Price Gouging
From Zanecorpwiki
I think what we want is a 3 tiered system:
- subsistence
- emergency
- profit
Contents |
Profit
Mike Munger and Russ Roberts give an excellent talk on why it's important to allow profit into the system]. The main idea is that when you control prices, you create scarcity. Plenty of people would be willing to come into a disaster with supplies if they could make money off it. By allowing the initial price spike, you create competition which quickly brings the price under control, so the profit motive and "free market" quickly solves both scarcity and high prices, and almost surely does so faster and more efficiently than any kind of interventionist scheme.
The problem with "price gouging laws" that work by capping prices (typically at or near pre-disaster levels) is that they fail to address scarcity. The fact that water would be less than a $1 per gallon if you could find it doesn't matter if it's unavailable.
By simply allow the price to float, you guarantee the problem will solve itself eventually. What the Roberts crew fail to fully grasp I think, though they do mention it, is the "eventually part". While there is an emergency going on, people that desperately need supplies are right to be pissed. Price gouging is a real thing, even it's useful to allow.
Subsistence
This means covering the basics. People may disagree about providing the basics in normal times, but it seems more or less universally accepted that people caught in a disaster should get the basics.
Emergency is about immediate need, subsistence is about the long term. To provide subsistence means reconstructing infrastructure. Government can assist in this task, and to some extend we've come to rely on government for basic infrastructure. Unfortunately, this often leads us to downplay the importance of the private sector and profit.
Emergency
Emergency is about immediate, critical need. Price gouging laws are often conceived of in terms of emergency. The intent is to hold prices near "normal" levels so that those in need are not exploited or even priced out of necessities.
The problem is that when supply is constrained by the destruction of stock and the disruption of delivery networks, normal prices may not even cover suppliers basic costs. Clearly, anti-gouging laws based on price controls do significant harm with little to no benefit.
Summary and Solution
The idea of "gouging" is itself a distraction, but the intent of anti-gouging laws is both good and proper. To some extent, the extreme circumstances addressed by anti-gouging laws operate in an area where markets fail. If those that came in to deliver goods and services at high prices--and make a high profit--adopted a sensible policy of providing for those with emergency needs at "normal" prices, there would be little call or need for anti-gouging laws. The cost of goods in these situations is usually the cost of transportation and delivery, not the unit cost, so giving up a few units would not have any significant effect on overall profits. It would certainly be difficult, and perhaps impose not-insignificant cost to determine which applicants have true need and which are trying to game the system, but it's not required that suppliers be correct, but that they try. Indeed, if stock set aside for emergency use is depleted because of lies, then it shifts the moral failing from the supplier to the disingenuous customer.
In this light, it can be said that the fact that we have or think we need anti-gouging laws is itself a failure of those operating in a market context to understand acknowledge and incorporate the proper social demands upon their enterprise. Government is essentially forced to intervene because of bad behavior. Since government has no real stake beyond the appearance of acting, it naturally spends little time or thought in coming up with a good law when, as far as it's concerned, any law will do. Thus, it is no surprise that we have bad anti-gouging laws.
What would a good law look like? Something like, "Any person or company selling goods and supplies under circumstances where normal availability has been disrupted shall set aside at least 10% of their stock to provide, upon reasonable determination, to individuals in critical need of said supplies at normal prices." Again, my preference would be that market actors simply adopt such a policy on their own, but failing that, there's no reason why governments cannot enact good laws.
