When a crisis hits, we immediatly enact a massive excise tax on the sale of all necessities and distribute a fairly significant sum of money to every person in the effected area.

Let's use gasoline as our example. Once a crisis has already hit and it's very difficult to get gasoline into the affected region, supply is extremely inelastic. We have a situation where supply is essentially constant at the amount of gas that was on hand when the disaster struck. Gas stations are selling at the price where supply and demand intersect.

When an excise tax is enacted on a particular product, the cost of the tax initially falls on sellers (as it increases their cost of doing business). For most products, the cost of the tax will be partially shifted to consumers because some of the sellers will choose to leave the market or shrink their operations. Quantity supplied will go down and price will go up.

But in a case like this, that won't happen. Gas stations are already making windfall profits selling the gas they have in stock. An increase in their cost of doing business isn't going to push them out of the market.

Basically, this would be a reasonably efficient wealth transfer from gas stations to consumers, which would counteract the wealth transfer from consumers to gas stations caused by the crisis. Poor consumers who really need gasoline (or food or any other necessity whose price is increased due to the crisis) can will at least have the necessary liquidity to buy it due to the lump sum provided by the government (a sum which would be recovered with revenue from the excise tax, BTW). But everyone would still have an incentive to conserve as much as possible because, even though they would have the money on hand to pay the inflated prices, they would obviously prefer to save the money and spend it when prices recover after the crisis.

This isn't an ideal solution because it assumes that supply is completely inelastic in a crisis. By reducing the windfall profits to sellers of necessities in a crisis, we reduce their incentive to stock up beforehand and reduce the incentive to bring in necessities at high cost during the crisis. But price gouging laws suffer from that problem also, so this would still be a step in the right direction. If you can get past the initial WTF reaction to the idea of instituting a massive gas tax in response to skyrocketing gas prices, this might be politically feasible.

[Kwix]

I have to admit, Uncle Sam said it best;"It's not profiting from the suffering of others, it's profiting from their lack of preparation."

I live in the Panhandle of Florida.
Now, when hurricane Opal rolled through eleven years ago, two days after the hurricane, there were people toting in generators on the back of pickups. Granted, they were selling them at a 200-300% markup, gouging if you will, but they were selling all of them. People were then willing to spend $1500 for the convience of having a refrigerator and air conditioning. During Opal, my neighbor was lucky enough to be able to afford one at that time. He paid dearly for his lack of preparation, but I benefited by borrowing his generator for a couple of hours a day to cool the food. The potential for increased profits drove people to get off thier asses, buy out the local Home Depot of Generators, load them on the back of a pickup and tote them hundreds of miles to sell the in my back yard.

However, since then, the state has passed anti-gouging laws. Hurricane Ivan last summer was a direct hit on this area. Granted, it rolled onshore as a Cat 3, not Cat 4, but still... I had a stock of canned food for my family, however I had no generator with which to keep my frozen goods cold. There were no generators to be had. Period. The local stores sold out a week in advance and Nobody would get them for at least another week, and by that time, my food would have been spoiled. Now, was it because of a lack of generators in the greater market that it took so long? No. It was because the profit motivation was not there.

The only real necessities during a hurricane are food, water, shelter and clothing. Almost all of which show up within 2-4 days after a natural disaster via charities or the gubmint. New Orleans is a loss, so the gubmint is evacuating everybody, whether they run a store or not, so that shouldn't even factor in to this discussion.

[jf]

temp:

I should have been more clear. I meant that pretty much every advance that has benefitted society has been motivated by profit.

Regarding that, joe, you've dodged my point. I'm not arguing that price caps are bad (although they are, but that's not the thrust of my argument). I'm arguing that unfettered price determination by sellers in a competitive market is good, for the reasons I mentioned above. Unless the government wants to bring in the supply of unleaded it's been hoarding in Baton Rouge and sell it at "fair market price", these grandstanding politicians (and those who don't have their own money on the line, like certain bossy city planners), should butt out.

And as far as moms, starving babies, and milk, unless the mom is flat broke, obviously she'll benefit from inflated milk prices, because people who don't NEED milk will be more likely to buy water, soda pop, juice, or whatever. But I doubt you'll ever concede that point.

[joe]

"I honestly can't fathom why anyone would morally object to charging vastly increased prices for goods during a crisis." Because the people who need the goods won't be able to afford them. This is baffling to you?

"I see nothing wrong with allowing market forces effecting a sudden and significant wealth transfer from consumers to shopowners." Nor do, do long as the consumers actually get what they need. The complex missing link that seems to be eluding you is the fact that consumers, particularly after a disaster, don't have piles of money sitting around. Especially when you remember that the people who got stuck in New Orleans are the ones who couldn't afford to flee.

jf, the people left in New Orleans mostly are flat broke. What a shocker, the people who get screwed in disasters tend to be poor!

[jf]

joe:

considering that the number of retail stores open for business right now in New Orleans is miniscule, if not zero, I don't think they were the people being discussed. If so, well, it doesn't matter how low prices are for them, does it?

[Xavier]

joe: I'm not talking about New Orleans. New Orleans is too screwed for price gouging laws to matter. In the really damaged areas, there are no stores in operation selling goods at any price. But let's assume there are a handful of operating stores operating right in the middle of the worst of the flood. If, as you state, the overwhelming majority of the remaining residents are dirt poor and have very little money available, how are the store owners going to price gouge them? They're going to raise their prices so high that no one can afford to buy anything? They're going to raise prices to a market clearing level, but not any higher. Do you really think there is going to be some grocery store owner sitting on a stock of food waiting for some hungry rich guy to buy him out? If there's no cash in the crisis region, that's going to severely hamper a store's ability to raise prices no matter how desperate people are to buy food. Remember, money is subject to laws of supply and demand also.

The missing link that seems to be eluding you joe is that there is absolutely no way that raising prices in the aftermath of a crisis is going to reduce the amount of a necessary product that consumers will buy in aggregate. The only possible argument against price gouging is that it will allow rich people to take all of the remaining supplies of a scarce good while the poor suffer without. But if, as you claim, virtually everyone remaining in New Orleans is in dire poverty, who's going to outbid them for the supplies? Your claim that only the poor remain in New Orleans completely destroys your argument.

[Some Guy]

But then why have transactions at all? Why not just have the government seize all assets on the scene, distribute them solely according to perceived need, and pay the former owners of those assets, at some later time, whatever is determined to be a "reasonable" price?

[fyodor]

Some Guy,

joe would probably be fine with that, only he thinks society can get the results it wants on the cheap by making business owners slaves to a good cause. Although, if joe's plan to reimburse business owners could be depended on to work as drafted on paper, then there really would be no problem (other than the perennially thorny issue of forcing people to pay taxes to help others in need). But of course, his plan to magically reimburse business owners in such a perfect manner that they don't "lose" a dime ignores various realities that I've described above.

[jc]

joe is under the delusion that merchants have some special force field that keeps them from actually having to suffer through a disaster while everyone else around them endures a catastrophe.

[shkval]

Everybody here is missing the point (or at least my point). Price gouging is not an issue in the disaster area. That always happens, and always will. Supply and Demand in Action. What I see as gouging is local gas stations raising their price $.60 (or 25%) in two days (I haven't been outside today to see if we've had a third straight day of $.30 increases). That has no basis in supply and demand. Although the petroleum refining and distribution system has had most of the slack managed out of it, I find it incredulous that there's only 24 hours from refining to delivery (prices started up on Tuesday). This is price speculation and manipulation, pure and simple, and has nothing to do with supply and demand or wholesale distribution. Other points to ponder: the price relationship between grades of gasoline ($.10 for each octane step) has remained fixed since gas was $1.50. All gas stations in a major metro area increase their prices by the same amount simultaneously. How is this not collusion?

[Anonymous]

incredulous

Don't you mean incredible

It's a common mistake, sort of like "simplistic" instead of "simple". Words that don't mean the same but sound fancier, thereby letting the writer imagine himself better educated than he actually is.

[fyodor]

shkval,

Well,..........yawn. Nevermind.

[Xavier]

Shkval: There are several reasons that price will spike immediately. First, a big segment of the population is going to believe that gas distribution is soon going to be in short supply even if the effects of the storm haven't affected distribution in far away areas yet. That's going to temporarily increase demand. When gas stations see a huge line at their door, they increase prices immediately. You don't need collusion to explain that. Second, since gas stations know that trying to buy gas wholesale is about to become extremely expensive, they're going to want to hold on to the supplies that they currently have. If you know for certain that the price of a non-perishable commodity is going to go up in a few days, it's going to go up today instead. If you had taken any basic economics classes, you would know that expectation of future price changes is one of the major determinants of supply and demand.

Since gas is basically fungible within a given geographic market, prices are going to eventually equilibriate a pretty constant price within a market. I suppose I can't prove that there is no collusion, but all of the evidence you cite (immediate price response to supply shocks and equilibrium prices within a geographic market) are exactly what we would expect in a perfectly competitive market, so you certainly haven't provided any evidence of collusion.

[Jason Ligon]

This isn't a morality problem, it is an allocation problem. It is not at all clear to me that first come first serve is moral while willing to pay is not.

Yes it would be nice if everyone had plenty of gas and no one were in danger of being deprived, but then we wouldn't be talking about a crisis. It isn't clear to me that the guy who is out of gas now is more entitled to gas than the guy who has some gas but knows he will be out in a little while. Who is more in need of gas?

[Harry Browne]

From above:

"The market is there to serve people, we do not exist to sacrifice ourselves to the market."

This statement is anti-libertarian heresy.

[Captain Awesome]

Not much time to chat (first of the month at a bank and all). But I think that two of the key phillosophies being debated are bunk.

1: It's bad for people to profit from others suffering
(I agree but this is not whats happening, unless your talking about grandstanding politicians enacting price controls).
2: It's ok to profit from others lack of preparation
(closer but still sounds like people are being taken advantage of)
3: Profiting by providing things people desparately need in an emergency
(Ding ding. People need shit and every dollar is a thank you from the collective for providing that shit when it's needed most)

Happy debating everyone and I'll be back after work.

[joe]

Xavier, your point about the argument being irrelevant to, say, the people at the Superdome is a valid one.

The question is more germane to people on dry, accessible land who escaped from New Orleans.

Not that that answers the question, but it's a valid point.

Now, let's to back to how I believe in magical force fields, think all government programs work with diamond-tipped precision, and am just like Stalin.

[Xavier]

"The question is more germane to people on dry, accessible land who escaped from New Orleans.

Not that that answers the question, but it's a valid point."

Since you're response to my post was based on the fact that all of the people who needed help were poor and had no money, I'm not sure how it's germane to people who escaped either. If you're talking about people who got far enough away from New Orleans, they aren't going to be facing price gouging on things since refugees are a small minority of consumers in the local economies. If you're talking about gasoline in the surrounding communities, then that's exactly what my original post was about and your comment about the starving dire poor is a little off base there also.

So what exactly is this question that I've failed to answer? When supply is inelastic and the stock on hand isn't sufficient to provide everyone with everything they want, no conceivable pricing scheme is going to change that. And relaxing the assumption that supply is perfectly inelastic only enhances the argument against price gouging laws.

[jf]

Xavier:

joe never has answers to valid points. He can debate facts until the cows come home, but when it comes to solid logic he either dodges the issue or goes silent.

[Uncle Sam]

"The market is there to serve people, we do not exist to sacrifice ourselves to the market."

What is "the market"?

The market is a collective description of the economic behavior of people. The behavior of people is aimed at serving themselves. People serve themselves in the arena of the market through trade.

[Uncle Sam]

perhaps better "The behaviors of people are aimed at serving themselves."

[JD]

joe has just got to be getting his rocks off from trolling, or he's stupider than I thought (and for the record, while I always thought he was annoying, I never thought he was dumb). "Sure, tough guy, YOU go build a gas station there." "...the construction and stocking of a new 7-11..."

Hey, Einstein: you don't need to build a gas station to sell gas, or a 7-11 to sell groceries. You can sell them out of a truck, which is exactly what people do in cases like these. Unless, of course, it's banned by well-meaning types - in which case the suffering people, instead of being "gouged", have that much less to make do with. Way to go, Super Humanitarian.

[jf]

JD:

You hit it on the head reagarding joe, and you share my first two initials. Keep on rockin'.

[jf]

And I can't spele.

[joe]

JD, we're talking about hundreds of thousands, possibly a million, people. Ad hoc systems of guys with trucks isn't going to provide the volume and consistency to meet the demand, and certainly not enough for the price lowering market mechanisms to kick in. That's going to take a lot longer, and depend on the re-constitution of the a supply chain sufficient to serve a large city.

[joe]

X,

"Since you're response to my post was based on the fact that all of the people who needed help were poor and had no money, I'm not sure how it's germane to people who escaped either." Not no money. Little money. People who escaped with the shirts on their backs and nothing else aren't going to be served by any sort of market. This is about people who got out with their cash and cards. Given the reality of the demographics of people who got flooded out, most of them had trouble making ends meet before the storm, with normal prices in place.

I'm sure the $10 bottled water guy will find plenty of these people willing to give him their last $30 for a bottle of water, two loaves of bread, and a jar of Skippy. The fact that he can get the money out of them does not demonstrate that they can actually afford those prices.

[joe]

Quiet now, jf, the grown ups are talking.

[Uncle Sam]

http://www.cato.org/dispatch/09-02-05d.html#1