Price controls

Joaquin Castro Accidentally Makes the Case for 'Price Gouging'

Texas officials' rush to enforce price gouging laws during that state's winter storms will only make residents worse off.

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A rare winter storm has left millions of Texans without power, prompting many people to flock to grocery stores for emergency supplies, or to hotels in search of electrified, heated shelter. That surge in demand has prompted predictable, misguided warnings from Texas officials about the dangers of "price gouging" during the state's emergency.

"We can't imagine anything more cruel than taking advantage of people who are suffering right now in this disaster," said Harris County Judge Lina Hidalgo at Wednesday press conference announcing a new initiative whereby residents can report, via text or email, extraordinary price increases to the County Attorney's office.

That same day, San Antonio Mayor Ron Nirenberg and Bexar County Judge Nelson Wolff amended their emergency declaration to remind folks that it is illegal to sell "groceries, restaurant meals, medicine, hotel rooms, or fuel for more than the regular retail price."

The day before, the Texas attorney general's office tweeted information about its own consumer protection hotline where people can report price gouging to state authorities.

Rep. Joaquin Castro (D–Texas) has gotten in on the action too, in a tweet that inadvertently making the case for the "gougers".

"Potential price gouging by energy suppliers, hotels and other businesses is occurring through the state because of scarcity," said Castro when tweeting out a picture of an empty grocery store shelf. "No price gouging at H-E-B but here's just one shelf from earlier today."

That the grocery store he visited had both "fair" prices and empty shelves is no mere coincidence. Texas's price gouging laws effectively mandate this outcome.

When demand surges for a product, but prices are required by law to stay flat or rise only slightly, consumers will quickly buy up whatever they can get their hands on at a cost that doesn't reflect the sudden urgency of their purchase.

Meanwhile, the higher prices that would incentivize market actors to expand the supply of suddenly scarce goods are cut out of the equation, ensuring that shortages will continue as long as emergency levels of demand remain.

This contrasts with what we'd expect to happen in a free market, as the Duke political scientist Mike Munger explained last year to Reason.

"If the price of something goes up and there's a shortage, three great things happen," says Munger. "The first is that consumers buy less. They look at that price and they say, 'You know, somebody else must need this more than I do,' and so they leave some for the person behind them."

Had the H-E-B Castro visited raised its prices to meet market demand, the people who got there before him probably would have bought fewer cans of tuna or rolls of toilet paper, helping to preserve the store's limited supply.

"The second thing is that producers try to find ways to make more," Munger continues. "The third thing is that entrepreneurs try to find ways to make substitutes."

Without the allure of higher prices, out-of-state companies and amateur entrepreneurs help less incentive to ship in bottled water and generators on Texas' ice-covered highways. Price gouging laws require these would-be suppliers to take on extra hassle, risk, and expense to sell their wares at the same price they could get back home.

Markets don't stop working in dire circumstances. Trying to suppress them during an emergency, as Texas officials are doing, is only making the state's residents worse off.

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  1. “You want a good magazine? Reason magazine… It’s a magazine for libertarians. It’s a magazine for everybody. It’s a magazine for the world. Reason magazine: A good, good magazine.”
    Rush Limbaugh, Talk Radio Host

    1. Yea, he was occasionally wrong.
      It happens even to the best.

      1. My favorite Limbaugh episodes were when Walter Williams was guest hosing. The regular callers didn’t know what the fuck to make of an actual libertarian:

        “Legalize drugz?”
        “Cut spending?”
        “Don’t start warz?”
        “People living their own lives peacefully?”

        Then their heads would asplode. Good stuff.

        1. Mr. Williams also had an easygoing way of making his point. Where, you though he was relaying some endearing anecdote about his family life, and it turned out he was teaching you a lesson about politics.

          1. If they really “cared” then they would make it illegal to not cut prices by 50% during an emergency.

            1. If by “cut prices by 50%” you mean “give everything away for free”, then yes.

        2. Nobody cares what you think or feel, brandy.

        3. “Legalize drugz?”
          “Cut spending?”
          “Don’t start warz?”
          “People living their own lives peacefully?”

          Since you have argued passionately against every single one of these with the sole exception of drug legalization for the past 12 years, what the fuck would you make of an actual libertarian if you found one?

    2. That was then, this is now.

  2. This is all just ignorant horseshit. Back when we had a silver-backed monetary system, the price of silver in dollar terms was fixed. If there was a surplus of silver produced, then unlimited (free minting) quantities of it could be coined. If there was a shortage of it, then previously minted coins would pop out of storage/hoarding and head into circulation.

    The same freaking thing would apply to any actual commodity-based money. Which means generally NOT gold (gold has never become a true coin based system only a bank/representation based money). It used to be so commonly understood that it even acquired a name – Say’s Law.

    But hey – let’s pretend that price volatility is the only thing that can lead to changes in production or consumption. Like the bunch of fucking corrupt rentiers that pretty much all Americans have turned into.

    1. Uh, we were talking about price gouging.

      1. Indivisible price volatility is a concept that comes from neo-classical (marginalist) economics. Call it price gouging if you want even though that is nothing but a value judgement (on both sides – the FU and the FU2 side).

        Before that, in classical econ, it would have been split into different components. eg – one component being the increased costs/profits/etc required to move stuff from location A to location B. Which all tends to get competed away in an actual free market. That is, par for the course, the only thing that gets yapped about when Reason/ilk talk about this stuff. Changes at the margin – right now. The stuff of marginalist econ.

        But the biggest component, by far, is the part that has nothing to do with current marginal production or marginal distribution – but with existing inventory of a past surplus. That does NOT get competed away if it is based on a land/resource surplus inventory. It only exists if there was a previous incentive to produce more than was consumed then. And it is in fact a MONETARY asset in a commodity-based money. Where a surplus of a commodity is what is monetized. And yes that is exactly what Say’s Law is about.

    2. Say’s Law is simply that something must be produced before it can be consumed. You can produce it and consume it yourself, you can buy it and sell it, you can trade it. Whatever. But goods and services do not just appear out of thin air as if by magic. There is no consumption without prior production.

    3. How do you manage to be so astonishingly wrong? And to use so many big words to prove your ignorance?

      None of that rant has anything to do with the principles of supply and demand in response to short-term externalities. Whether your currency is based on gold, silver, fiat or really big rocks, the value of toilet paper goes up as the weather gets worse and if you don’t let the price adjust, people (both buyers, sellers and inventory holders) make sub-optimal choices.

      1. Jeffy is inevitable result of the corruption of academia. Meaninglessness confounded by obfuscation = Science!, or in this case, Economics!

      2. JFree is really, really, really fucking stupid. Bear in mind that this is a man who thinks 9/11 was perpetrated by the George W. Bush administration in concert with the dastardly Jews Israelis and that CIA sabotage is responsible for the disastrous outcome of Hugo Chavez’s regime in Venezuela.

  3. It used to be so commonly understood that it even acquired a name – Say’s Law.

    This has fuck-all to do with the author’s point. And you have absolutely no idea what you are talking about.

  4. Economic populism? I can’t believe it.

  5. We need to do a better job of anticipating these weather related surges in demand and collapses in supply to avoid the moral dilemma in the first place especially when you’re talking about the electrical grid.

    1. Sloppy Joe will get the right people in place to form committees which will come up with plans and programs that will solve this.

    2. The local utility commission did accurately anticipate the weather-related surge in demand. But they then inexplicably failed to negotiate for an increase in natural gas capacity despite having an accurate forecast.

      This was described in one of the Reason articles yesterday (or maybe the day before?).

      1. We need to do a better job

        We? There is no ‘we’ when a quasi-governmental agency is telling you ‘fuck you that’s why’. There are no consequences for them.

        You fucking commies are always saying ‘we’ like the socialist masters you elect are listening to the peasants.

  6. “Price gouging” is a pretty good metric for if somebody understands economics.

    1. Which means it will never be a winning position to take, frankly. Most people are economically illiterate, just like most people are politically morons.

      Look at how many people apparently voted for Biden / Harris because they thought they were getting $2000 for free. (Some people thought they were getting $2000 / month!)

      1. Apparently is right.

      2. Sadly you’re 100% correct.

      3. Every day I return from the mailbox broken hearted to not find my $2000 check.

        1. The check is in the mail. Tomorrow.

      4. It’s really hard to reconcile the morals of price gouging in a supply breakdown when no one is advocating wage increases when labor supply breaks down.

        When the people who have to pay the prices out of no recourse know their employers bypass their labor market to avoid paying market value for labor, is there any wonder why they’d be hostile to the idea?

        1. See earlier comment about not understanding economics. If someone’s being paid to do labor, then that is the market value for that labor. Just because some guy takes three different buses to work a crappy job for eight bucks an hour when you want fifteen doesn’t mean that evil employer is “avoid(ing) paying market value.”

        2. Where exactly has the labor supply broken down?

    2. How does price gouging cause manufacturers to make more of a product? How does it help distributors get more product to the stores? How does it help retailers?

      All it does it disrupt the supply chain

      1. You’re kidding, right?

      2. Price gouging generally does not increase supply. It moves it around and it can produce an entrepreneurial response at the generally irrelevant margin.

        But we saw last year with TP. There was no increase in production – because in fact there was no increase in butt-wiping. There was no increase in supply to supermarkets – just the same shelf and empty within an hour or two after restocking. Since the increased demand was mainly a demand to store TP in the garage, it was resolved over time via overt rationing of supply by the markets (only 1 per customer notices). If the TP manufacturers had gone to the bank to get a loan to increase production, the bank would have laughed at them – because there was no increase in butt-wiping and hence no increased profits over any significant timeframe in increasing production.

        I suspect the main reason this gets lauded is because it DOES produce an entrepreneurial response. So it reinforces a myth that entrepreneurs drive markets in most things now.

        But the truth is that ‘price gouging’ is mostly now a consequence of just-in-time and other inventory elimination and long-standing distortions on the balance sheet (money/assets) side of the economy. And rather than eliminate those distortions, we laud myths about what they create.

  7. “We can’t imagine anything more cruel than taking advantage of people who are suffering right now in this disaster,”

    May I suggest that government actions deliberately designed to prevent resupply qualifies as more cruel?

    1. Right?

      The empty shelves that are destined to stay empty are pretty cruel…

    2. ^EXACTLY; Heck, Other State’s have whole warehouse’s of needed goods for Texas in crisis; but if their Nazi Dictators aren’t even going to them to pay the extra to ship it to them; I guess they won’t get any of it.

  8. That was the soda aisle.

    As a side note, there seemed to be plenty of red and white coolers available 🙂

    1. No electricity means they can’t make ice. How will they keep their drinks cool no…nevermind.

  9. Same story as with generators during hurricane threats in Florida. There needs to be “price gouging” in order to guarantee functioning of the free market, where the “fair price” is that negotiated between a willing seller and a willing buyer. Any price control will surely distort the market and lead to either shortage or surplus.

    Until we begin to teach children and legislators some economics, our nation will continue to suffer from the ignorance.

    1. Florida allows it if it is theme park seasonal pricing.

    2. “Same story as with generators during hurricane threats in Florida.”

      Jeb Bush’s mandate outlawing ‘price gouging’ kept generators in warehouses all over the south!

  10. If they really “cared” then they would make it illegal to not cut prices by 50% during an emergency.

  11. This is stupid. It’s not like these resellers make any of these products. They go to stores, buy everything, then resell at a much higher price.

    They produce no actual value of their own. They just disrupt the supply chain for their own benefit

    1. The value is in moving the products where they aren’t needed so much to someplace where they are needed more. Sure, government might do this, but private actors reacting to price changes are much more responsive.

  12. “Without the allure of higher prices, out-of-state companies and amateur entrepreneurs help less incentive to ship in bottled water and generators on Texas’ ice-covered highways.”
    typo: help -> have probably?

  13. Someday there may a voting majority that doesn’t have their heads up their butts on this issue. But this is not that day. Not even close. Once I thought Uber’s ‘surge pricing’ just might get people used to the logic of paying more in times of high demand. But nope. People have accepted that, but only as a one-off. When it comes to emergencies the rationality centers in their brains experience power outages while their moral outrage centers go into overdrive.

    I suspect we’re dealing with a deep evolutionary adaptation here. Profiting during emergencies is considered despicable (even when it makes everybody better off — even when it may save lives). The person who takes the risk and trouble to buy a truckload of generators and try to get them into a disaster area to sell at high prices and turn a profit is a monster. The person who sits comfortably at home and does nothing (while bashing the awful price-gouging generator guy on social media) is a fine, upstanding citizen with proper moral sensibilities.

  14. HEB is the opposite of price gouging. Instead, when the power went out at one of their stores all the customers in the check out lanes were given free groceries.
    While I understand your point about generators, comparing it to a pre-stocked HEB is silly. HEB will likely have those shelves restocked as soon as possible to sell at regular cost. But if price gouging is allowed people will go HEB to HEB buying their water bottle limit only to resale at a gas station or such once HEB is out. These aren’t people shipping water in from out of state.
    I do agree that a reasonable increase on plumbing supplies or plumbers right now is understandable when associated with the extra cost to work quickly or the need to pay extra or take extra time to find supplies. Typically price gouging is only when the cost is unreasonably exorbitant compared to regular rates and additional cost to the provider.
    But we aren’t going to suddenly have more hotel rooms if rates are allowed to double. The hotel manager had few if any extra costs.

    1. Way to entirely miss the point.

      If hotel prices are allowed to double,
      1. renters have an incremental incentive to seek and accept roommates rather than keep an entire suite just for themselves. While the hotel didn’t add any new rooms, effective capacity did increase.
      2. homeowners and others who do not normally rent rooms now have an incentive to accept boarders. Again, capacity increases.
      3. Those with alternative options (think any family with a Scouting tradition) have incentives to pull out their tents and put those ‘polar bear camping’ skills to use. Demand decreases, leaving more room for the families that lack the equipment and skills.

      re: water, the entire point is that “price gouging” does cause people to ship water in from out-of-state. Higher prices mean that the shelves will be restocked faster (even at a store like HEB) and higher prices create a disincentive for hoarding. In other words, if you let markets work, you don’t need rationing.

      1. higher prices create a disincentive for hoarding —

        Which works both ways as the very basis of supply and demand cushions. Those who hoard things previously will be the very one’s that supply their hoardings when shortage’s hit. Those who hoard more than they need without any plan to disperse under shortages wasted their supplies and wasted their money.

        ‘Fair’ can only be determined by a free-market. The rest is just UN-FAIR and UN-JUST Gun *FORCE* for selfish-entitlement claims.

      2. I didn’t miss the point. I disagree with the point. I don’t think any actual increase occurs by allowing me to go in to HEB, buy my limit and then wait for HEB to run out and sell mine for twice the price. Whatever I bought was still going to get bought. HEB would have shipped the exact same amount to that store the next day weather I bought and resold or the person that needed it bought it directly. No demand was increased or decreased. No supply was increased or decreased. I just made a profit from someone else’s misery.
        If you are fine with that then that’s a completely acceptable life philosophy, but it didn’t make more water appear or fewer people need it.

        1. No, you’re still missing the point by assuming that HEB is the only source of whatever product you’re looking for, that there are no substitutes and that the ultimate supplier (HEB in your hypothetical) will completely ignore market realities and won’t bring in any new sources.

          Supply and demand is not about reselling arbitrage but about actually changing the supply and the demand.

          1. Supply and demand is local. If there are tons of toilet paper, but it’s in the next state over and you have no access to it, the supply is effectively reduced. It doesn’t matter how much of a thing there is if you can’t get to it.

  15. And the players in the game?
    Nelson Wolff [D]
    Ron Nirenberg [D]
    Lina Hidalgo [D]

    Thanks Democrats… Tyrannically Dictating a low-price tag will certainly result in a signal of LESS DEMANDED! No need to ship any-extra resources to a Texas in Crisis — It’s obviously just the same NEED as any other day.

  16. Thank god. I was getting worried. We were days into this disaster without your obligatory “price gouging is good” article. I’m glad to know you’re all safe!

  17. As a reminder for the kids out there; during the oil embargo of the seventies, there was plenty of gas available (at a high price) until the federal government imposed price controls. Those long lines you see pictured did not start until the day after price controls.

    1. As the child of a gas station owner during the 1970s, i can assure you that price controls did not cause the long gas lines. The cause was an oil embargo from OPEC countries that limited their oil supply to ensure that oil prices rose and that the OPEC countries reaped the vast majority of any benefit, and the major U.S. companies such as Exxon, Sunoco, etc.. Not gas station owners. They lost business and income. The price controls were to prevent the sort of gouging that would limit supplies to only those with the best incomes. Ethical gas station owners, the vast majority – tried to serve as many customers as they could – so that all their customers had a chance to get needed fuel. They limited customers to 5 or 10 or so gallons of gasoline at a time.

  18. But if price gouging laws are enforced how can a person buy up a supply of goods at a store and then re-sell them on eBay at 3x the price? There’s money to be made in anti-gouging laws!

    1. Stores whose priority is serving the maximum number of their customers place quantity limits on products in short supply. Prices remain stable, supplies are available to a wide range of their customers, re-selling is less likely. When prices are raised too high, they make essential supplies unattainable for those whose needs are equally legitimate but whose incomes are low. The additional profits of price gouging do not go to the individuals or farms or manufacturers who produced the goods. The entire concept is immoral.

  19. I remember an article early in 2020 about a European store that was selling a bottle of hand sanitizer for a reasonable price, but the second bottle cost an arm and a leg. It was something like $3.50 for one bottle and $95.00 for the second.

  20. I can understand the desire to prevent people from being denied essentials just because they don’t have enough money. Perhaps there is a better way that simply mandating incentives for producers to supply those essentials should be reduced.

    1. Monetize commodities. It’s similar to the way the Strategic Petroleum Reserve works when crude oil is lent to refiners after hurricanes. Refiners borrow X barrels, pay back Y barrels a few months later. The physical commodity (not dollars) is the basis for the loan. That physical is fed into the refiner to ensure there is no physical shortage of refined product.

      The price gouging stuff really has little impact on real supply. At most, refiners tweak their product mix a bit in response to higher prices on gasoline relative to jet fuel. But there’s a big physical processing limit there that has nothing to do with prices.

  21. The Two-Sided Pancake blog had a similar explanation last Spring when hand sanitizer and toilet paper were hard to find, also making the case for why market pricing in times of scarcity generally would enhance consumer welfare.
    http://twosidedpancake.blogspot.com/

  22. “Without the allure of higher prices, out-of-state companies and amateur entrepreneurs help less incentive to ship in bottled water and generators on Texas’ ice-covered highways.” Shameful.

    People in disaster areas need help. It is immoral, unethical to profit off their misery. Price gouging ensures only those with the most money will be able to afford necessities that all people -rich and poor – need. Indeed, this is why during a crisis most people donate or offer at-cost the goods, services, time, and money to help their neighbours.

  23. Let’s say a hurricane was coming and you had to get out of town. Would you rather pull into a gas station with plenty of gas selling it for $20 a gallon, or a gas station with no gas selling it for $2 a gallon?

  24. Christain, if Reason hiked its cover price to $ 699.95 a copy would you and your fellow editors expect a raise, or fear or a pink slip? ?

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