Carpe Diem

More on price gouging: Disasters don’t change market forces; Market prices are even more important post-Hurricane Sandy

In correctly anticipating that there would naturally be upward pressure on prices in New Jersey for many critical goods like fuel, food and electric generators in the wake of Hurricane Sandy because of an increase in demand and a reduction in the supply of many of those goods, Governor Chris Christie then applied some faulty economic reasoning to the situation by declaring that:

During emergencies, New Jerseyans should look out for each other — not seek to take advantage of each other. The State Division of Consumer Affairs will look closely at any and all complaints about alleged price gouging. Anyone found to have violated the law will face significant penalties.

With that statement, the New Jersey governor demonstrated a fundamental lack of understanding about how markets actually work.  Sellers always try to take advantage of consumers, in the sense that they always charge “whatever the market will bear,” and this condition of a well-functioning market doesn’t change because of a natural disaster.

Just like earthquakes, hurricanes, or floods don’t change the fundamental physical laws of gravity or aerodynamics, those natural disasters also don’t change the basic laws of supply and demand.  If sellers of electric generators in New Jersey are guilty of illegal “price gouging” for charging market prices after a major disruption to the market like Hurricane Sandy, then sellers of all products at all times are guilty of “price gouging.” Sellers always charge “whatever the market will bear,” and in that sense are always trying to “gouge” and “take advantage of” buyers to the maximum extent possible.  To act any differently would be foolish and even disruptive to our economic system based on market prices.

I’m very confident that the last time Governor Christie personally sold one of his own homes, shares of stock, or cars, he sold his possessions for the highest price possible and not a penny cheaper, and in the process he did his very best as a seller to “take advantage” of the buyer.  That’s how markets function.

Rising, market-based prices following a disaster are the most effective method possible of allocating scarce resources, eliminating shortages, and attracting essential supplies to the areas that need them the most.  In fact, market-based prices are also the most effective method possible of allocating scarce resources, eliminating shortages, and attracting essential supplies to the areas that need them the most before a disaster – wind and rain don’t change that reality.  Governor Christie and others fail to recognize that the coordinating role of market prices becomes even more important following a disaster, not less important.  To prevent the price system from operating following a disaster with price gouging laws will make the situation worse, not better.  Thanks to the strict enforcement of their state’s price gouging laws, New Jerseyans should expect possible shortages of fuel, food and generators.

It’s only in the fantasy world of politics that the “anointed elected officials” think they get to be the “price deciders,” and determine if sellers are guilty of “price gouging.” In the real world of the marketplace it’s much different and much more democratic – the impersonal market forces of supply and demand become the “price deciders,” and we’re all much better off with those market-determined prices than with the artificial prices determined by politicians and bureaucrats.

96 thoughts on “More on price gouging: Disasters don’t change market forces; Market prices are even more important post-Hurricane Sandy

  1. the local Lowes and Home Depots did NOT raise prices on generators and other items needed to prepare for the storm.

    but they did run out.

    should we be lobbying for Lowes and Home Depot to double or triple prices on generators and the like whenever storms threaten?

    What would happen if Home Depot and Lowes issued a joint statement that said that from now on they intend to charge “market” prices for disaster supplies whenever one threatens to hit?

    I call this the “come to Jesus” moment for Lowes and Home Depot to show they are true free market libertarian enterprises.

    :-)

    • Larry – how can one argue with someone that believes that God is on their side. Part of the problem is that you are only looking at information that is easy and cheap to get. Let’s assume that Lowes and HD had 100 generators that they sold at the pre-storm price of $X. WOW aren’t they great. But the real information is that those 100 generators were sold from the back of a truck after the storm for 100 times X. Getting the information of the guys selling from their truck is hard, walking into Lowes/HD and looking at a price is easy.

      Time to do some heavy lifting…..

  2. LarryG

    Both Lowes and Home Depot are doing a commendable thing by keeping their prices steady for these very important items, but I suspect that are doing that in part because they are competing against each other in this (and nearly every) case. Neither want’s to lose customers to the other by being considered price gougers (unless they both agreed to do it amongst themselves, but then Gov. Christie would likely enter the fray).

    However, when the local supply of these items (and building supplies in general) dries up do not be surprised (or indignant) to find prices going up as suppliers from outside NJ make their wares available at market prices.

    As Mark said, markets in everything.

    Rob

    • ” Neither want’s to lose customers to the other by being considered price gougers ”

      but if they both did it… and they both stood up and said that they supported the free market – wouldn’t they be standing on free market principles?

      How can you have free market principles when the folks who sell stuff refuse to back those principles for fear of losing customers?

      are customers attitudes also part of the “free market”?

      Has Lowes and HD made a calculation that in a free market they are better off NOT selling at market during disasters?

      I think the Gov is representing the folks who elected him and the bottom line is the vast majority of them are NOT Libertarians.

      right?

      • I think the Gov is representing the folks who elected him and the bottom line is the vast majority of them are NOT Libertarians.

        Libertarians? You probably meant to write that most of them don’t understand economics.

        In a free market Lowe’s and Home Depot can ask whatever price they wish, and buyers can buy or not buy as they wish. Why do you believe that’s not happening if both stores keep the same regular price? That must be the price they wish to ask. Maybe you are confusing the term “free market” with something else.

        but they did run out.

        Well of course they did. Do you think everyone who needed one was able to buy one? Don’t worry, I’ll give you the correct answer, and it’s “probably not”, unless they were among the lucky ones who were able to buy them for twice as much out of the back of people’s trucks who had earlier bought them at regular price.

        • re: “it’s a business” – who cannot exist without satisfied customers.

          If customers believe you are price gouging .. it affects their attitudes about your business.

          re: libertarians and economic illiteracy

          people dislike what they consider to be unfair and predatory behaviors and will vote with their wallets.

          The “libertarian” will say ” fine.. then all businesses will do it and you won’t have any choice”.

          the reality is that customers have many ways to differentiate in a competition and this aspect becomes one of the ways that businesses also compete.

          As soon as one business decides to price gouge, another one will see a potential competitive advantage.

          99 times out of a hundred the businesses that would price gouge have no strong local/community ties and no national reputation to protect.

          Libertarians love the theories and dogma but they are terrible are realities and practicalities.

          • The “libertarian” will say ” fine.. then all businesses will do it and you won’t have any choice”.

            Amazing that you still call economically literate people libertarians as if they were synonymous. That’s not what a libertarian or an economically literate person would say, so it’s understandable that we hear it from you, who is neither.

          • you can decide how many “economically literate” there are (or not) and how many Libertarians there are (or not) but the number that counts the most is how many don’t want auctions for scarce goods in a disaster.

            If you cannot understand that – then you have no right to call yourself “economically literate”, much less a Libertarian.

            you guys seem to live in your own little world .

    • Both Lowes and Home Depot are doing a commendable thing by keeping their prices steady…

      What’s commendable about letting others create a secondary market for generators at higher prices while allowing your existing stock to run out so people who really need them can’t get them at any price?

      • Here and in your post above you neglect Brand equity — a brand’s reputation and perceived value — which for companies of this size has a value that is far greater than its actual product equity.

        This is why I call you “Economics 101″: stop thinking in terms of widgets.

        • re: company reputation and acceptance in a community are ALSO competitive parts of a business.

          people WILL buy generators at 1X and then sell them out of the back of a truck at 10X but those folks are long gone after they sell them.

          The Libertarian types blame govt for clamping down on market-pricing during disasters but the govt is merely representing constituents and even if the govt did not intervene, people, customers would REMEMBER that HD or Lowes jacked up prices and take revenge later.

          • Well, Larry, if customers want to take revenge, then you don’t need government interfering, right? The market will sort everyone out more cheaply. What’s the point of government meddling other than to find a reason to tax you to pay them to botch something that will be done more efficiently without them?

          • Actually if there is a disaster where the store is folks might well take the 100% discount rate and loot the store as happened with one walmart store in N.O. Until you get the national guard in force you can’t stop it, and if it is a question of saving lives or property the property looses. If you don’t have a reputation of gouging your less likely to get looted.

          • ” If you don’t have a reputation of gouging your less likely to get looted.”

            indeed.

            in the Libertarian world there are LOTS of soldiers carrying weapons to “protect” the price gouging store.

            of course the money to pay them comes from the same folks who are being gouged…. :-)

            or we could revert to the 3rd world days where the store owner would hire his own guards and tack that on to the gouged prices…

            :-)

          • If you don’t have a reputation of gouging your less likely to get looted.

            Is that right? I’m assuming you didn’t just make that up and you have a link to some convincing and well done research to back up such an assertion, yes?

            Kindly provide a link.

      • What if the people who really need them can afford them at regular prices but not at inflated (gouging) prices? What good does allowing gouging do them?

  3. This article is rigid Capitalism 101 — and the reason why *pure* market capitalism fails as completely as pure Communism is that it doesn’t take into account human nature.

    Besides, the sentence “Rising, market-based prices following a disaster are the most effective method possible of allocating scarce resources, eliminating shortages, and attracting essential supplies to the areas that need them the most” is nonsense on its face.

    Rising prices allocate resources to the wealthiest who can pay for them, often — usually — the exact opposite of “the areas that need them the most”.

    Mark J. Perry, this article is pure dogma, but I hope your dogma is not eventually run over by your karma.

    • Actually your claim about free market capitalism and human nature is exactly backwards.

      Why not learn some economics before you write nonsense like this?

      • I have learned something — I am in marketing. And Economics 101 is about supply and demand, with the assumption being the purchaser will make a rational choice. This assumption turns out to be false. Thousands of marketing studies show most purchases are not made for logical or rational reasons: for instance 90% of the city dwelling-owners of SUV’s should never have bought one — they cost more at every level. But SUV’s sell well for many psychological and emotional reasons. Disasters, equally, are not rational. And that’s normal. And though I may be in an a**holish business (marketing), I prefer the humanist approach of not maximizing one’s own profit at the expense of others’ suffering. Ethics do count for something.

        Besides, there is in fact sound capitalist logic behind not gouging customers: if you gouge them, they will not return as a customer and they will tell 10 potential customers to avoid you. Your consistent business will suffer for the short term profit.

        • for instance 90% of the city dwelling-owners of SUV’s should never have bought one — they cost more at every level.

          What makes you think you have the necessary knowledge about anyone’s specific circumstances to make that assessment?

          And though I may be in an a**holish business (marketing), I prefer the humanist approach of not maximizing one’s own profit at the expense of others’ suffering. Ethics do count for something.

          Nobody is stopping you. But, I’m betting this is just the BS people spout when they don’t actually have anything to lose because they don’t own a business and have the luxury of inexpensively polishing their ego.

          Your grip on basic economics is as weak as your grip on ethics. Price balances supply and demand. You are helping nobody and nothing but your overblown ego by underpricing a scarce good and causing shortages in doing so. If people really need the scarce good, they can make trade-offs to obtain it at the higher price if it’s important to them. If it’s not available because of a shortage, they’re shit out of luck. they’re not better off and underpricing a scarce good is not more humane than allowing the market to set the price.

          You illustrate exactly why gouging is a myth. It doesn’t happen – and not because of some poncy, self-serving, egotistical drivel about the character of certain market participants but because of the pressure of market forces.

          • “I’m betting this is just the BS people spout when they don’t actually have anything to lose because they don’t own a business and have the luxury of inexpensively polishing their ego.”

            I own my own successful business. And multiple properties. And I still think gouging is unethical. But thanks for betting.

            Yours is a false dichotomy: a regularly market-priced stock of 1000 flashlights is scarce when 250,000 people lose power, true. So to then claim they can pay the ‘new’ inflated market rate because that’s more *fair* because”If it’s not available because of a shortage, they’re shit out of luck. they’re not better off” is false. But to then say “underpricing a scarce good is not more humane” is not only illogical it’s wrong.

            Of course it’s more humane. The first 1,000 people need flashlights, and no one else will get one period.

            Charging the regular uninflated price is OF COURSE more humane, because you are not adding insult to injury of these people. Of course raising the price a bit because your own overhead shot up because of the disaster is also reasonable, but that’s not gouging.

            But the second half of your sentence “they’re shit out of luck” is more reflective of the dogmatic pure-marketers commenting on this blog. Be market-driven all you like, but don;t pretend it’s humane.

          • What makes you think you have the necessary knowledge about anyone’s specific circumstances to make that assessment?

            I have worked in marketing for the auto industry. Over 90% of SUV’s and “off road” vehicles never leave a city or suburban street. A Volvo or typical mini-van holds as many people as a SUV, but is more fuel efficient, safer in crashes, and costs less. The reason people like SUV’s is they’re higher off the ground so ‘feel safer, although the vehicle is less safe (rolling). There are many emotional reasons including status, but there is literally no logical, rational reason 90% of SUVs are chosen by their purchasers

          • re: marketing

            how do you deal with a tarnished reputation brought about by people thinking price gouging was practiced?

            or is that public relations?

            :-)

            I wonder how Lowes and Home Depot would respond to claims that they were price gouging?

            I bet they’d make sure none of their store were doing it, right?

            Now why is that if they believe in the free market?

          • I have worked in marketing for the auto industry.

            LOL! I didn’t realize the omnipotence you marketing boys are endowed with.

            I lived in NYC and I bought an SUV as I’m a skier and regularly carted lots of ski equipment between my apartment and NYC storage space. I don’t know what I would have done without it as cross country skis and all of their waxing accoutrement don’t fit into cabs and a sedan doesn’t perform too well on those icy (but paved) country roads I drove through to get to the ski areas in the northeast. Friends of mine in the city also bought SUVs to haul their kids and all of their kids’ stuff more comfortably to and from their Hamptons weekend homes. Oh, and another friend who prefers smaller cars just can’t pass up the Federal government’s subsidy for SUV purchases.

            But, I suppose you omnipotent marketing geniuses just know our decisions to purchase SUVs ar pure irrational, emotional responses to your snazzy ads. Your exaggerated egos can’t allow you to imagine that people know better than some faceless twit holed up in a marketing office what’s best and most rational for them.

          • The first 1,000 people need flashlights, and no one else will get one period.

            How do you know that everyone of those people “needs” a flashlight? How do you know they’re not just buying them to horde because an event has increased the value, but you haven’t increased the price to reflect the new higher value? How do you know that the people who are “shit out of luck” when stock runs out because you underpriced the good don’t have any flashlights at all and are now worse off because none are available? Why is it okay to be shit out of luck because of an avoidable shortage but not okay to be shit out of luck because the value of the good has naturally risen and the price reflects that reality? Obviously, encouraging hording by purposely underpricing goods and denying people who desperately need the good the opportunity to obtain it at any price is somehow moral and humane in the benighted opinions of twits with more ego than brains and morality twisted by their own pretense of knowledge.

        • Strepsi: “with the assumption being the purchaser will make a rational choice. This assumption turns out to be false ”

          If that’s what you learned in economics classes, either you were not listening well or your professors were not very knowledgeable. When consumers make purchases, they generally act very rationally. That doesn’t mean they are always trying to fill the need you allege they should be filling. There is nothing irrational about purchasing a good to fill an emotional need, to project an image, to fill a psychological void. When an empty nester purchases expensive gourmet pet food for a dog which has become a child substitute, that consumer is acting completely rationally. When a suburban man buys a 4 wheel drive Hummer in order to project a masculine image, he is acting rationally even if he lives in a tropical, non-icy climate and never drives the vehicle on anything except concrete.

          As investopedia explains:

          “Rational behavior does not necessarily always involve receiving the most monetary or material benefit, because the satisfaction received could be purely emotional”

          • re: “rational behavior”

            there’s a lot tied up in that phrase.

            How “rational” is it to purchases all manner of unnecessary things at the same time you choose to not have health insurance or a 401K and no idea of how you’ll pay for it once you retire?

            You buy gourmet dog food for your child substitute and have no idea of how you’ll pay for your long term care in a few years?

    • whuuuut?

      The problem isn’t that capitalism fails to account for human nature. The problem is you have no idea what capitalism, communism or Economics is but you finally worked in that old dogma/karma line somewhere – even if the fit is as poor as Cinderella’s ugly sisters cramming their hooves into the glass slipper.

  4. Assertions without proof. How does price gouging do anything other than inflate the profits of merchants? You are using price as a proxy for need.

    • Joseph

      There is no such thing as price gouging. If a merchant charges more than customers are willing to pay they just won’t buy.

    • Joseph, you are mistaken. Plenty of proof exists for the effects of both free market priced-based allocation and government-restricted pricing..

      What always has happened when prices are allowed to reach equilibrium levels: demand and supply reach equilibrium levels. Higher prices cause demand to drop and simultaneouly causes additional supplies to emerge.

      What always happens when government tries to either allocate resources or restrict market equilbrium prices: demand and supply are out of balance, surpluses arise where not needed and shortages where needed.

      When Governor Rick Perry and Attorney general Greg Abbott threatened to prosecute gasoline “price gougers” as Hurricane Ike threatened Texas, the results were predictible: Houston evacuees could not find enough gasoline to drive to inland refuge.

  5. Economists (at least the conservative ones) use a nonsensical definition of “shortage” that literally doesn’t count people who aren’t rich. See the wikipedia page for “shortage” for the precise definition: if you can’t afford the product, your inability to purchase the product does not count as a “shortage”, even when that product is a necessity, like water, or food. Conservatives like the market solution because it guarantees that when resources are rare, all resources are allocated to the rich. No one else even counts in their models: they don’t even appear in the equations.

    • The first paragraph of your Wiki reference correctly describes “shortage” as it is used by economists of all flavors, as far as I know. What definition have you seen used by ANY economist that is different? You didn’t skip lightly over the terms “price” or “market equilibrium” in that Wiki article, did you?

      “Demand” includes those who are willing and able to buy whatever it is, so no, your person with no ability to buy is not part of the demand for that good or service, however that would be true at all times, not just when there’s a shortage, so your point isn’t clear.

      Allocated to the rich? Why would conservatives prefer that? all conservatives aren’t also rich, so that sentence doesn’t make sense.

  6. You’re entirely forgetting the role a budget constraint.

    For example, say a poor person had ZERO drinking water and only $5 to his name. Say a rich person with thousands of dollars already has 10 gallons of water on hand but thinks, “more wouldn’t hurt.”

    Say the store sells the water for the original price of $2. Who gets it? I don’t know…assume a 50/50 probability that either gets. Let’s say the price increases to $8. Who gets it? The rich person.

    Is it because the rich person values it more and it can be put to better use in his hands? No, it’s purely the effect of the budget constraint (and, in some sense, the fact that his wealth has decreased the marginal value of another dollar such that $1 to him is less meaningful than $1 to the poor person).

    • There are a few points that I believe you missed. First, businesses exist to make a profit, not provide charity in wakes of disasters. We have government agencies (FEMA), first responders (police, firefighters), and charities (Red Cross) to provide essentials in cases of severe unavoidable emergencies. Businesses are under no obligation to provide charity in the event of disasters. Often those businesses are in the same dire predicaments as the local residents. In addition, businesses that do chose to engage in charity must raise their prices to offset these additional charity costs. The argument could be made that it is even more detrimental to the community for businesses to offer subsidies in the event of disasters since in order to do so they must gouge their customers at other times throughout the year.

      Secondly, there are a host of classic market forces that come into effect pre/post disaster that will significantly aid budget constrained consumers. For example: competition amongst other firms in the area (already seeing this among Lowes, Home Depot, Walmart) who dont want to be labeled price gougers or Higher prices drive more entrants to the market e.g. entrepreneurs are inclined to pack up their car with bottled water and drive 500 miles when the price of water goes to $5 dollars a bottle vs. 25 cents a bottle which is especially helpful in rural areas that do not have access to low cost stores or have spotty road conditions that big rigs cannot access. This is called market incentives which can bring scarce resources to areas that otherwise would not have access.

    • Nylund

      1. The rich person may say “more won’t hurt” at $2 but not a $8. Why buy water you don’t really need at a much higher price when all they have to do is wait for normal conditions – and prices – to return? They haven’t become rich by being stupid, after all. In that scenario the water may go unsold, as the store has overpriced it.

      2. A poor person offering $5 might find a willing seller, as at $8 NO water is being sold.

      3. The rich person, seeing how desperate the poor person is, might buy the water for them. Being rich doesn’t mean being evil and heartless.

      Why hasn’t the poor person prepared for this disaster ahead of time by buying water at $2 before they needed it and when there was plenty available at low prices? That’s what the rich person did, right?

      It’s not clear whether a dollar has more or less marginal value to the rich person, but additional water certainly has far less marginal value than it does to the person without any, whether they are poor or not.

      • “Why hasn’t the poor person prepared for this disaster ahead of time by buying water at $2 before they needed it and when there was plenty available at low prices?”

        Ahhhhh, and THERE’S the “blame the victim” card.

        Being rich may not mean being heartless — personally I believe in noblesse oblige and love the U.S.’s great history of philanthropy — but being a dogmatic free-marketer in today’s terms, seems to mean it.

        • Ahhhhh, and THERE’S the “blame the victim” card.

          Victim of what, their own stupidity? There are generally warnings of storms and potential shortages, and endless advice about stocking up and preparing for problems, as well as the examples of other people stocking up and planning ahead. Most people who can dress themselves can also most likely perform this level of planning. Those who cannot, should rely on their caretaker to do it for them,

          The poor person in Nylund’s story probably got separated from their caretaker in the confusion of the storm, and as soon as they’re reunited, all will be well.

      • Why do you assume that the rich person bought the water when it was $2 and that there’s no way the rich person wouldn’t horde additional resources at $8/bottle?

        • You’re right that I am assuming, and we can’t know for sure what the rich person paid, but Nylund provided them with 10 gallons of water to start with. We can “assume” that is a sufficient supply, as they could easily afford any amount with their $thousands, and that’s another bit of information Nylund has given us for no reason other than to show that the rich person has no reason to be short of water.

          Common sense, and personal experience tell us that no one but an idiot buys things they don’t need for 4 times the regular price, when they only have to wait a few days until the price drops back to normal. A person who DID spend 4X the regular price on things they don’t need probably wouldn’t be rich – at least not for long.

  7. The issue is one of morality not economics. Society has decided that the pure economic behavior is immoral and should not be allowed. This is just another side of the same issue as behavioral economics that humans are more than purely economic animals.

    • This is an issue of stupidity, not morality. Unless, of course, you think society has suddenly decided that it’s far better and more moral to encourage hoarding and create unnatural shortages so that goods cannot be obtained at any price.

      • I wonder what the Commisars would do if, instead of selling their generators, hardware stores used them to power their freezers and offered to keep 10lbs of food frozen for $50-a-day?

  8. re: revenge -

    customers have many methods to take out revenge – including govt.

    right?

    How come the Libertarian “way” requires a defacto dictatorship to work?

  9. re: “economics 101″

    apparently they do not teach how customers perspectives about price gouging affects how companies operate.

    I’m starting to suspect that those who use the “Economics 101″ narrative, do not, themselves, truly understand the market.

    they have almost a childish belief in theory and are reduced to denying realities because they don’t “fit” with their “learning”.

    • I have been very patient in my responses to you over the past year, Larry. Please remember that. But your responses continue to test my patience.

      My belief in free markets is absolutely not “childish”, and I resent your use of that term. The evidence that free markets work and that government interference does not is available to you. You can look at nations where government tried to control all prices. You can look at periods in American history where the U.S. government caused all sorts of damage by trying to control prices. Why do you refuse to accept that evidence?

      What evidence can you possibly provide to show that government interference in free markets works?

      • @Dewey

        conflating policies against gouging as all encompassing price fixing policies is not honest guy.

        no one is advocating the govt controlling prices.

        it’s one particular area and the response over and over has been that people “don’t understand economics” which I think is childish because it demonstrates a lack of understanding of people and how people act and react in the marketplace and THAT is Econ 101 ALSO.

        there is Econ 101 theory and there is Econ 101 realities which do not necessarily conform to theory.

        you don’t even need govt involved here as people will take their own actions against businesses that are perceived to be abusing customers.

        • We understand people perfectly: They are economic illiterates, and will use government violence to keep themselves from having their wallets rubbed in their economic illiteracy.

          • The generator I wanted cost $800 in July, when I was the only one in the store shopping for generators that day. I will not be surprised or dismayed if tha same model costs $2800 when everyone in the store is shopping for generators.

        • Larry: ” the response over and over has been that people “don’t understand economics” which I think is childish because it demonstrates a lack of understanding of people and how people act and react in the marketplace and THAT is Econ 101 ALSO.”

          I don’t think you do understand how people react in times of scarcity, Larry. I have seen what happens when government prevents free markets from establishing equilibrium prices. I have seen the violence at the government-created gasoline lines in the 1970s. I have talked with relatives who could not evacuate Houston in advance of a hurricane because government-restricted prices prevented supply and demand equilibrium. I have read a number of cases where supplies dried up because price-gouging laws prevented retailers from paying extra to move supplies from greater distances prior to an emergency.

          I definitely believe you, Larry, neither understand economics nor how people react during emergencies.

          • @JohnD

            John – how do you feel about Usry laws?

            do you think they have harmed the overall market?

            do you think credit has dried up because companies cannot charge whatever percent of interest they wish?

            Most people are in favor free market principles for MOST but not ALL things.

            They are OPPOSED to market-wide price controls.

            but they are also opposed to opportunistic and predatory practices done to people when they are vulnerable and desperate.

            That’s Econ 101 guy. If you REALLY want to understand ECON 101 – you have to be willing to recognize and accept the realities of how people feel.

            You cannot impose on people – pure Econ 101 theory.

            you can try but in the end – the people who actually comprise the market – will also have a say.

            the true believers in Econ 101 just simply fail to deal with the realities.

            then they lecture others on Econ 101 which is hilarious.

            how many elected representatives do you think would pass a pure Econ 101 law for markets? I say – not a one save perhaps Rand and Ron.

          • @JohnD – Austrian “economics” is practiced where in the world guy?

            how about giving me the top 1 or 2 countries that best practice what these guys espouse?

            re: payday lending

            re: how people feel about payday lending including
            legislators.

            re: reconciling theory with reality.

            payday lending is viewed by many as predatory of those who are vulnerable ..

            until you convince enough of them on your “theory”, I suspect we’ll continue as before, right?

          • Larry, if you are trying to argue that elected officials and voters are often ignorant of basic economics, I will completely agree with you.

            If you are trying to argue that the consequences of usury laws as presented at the link I provided are untrue, then I disagree. Quite frankly, I doubt that you read the article through to the end, even though it was not very long.

          • re: ” trying to argue that the consequences of usury laws as presented at the link I provided are untrue, then I disagree”

            I did not read to the end because I am familiar with these folks overall world view and have read many of their tomes on such subjects.

            they all go back to their fundamental beliefs which I feel are theory and not widely practiced in the world.

            but I did ask a relevant question.

            If their view is important and correct, which countries have implemented it?

            do you have an answer?

          • @JohnD

            this is an example of these guys:

            ” This is yet another demonstration of the truth of Ludwig von Mises’s well-recognized hypothesis that “middle-of-the-road policies lead to socialism.” One government intervention leads to unintended consequences from the point of view of the government planners, forcing them to make a decision: repeal the initial intervention, or intervene further until the entire industry falls under the influence of government force.”

            really.. “well recognized” ? by what governments?

            and they jump straight from Economics to “socialism”?

            so.. according to them – every single industrialized country in the world is “socialist”?

            come on Mr. Dewey – do you really believe this kind of thing has import for most people?

            do you really think that writings like this – will convince others and other govt to change their ways?

            this is just introspective blather.. that no one really pays any attention to except for some die-hards.

            if you want to further the cause of the free market – you have to speak to others as if you respect them and their ability to reason.

            when you start off accusing them of being socialists – what is the point?

  10. What this article absolutely fails to take into account is the bigger picture and some bedrock realities of human nature.

    If, using an example above, flash-lights are selling at twice the price then a reasonable person would shrug, find other means and at a later time take a fairly passive action like never dealing with that merchant again.

    But after a disaster if a reasonable person perceives the goods as vital to their own or their familys’ survival, such as food, fuel or water, then they are likely to show their displeasure in a much more immediate manner: looting and rioting.

    There is always going to be an element of unrest following a disruption like a disaster but if circumstances such as gouging provoke what would be the majority of peaceful, reasonable people into such actions then the States’ resources become stretched. A police force caught up in surpressing a riot is one that can’t be put to use in disaster relief. The damage to life and property starts spiralling upwards and the monetary cost to the State rises exponentially.

    Laws such as those on price gouging are put in place precisely to head off such outcomes and in the long run cost the community much less.

    • But then why shouldn’t the government set prices all the time, and not just after a disaster? Simple logic would suggest that either the government sets prices all the time, or they never set prices. I’m in favor of having the market set prices, and some may favor government prices all the time, and both positions are consistent.

      But what is not consistent is to suggest that the market set prices most of the time, and the government set prices some of the time. That logic is flawed and must be rejected, IMHO.

      • re: the govt setting prices.

        no.

        the govt is not setting prices, it’s saying that prices much higher than normal selling price is not allowed.

        but the govt is basically representing people who themselves do not like the idea of price gouging.

        If you’re looking for consistency in laws in general, good luck.

        people do not want to tell business what to sell for but they object to selling something for 10X what it normally sells for during a disaster.

        that’s hardly the govt telling business what prices they can sell for.

        there is theory here and there is reality.

        the reality is that theory is theory and practice is the reality.

        I see no crowds of people demanding that Home Depot be allowed to sell generators at 10X during a disaster.

        where is the support for that?

        • If you live in hurricane, tornado, or earthquake zone (IOW, on Earth), and don’t have at least a flashlight, water jugs, and a camp stove, then you deserve to be gouged when you go to buy a flashlight or camp stove after the disaster. People were warned last week that this storm had the potential to be devasting. Why weren’t they filling water jugs then?

          Generators aren’t that expensive when the weather is nice, and can save you what they cost by preserving your frozen food in a prolonged outage. I will help my neighbors in a disaster, but if they don’t have the sense to at least own a flashlight, then they’re in the dark in more ways than one.

          • re: “deserve to be gouged”.

            perhaps. in general I do agree that people have a
            responsibility to be prepared and to a certain extent end up
            responsible for their own vulnerability to “market pricing”.

            the rich tend to do better in such situations, eh?

          • Yeah, Larry, this is really about The Rich and not allocating scarce resources.

            It’s not about allowing prices to work to convey important information, encourage new suppliers to enter the market to alleviate scarcity (which, in turn, serves to drive prices back down by increasing supply) and change people’s behaviours to minimize suffering.

            No. For economically illiterate cretinous plebes, it’s always about finding a way to justify their hatred, envy and thieving instincts by making their intended victims – Thuh Rich – the focus of evil.

          • re: the rich

            horse manure.

            most folks just don’t want to be taken advantage of in a disaster and don’t care about the rich at all – until you have a “market” in which only the rich can participate.

            even then.. it’s not hatred of the rich – it’s hatred of a situation where only the rich can afford things.

            you twist this around Methinks.. and refuse to deal with the simple reality of how ordinary people feel when preyed upon by unscrupulous.

          • What does “afford” mean, Lar? Hmmm?

            Can you “afford” no water for five days because of shortages caused by price controls (and make no mistake, anti-gouging laws are merely price controls)?

            Do you mean people who literally do not have an extra $5 or assets they can sell in order to make the necessary trade-off to obtain water? Because one such person might possibly exist somewhere an entire population must suffer shortages?

            No, what you really mean by “afford” is that you’re pissed off that you have to forgo some of the things you want to buy in order to obtain things you need in a disaster. In your TV-fed myopia, you presume that “the rich” don’t make any trade-offs. It’s only poor you.

            I’m guessing you don’t consider yourself “rich”. Tell me, Lar, if water doubles of even triples in price for a few days during a storm, will you literally not be able to afford water. Will you literally be priced out of water market as you huddle against a tree because you have absolutely nothing at all to trade for water?

            And pray tell, my benighted little friend, what is “unscrupulous” about increasing the price of something to accurately reflect its increased value?

          • we’re talking about ONLY unscrupulous predatory pricing during a disaster that prices things at far higher levels than people can afford that used to be able to afford them at normal prices.

            you equate it to price controls for everything all the time.

            I stipulate the disaster scenario ONLY.

            you can pretend otherwise but all it does is reveal how unscrupulous you are in discussing it.

            and you totally do not “get” how ordinary people feel about it and you totally do not “get” the difference between theory and realities.

            but that’s you, eh?

            you live in your own world ..and rail against the real world … and hate the fact that you are in a tiny minority of people who think the way you do.

            I guess I would to .. and that’s why I at least try to understand why most folks do hate unscrupulous practices .. like taking advantage of people when they are vulnerable. you don’t see this as wrong …just a business opportunity!

          • When you get your way with your “moral” price controls you’re going to do without .

            You see, not only will there be shortages, but well-stocked individuals will be far less likely to share with you because the shortages will make replenishing their supply less certain, increasing the value of their current stock. You’ll be starving, filthy and thirsty, but at least your “morality” will comfort you, eh?

          • re: ” “moral” price controls

            what a load of horse manure.

            can’t you even honestly discuss something?

            there is no price controls.

            there are CAPS – ONLY during disasters.

            no other times

            why can’t you be honest here?

          • Larry,

            A cap IS a price control. You’ve been hanging out on an economics blog for years. Can’t you trouble yourself to learn any economics?

          • re: cap/price control

            agreed. but it’s not across the board on everything all the time.

            unlike Usury laws which do both, right?

            the point here is that there are selected, narrow areas of the economy where this is done – as opposed to an overall command/control system.

          • You’re right, Larry, anti-gouging laws are not permanent price controls. They’re just price controls during a period of time when price controls are most damaging and hurt people when they’re most desperate.

            Congratulations. Robbing people of their few options when they’ve already lost so much is the new “moral” in America. Maybe we can make ourselves feel even better by burning a few witches.

          • Methinks – shouldn’t people as a society decide how they wish to allocate scarce resources during a disaster?

            isn’t that a legitimate part of self-governance?

            you are correct in that most people do not really understand the “theology” of free markets but most people are opposed to widespread price controls even
            as they are also opposed to market-priced resources during a disaster.

            they know that when supplies are exhausted that the chances of getting new supplies – in the immediate timeframe are slim to none – no matter the price.

            if a sign went up saying ” 24/7 availability guaranteed at the higher price” many would understand that, perhaps accept it but in a disaster it comes across to most people as someone trying to take advantage of others misfortune and most people PREFER controls over those they view as opportunistic and unscrupulous.

            That’s a part of ECON 101 also – if you are really serious about practical market principles.

            Most people do not accept the pure Libertarian principles. that’s a reality.

          • No, Larry. The false aggregate “society” knows nothing about me, my needs nor my preferences.

            Allowing prices to fluctuate simply gives people the option to obtain goods and services faster. If anyone doesn’t wish to pay the higher price, they don’t have to. They can just wait for prices to come down.

            But, you have to keep in mind that if prices aren’t allowed to rise, goods and services won’t be provided at all to those who desperately need them.

            Suppose a tree crushed you roof in the last storm and one of the decorative shutters on my third floor window fell off. In order to fix your roof, a contractor must drive through roads strewn with debris and fallen power lines and then perform a task made more dangerous and onerous by storm conditions. If he cannot raise his prices to compensate him for that additional risk and hassle, he’s not going to bother with you until the risk and hassle has subsided. Meanwhile, you’ll have to live with a crushed roof. You’ll have no choice. From your perspective, the price difference to compensate the contractor for his additional risk and hassle is a convenience premium. If the repairs on your roof are worth the premium, then you’ll hire the contractor immediately. If not, you’ll wait until things normalize and prices come back down. The choice is yours. When there are price caps, the service won’t be made available to you because the price the contractor can charge is not worth the additional hassle and risk. Does society have the right to rob you of that choice?

            I, with my downed shutter may decide I’m not willing to pay more to have the shutter re-attached faster. So, I’ll wait until prices come back down. But, even though I didn’t exercise the option to pay more for faster service, I am better off for having the option to do so.

            Price caps are an unnecessary compulsion championed by economic ignoramuses who believe they can compel others to provide them with goods ad services they want and need at a price they prefer. They can arrest the price, but they cannot force the provision of goods and services.

            This isn’t theology or politics or whatever else you’re babbling about in your comment. It’s simple logic.

          • ” This isn’t theology or politics or whatever else you’re babbling about in your comment. It’s simple logic.”

            I respect you view and I largely agree with it.

            but I make an exception for disasters.

            the news shows pictures of people standing in line to fill their gas cans.

            let me ask you. What if they had an auction instead?

            what do you think would happen with the folks standing in line?

            Now you say that your view is not theology and that mine is blather. So what would happen if the owner of the station came out and offered first fill-up to highest bidder?

          • Larry, why don’t you put your thinking cap on, read my previous comment, and based on what you learned from it, try to answer the question yourself.

            somewhere in your analysis you should ask yourself why there is suddenly a queue for petroleum.

          • I respect you view and I largely agree with it.

            Bullshit. You don’t understand her view, because it involves logic and human nature, something you have little or no understanding of.

            but I make an exception for disasters.

            OMG!! What do you suppose the discussion is about if not shortages caused by “disasters”? Get a clue.

            the news shows pictures of people standing in line to fill their gas cans.

            Have you even wondered *why* they think they need to fill their gas cans? Are they using a lot more gas than normal? Probably not. They are stocking up “just in case”. That’s something smart people do BEFORE a disaster when prices are normal.

            let me ask you. What if they had an auction instead?

            That would be a great method for equitably distributing gas. People would then be in line according to need. Most needy ahead of less needy. then it would be way more likely that those with real needs would get gas.

            what do you think would happen with the folks standing in line?

            The line would become very short as those who didn’t really need gas but who thought they should stock up “just in case” would go home and wait for lower prices.

            Now you say that your view is not theology and that mine is blather. So what would happen if the owner of the station came out and offered first fill-up to highest bidder?

            Larry if there is one thing that is absolutely clear, it’s that your view is non-logical non-economic blather.

            As I explained, if the owner offered an auction the buyers would line up in order of need based on the amount they were willing to bid.

            At the regular prices those in line with gas cans will get all the gas they want until it runs out. Then NO ONE will get any no matter how badly they need it to get their profusely bleeding child to the emergency room.

            If the station owner can’t raise prices enough to cover the cost of another delivery at a new higher price, he will just remain closed.

            The laws of supply and demand operate at ALL TIMES and we see them working most clearly during an emergency. No one can determine the correct price of anything at any time, let alone during a shortage. Only the market can do that.

            Do yourself a favor. Learn some economics.

          • Ron – I did not ask for your “logic”. I asked why citizens were “ok” with a queue and maybe not okay with a auction and how that attitude might affect policies.

            infantile name calling seems to be your specialty.

            my point from the beginning is that the vast majority of people – do not agree – with pure libertarian values and in an elected, representative governance.. what does that mean?

            do folks like you want a libertarian dictator instead?

          • Ron – I did not ask for your “logic”. I asked why citizens were “ok” with a queue and maybe not okay with a auction and how that attitude might affect policies.

            But citizens are not OK with queue, and they complain bitterly.

            Read carefully, one small step at a time: People are willing to tolerate a queue because they value the gas more than they did before the shortage, but the price hasn’t risen to reflect that higher value. (pause here and think about it)

            Uncertainty encourages them to stock up by waiting in long lines for gas they won’t use right away, but think they may need in the future. Higher demand, same price = inadequate supply and willingness to wait in long lines. (pause here to think)

            A higher price would reduce this pointless stocking up and allow supplies to last longer.

            my point from the beginning is that the vast majority of people – do not agree – with pure libertarian values and in an elected, representative governance.. what does that mean?

            Supply and demand aren’t libertarian values, Larry. Thy are laws, like gravity.

            So, your point is that everyone should be punished by an ignorant majority who don’t understand economics rather than making their own choices based on supply and demand?

            do folks like you want a libertarian dictator instead?

            “Libertarian” and “dictator” can’t be used together like that, Larry.

          • listen carefully Ron-

            would citizens CHOOSE the queue over the auction?

            ” Supply and demand aren’t libertarian values, Larry. Thy are laws, like gravity. ”

            no Ron. “Laws” are things like electricity where no matter how you feel about it – it works one way.

            supply and demand, in a pure state works according to theory – but all other versions of it work in ways different from the theory – i.e. gas queues rather than auctions.

            You’ve got your beliefs but they don’t really reflect the way the markets really work and your only answer seems to be that they must conform to the theory and if they don’t – bad stuff happens – like shortages.

            but as I asked you before – if you asked 100 people if they prefer the queue to an auction – how many would choose auction?

            so – we have queues… because that’s what people would choose – even if they do complain – it’s the lesser of the two evils – to them.

            A smart businessman – takes note of this customer preference rather than insisting on Libertarian theory.

          • supply and demand, in a pure state works according to theory – but all other versions of it work in ways different from the theory – i.e. gas queues rather than auctions.

            Well there you have it. Once again you declare that you don’t understand a simple concept like supply and demand, so every other economic concept will be difficult or impossible for you, as we can see from your comments.

            You’ve got your beliefs but they don’t really reflect the way the markets really work and your only answer seems to be that they must conform to the theory and if they don’t – bad stuff happens – like shortages.

            No, Larry, I have observations of how the world works, based on human nature, and bad things happen BECAUSE the laws of supply and demand work at all times, and shortages occur as predictably as night follows day, when misguided, ignorant, non-economic policies such as price controls are imposed.

            but as I asked you before – if you asked 100 people if they prefer the queue to an auction – how many would choose auction?

            It doesn’t matter what 100 people would answer, or 1000, or 100,000,000. Economic ignorance is still economic ignorance no matter how many people prefer one or another. If 100 people thought Larry should be shot for refusing to learn economics would you consider that the best course of action?

            so – we have queues… because
            that’s what people would choose – even if they do complain – it’s the lesser of the two evils – to them.</i."

            So is it OK for some who really need gas to go without it while others who don't really need it buy up the remaining supply at regular prices, standing in long lines to fill their gas cans until it's all gone?

          • re: ” It doesn’t matter what 100 people would answer”

            that demonstrates your own disconnect from the realities.

            it DOES MATTER if it affects supply/demand policies.

            you can blather on til the cows come home guy – but the reality is – despite all your forebodings of bad stuff happening.. that most people are not convinced and choose the queue over the auction.

            People ARE the market guy.

            they determine how the market operates by their own preferences and behaviors even when they “violate” your beliefs.

            how do you reconcile what you believe with the reality?

            I’m not advocating policies that inhibit supply/demand but I am very much a pragmatist who recognizes the realities.

            one might ask – what would you do to better “educate” so people would choose “right” since in your view they are ignorant cretins.

            and the answer as to how to convince them is:

            “call them ignorant cretins”.

            yepper.

          • People ARE the market guy.

            Yes, but people can also be very wrong and argue against interest without realizing they’re doing it.

            So, now that you understand why anti-gouging laws are hurting instead of helping people, you can educate other people so that they can quite screwing themselves by begging for policies that hurt them.

          • re: pissed off – sure they are but the essential question remains – would they prefer auctions over queues?

            re: people don’t know their own self-interests

            I think they do. When someone cuts in front on you at McD’s or some other line you are waiting in – there is a sense of “who does he think he is?”.

            People ARE the market. I think it’s ludicrous to argue theory as if people will do what the theory says if they only knew the theory.

            You can bet that companies like Home Depot, Lowes, etc, KNOW PEOPLE and KNOW the market and optimize their profits by doing what their customers want them to do even if it does not conform to “Econ 101″.

            Econ 101 in the real world is what people do and how the market works – according to what people want.

          • how do you reconcile what you believe with the reality?

            Easy, Larry, you provided the proof yourself. See that long line of people hoping to fill gas cans? That’s all the proof I need. That’s what the “theory” predicts, and that’s the reality.

            They don’t like it one bit, but they would rather suffer in line than think that someone could “gouge” them by raising prices.

            The politicians, who have economists and “experts” at their disposal know better, but as you say, they do what their constituents want, even providing self-flagellation if that’s what people ask for. What does that say about the morality of politicians?

          • I think they do. When someone cuts in front on you at McD’s or some other line you are waiting in – there is a sense of “who does he think he is?”

            Interesting. Does this happen to you a lot? Hopefully you express your displeasure right then and there. Maybe that helps explain why you want some big brother to tell everyone what they can and can’t do, and keep everyone in line.

            And how do you feel when you are waiting in line and the person ahead of you buys every last item so there’s nothing left for you, even though you’re really hungry? They are only stocking up “just in case” McD’s isn’t open tomorrow due to the storm. Do you prefer that NO Big Mac to a higher priced Big Mac? That’s what you’re arguing in favor of.

        • Ron – I did not ask for your “logic”. I asked why citizens were “ok” with a queue and maybe not okay with a auction and how that attitude might affect policies.

          Okay, Larry, I’ll give it another go.

          People are NOT okay with a queue. They are not quietly waiting in long queues, chatting with their fellow gas-buyers as the wait forever to buy some gas. They’re pissed off, they’re getting nasty and at least one person threw a cup of coffee at a gas station attendant.

          Methinks – no .. I asked YOU -WHY there was queue instead of an auction.

          There’s a queue instead of an auction because the price is capped. How can you have an auction if the price isn’t allowed to adjust to reflect demand? The whole point of an auction is to discover the price and you can’t discover anything if the price is only allowed to go in one direction.

          In fact, auction is exactly how gas is sold every single day – except when anti-gouging, pro-stupidity laws kick in. If demand drops , the gas station must lower prices to sell its stock. If demand increases, the price is bid up.

          So, if one of our benighted politicians was suddenly infected with a clue and removed anti-gouging, pro-scarcity laws, your gas station owner would immediately increase the price of the gas to reflect its new higher value and the people who are willing to wait for things to normalize will just go home and wait. The people who urgently need the gas are willing to pay the premium (because wherever they’re going is worth more to them than the extra money they have to spend to get there) and will get as much as they need. Because gas is at a premium, they have extra incentive to buy only what they really can’t do without, leaving more for the next guy. When demand falls (those in urgent need have satisfied their demand) or supply starts rolling in more normally, prices will fall.

          Gasoline sold at your gas station every day is an auctioning off of that station’s stock. They compete with each other as well as with substitutes for your business every day.

      • Presumably you are in favour of markets setting prices at least in part because prices are information signals between consumers and producers. Without those signals producers don’t know how much to produce and consumers have no way of expressing their desire to producers. Nor do consumers know when a good has become relatively scarce and conservation is in order because prices set by government can’t adjust to inform them.

        Cuba and the Soviet Union set prices. We had nothing but shortages of wanted goods, warehouses of unwanted junk (which they kept producing anyway) and misery. Why do people believe that this will not be the outcome of any government price setting scheme (whether direct or indirect through menacing “anti-gouging” legislation)? And why are they so eager to pile that on top of the problems resulting from natural disasters?

        Every weather hiccup seems to be followed by a vicious tsunami of self-defeating idiocy far worse than any blow delivered by gaia.

    • Don,

      Violence occurs when government interference with free markets causes shortages. On the other hand, when prices are allowed to reach equilibrium levels, consumers reduce demand and suppliers find ways to increase supplies. That’s how human nature works.

      Laws such as price gouging are put in place because people – both voters and the officials they elect – do not understand basic economics.

      Are you old enough to remember the gasoline lines of the 1970s and the violent behavior of consumers during those times? As soon as the federal government removed its restrictions on prices, those lines and that violence ended.

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