The argument agains “gouging” doesn’t work very well for gas after a hurricane, anyway. Even poor people can afford $5 a gallon for an emergency, but that price is high enough that people aren’t going to hoard it. On the other hand, if prices are held artificially low, there will be shortages, and there will be people who really need gas but can’t get it.
There might be decent arguments against what some call gouging, but I certainly haven’t seen any relating to gas after a hurricane.
Look at it this way: Demand for gas suddenly skyrocketed, and supply shrank. There is a gap. There are two ways to fix this gap - one is to allow the price to rise until the supply/demand situation is back in balance. That gives you efficient allocation. Or, you can take an emotional stance against the ‘unfairness’ of ‘gouging’, and dictate that the price must stay ‘reasonable’. And if you do that, the gas will quickly be gone, and people who really need it won’t be able to get it at any price. In the meantime, other people are hoarding gas that is desperately needed, and the flow of gas stops.
Bad result from good intentions.
But you’re implicitly assuming that this is all happening in a vacuum. While the people are buying the first round of gas, a second/third/fourth should be on the way. While the government prevents gouging, it also has the responsibility to expedite shipment of scarce goods to the area. Keep in mind that the ideal free market conditions have been distorted by a disaster.
Gee, John, I missed the thread where you predicted this. Could you please do me a favor and let me know where the next five hurricanes are gonna hit? I’m not sure what you think we should have done. It’s a friggin hurricane. Maybe we should have trucked in a whole bunch of gas and generators the day before? Let’s see, a bunch of tractor-trailers sitting around with gas in them and a hurricane coming…no danger there, right?
Gee, Zak, I missed the post where I said I predicted this hurricane. Perhaps you can point me to it.
What you obviously missed is every post I made in this thread where I said exactly what I thought should be done wrt “price gouging”. Precisely nothing.
If the government expedites the shipping of goods into the area, then there is no need for anti-gouging laws, because the added supply will keep prices down anyway.
Perhaps a solution would be for governments in disaster-prone areas to contract with vendors (maybe through tax breaks or something) to prevent gouging. If you took the tax break the previous year, then when a disaster hits, your prices are frozen for a week or two, or something like that. This way, it’s up to the vendor whether they want to gouge or not.
Times like these do not fall under normal supply and demand rules. Price gouging exists because of a temporary failure in the market. Supply has been cut off in a inelastic commodity (people will pay whatever price). In essence, there exists a short-term monopoly. Due to abuses in the past, monopolies have been regulated: take electricity and cable services for example. Delivery of essential supplies to a disaster area should fall under the same laws.
You don’t think that freezing the price of a commodity also contributes to the supply problem? How can this be called a failure in the market, when the market is not allowed to work? People won’t pay “whatever price”. If you read the news stories, there are dozens of examples of people refusing to cooperate with the “price gougers”. For example:
A monopoly is when one supplier controls all (or almost all) of a market. You can’t change the definition of a term in order to justify the policy you want. “Price gouging” and monopolistic practices are two entirely different things.
gouging doesnt make capitalistic sense because once the crisis passes your customer base has evaporated (if you are a local business). So pretty much gouging is mostly profitable for transigent business a la generators in the back of my semi.
businesswise, if you want to truck around from crisis to crisis with necessary supplies I am not sure that normally you could get there with the right supplies and before the shortage has been eliminated by regular businesses restocking and the Govt’s relief efforts. So that is a big chance you would be taking. Besides from time to time you might be looking at an angry mob that will beat the crap out of you and take your stuff.
Since a good bunch of our laws revolve around morality as interpreted by the lawmakers…we have anti gouging laws. So gouging would be crap shoot if you want to have a go at it (assuming that there were no laws against it). It is, however, morally reprehensible to profit excessively from a humanitarian crisis.
What no one has yet to mention is that spingears is considering bringing more generators because of the increased profit incentive. Any economics text will explain that higher prices induces a greater quantity supplied. Why? Because of the increased profit incentive. So do you want no electricity cheap, or some electricity slightly more expensive than usual, but more on the way? A price ceiling is the absolute WORST method of dealing with a shortage. If you’re worried about grandma’s iron lung, then set up an emergency assistance program that triages a portion of the resources that the government buys. If necessary, the government can put a lid on the price THEY buy it at. A society doesn’t have to be cold-hearted because it’s capitalistic. Capitalism is our economic system, not our political system. The political system is the moral framework by which the taxes of a capitalistic economic system are spent.
If you’ve got a better alternative, I’d like to hear it.
Damn, I forgot to mention that spingears idea isn’t so much price gouging as it is profiteering. The profiteers move in to increase supply once the gougers have gouged.
This is a good point, although it’s not so cut and dry as you imply. There is some happy medium between raising the prices a bit and sending them thru the roof so that your customers boycott you once the crisis is over.
This argument is also used to forbid same sex marriage. There are many, many Americans who think homosexuality is morally reprehensible. That argument doesn’t cut it for SSM, and it doesn’t cut it for “price gouging”.
I’d rather see the government give direct monetary assistance to the truly needy, and let the market do its business.
Sorry, forgot to add re: the morality issue…
The entire medical profession is based on profiting from other people’s suffering. There are many, many people who are striken with illnesses that are just as sudden, as just as devastating as having your home knocked over by a hurricane.
Of course, I’m sure there are those on this board who would use the same argument in favor of limitting doctor fees. 
The supply problem is that there was no supply. Until supply lines are reestablished into affected areas, supply and demand is skewed. The incident you cited is not an example of price gouging, imo. There are alternatives for removing brush, with the number increasing every day. There are necessities that people simply can not survive without: drinking water, food, shelter. The arguement can also be made that rational decisions can not be made immediately after a catastrophic event.
According to Webster, monopoly can be defined as:
Not all services regulated by the government as monopolies would fit this definition, cable television being the best example. However, I would argue that without the appearance of a monopoly, price gouging could not exist. If supply was unhindered by transportation issues, prices would adjust accordingly.
True enough. For an example of what happens when an established business engages in “price gouging,” take a look at Starbucks’ attempts at damage control after one of their misguided employees charged 9/11 emergency workers $130 for three cases of water. They’re still fighting that one: I got a glurge e-mail referring to it just a couple of months ago.
Not that it’s exactly put Starbucks out of business, but it hasn’t helped. It’s sure cost them more than the original $130.
That is a bit harsh. Many doctors are altruistic and dedicated to relieving people’s suffering. To charge a constant fee for a service is not profiteering. Let’s say there was a massive outbreak of tuberculosis. IF doctors raised their fees knowing that they had a massive captive market, then that would be price gouging or profiteering. We all know that if such an outbreak occured, doctors would charge the same fees as always and that the government would dedicate some resources (doctors, supplies, etc) to assist. A little different than trucking in supplies to hurricane victims to sell at outrageous prices.
But the existence of price gouging laws BEFORE the event, certainly affects the willingness of some merchants to take the risk of investing in additional supplies at an additional expense. You, nor anyone else, has put forth an argument of how price restrictions increases the supply. You are only arguing for rationing a limitted supply on a first come, first served basis. You might as well institute a lottery.
I think if you tried to make that argument, it wouldn’t stand much scrutiny. But, please go ahead if you think you can.
Actually, cable television is a terrible example of a monopoly. It only attains it monopoly status by being granted it by the government. Plus, with multiple satelite TV providers, there are equal alternatives.
As many of us have argued, transportation isn’t the only hinderance to supply-- price gouging laws themselves play a part. A key ingredient of a monoply is the ability to limit access to new suppliers of a product. If merchants were barricading the highways to prevent new supplies from entering, you might have a point. But the fact is the anti-gouging laws contribute to the limit of supply-- both before the incident and afterwards. It is precisely a RELATIVELY* predictable event like a hurricane which lends itself to merchants taking a risk and investing in additional supplies if a good profit can be made that argues against price gouging laws. Is it really such a huge surprise that a hurricane hit Florida in August?
*Zakalwe: this time, please note the use of this word, as you seem not to have done so the first time around.
I think you missed the word “inelastic.”
If one is going to talk about “the market,” in the sense of its role in creating economic efficiency and maximizing welfare, then one needs to use the term properly.
Sans disaster, Bob’s Gouges R Us cannot charge twenty bucks for a D-cell battery and expect to sell any of them. It is easy for the customers to go elsewhere and obtain that good at a price they prefer. Bob faces competition and the key feature of this is that it is the market that has the power to set prices, not any individual economic actor.
When disaster strikes, Bob’s Gouges R Us is now in the position of having the ability to set the market price because the disaster, almost by definition I suppose, has cut off those in Bob’s area from the wider, pre-disaster market.
Additionally, consumers & Bob have been cut off from information such as when the wider market will become available again; when critical services they customarily rely on will be operational again; and the variety, price, and location of goods in the surrounding area. There is an informational failure. My disaster experience is limited to the snow storm in the '90s that stranded all those thousands of spring break vacationers. We had access to zero information about what was available, how far to travel to find anything, and whether we could travel at all. Fortunately, we saw the forecast and got a room at a cheap motel. Our sole access to consumer goods was limited to walking some distance to a convenience store.
When the conditions creating a competitive market are swept away, the arguments based on the efficiency of the market are swept away as well. Additionally, even if they weren’t, the market does not guarantee an acceptable outcome. The only guaranteed benefit to obtain is that welfare will be maximized; but that doesn’t mean a situation where one person gets all the benefit and everybody else suffers privation is acceptable or defensible simply because the outcome was market-driven.
Market based arguments don’t apply to gouging situations, though I’m sure somebody will find a well-crafted counter example (this is the SDMB after all), because of two reasons. First, the market fails to obtain. Second, just because it has obtained, it does not follow that the outcome is acceptable. There are, I’m sure, market-based methods to efficiently effect a redistribution that is justifiable; but in the aftermath of a hurricane, people probably don’t have the resources to invest in such a program for a few days or weeks.
One needs non-market-based arguments to show the moral acceptability of price gouging.
Yeah, John Mace, I was unnecesarily harsh and I apologize for that. But, your basic point is still flawed. No, it’s not a huge surprise that a hurricane hit Florida in August, but it was a huge surprise that this hurricane hit Sanibel Island. It wasn’t predicted to do so until less than 24 hrs before landfall.
The problem isn’t that merchants have no incentive to bring in extra supplies. If they made a good profit before the hurricane, why isn’t that same profit good enough for after the hurricane? The problem is that you can’t “pre-load” supplies because there’s no place safe to keep them. It doesn’t make economic sense (even if you allowed price-gouging) to build a warehouse for a once every 25 years event.
Another point I’d like to note is that since the government generally restricts access to an area after a storm (for valid public safety reasons), access to the area is at their permission and one of the “rules” for gaining access is that you won’t price-gouge. Joe Gouger is perfectly free to drive to Miami right now, sit on the side of the road and try to sell his generators for 5 times his purchase price. He just can’t do it in Sanibel.
The fundamental assumption of the market is that efficiency is increased because those that make the decisions have the most relevant information due to the transperancy of prices. The government, on the other hand, cannot gain access to this information and must suffer some minimum level of inefficiency as a result.
In a disaster situation, this scenario is reversed on it’s head. Consumers don’t have the neccesary price signals to be able to distinguish a fair but elevated price from gouging and don’t have the time or wherewithal to seek alternate pricing so competition never emerges. Meanwhile, the government presumably has a reasonably intact organisational structure and can recieve information about all available stocks of a resource and what is needed by whom. In this case, the clear best solution is for the government to seize scarce supplies and dole them out based on personal assesment of need. Sure, there’s the fundamanetal inefficiency involved due to government intervention but, in this case, it’s going to be less inefficient than a broken market.