I can take a day off and load up the truck in San Antonio, drive to Houston, sell supplies, then return. I’ll do that for about $2k of profit. I can’t charge enough for that? I can go to work as normal.
A store owner in Houston can hold more inventory, buy a generator, pay for special delivery of goods, actually come to work when most people have evacuated, etc. These all increase supply but all have associated cost and risk that will be forgone without the ability to increase prices.
A whole series of posts countering Adaher’s seem to say ‘anti-gouging’ laws are to insure everyone gets what they need, but that’s the wrong way around.
The only way to get more things, quicker, to the place where they are needed is to make it more profitable. Because of political/PR considerations, big highly visible companies (Walmart, Home Depot etc) will probably not raise prices at all even without laws, and work reasonably fast at least to get past the transport bottlenecks of a disaster to get more inventory to the stores. It’s not worth it to them to a make some more money in a few stores in return for a nationwide PR black eye and making themselves political targets. And if they aren’t getting new stuff to the stores quite as fast as they might with a price incentive, who is going to know? OTOH smaller and particularly less visible (wholesaler) providers will actually work harder to get more stuff to the area if there’s a price incentive, and are more willing to actually charge a higher price to make that worth their while.
The thread is an illustration of a widespread misconception that limiting prices somehow makes more stuff available. It makes less stuff available if there’s any difference. That’s what has to be balanced against arbitrary perception that it’s ‘fairer’ if the people who rush to the store first to clean out the shelves are the ones who get all they want. But even if that’s the judgement it ignores the basic reality that higher price will make people less likely to take more than they need. There’s a tendency to disproportionately focus on hypothetical people who won’t be able to afford any $5 cases of water if the price goes up to $20 on a one time basis (how many people is that really?), and no focus on how $5 cases till the store gets cleared out is almost certain to result in a more skewed distribution of the available water cases, which again will be fewer cases if the price is limited to $5.
The OP simply seems to prefer that those with money get preferential access over those who got there first. Not sure why one is seen as advantageous over the other. Either way, the shelves will still be empty, because as stated, there are not enough for everyone.
He’s saying strong over weak, but he means those with money over those without, I think.
The whole series of posts countering adaher’s are wrong, but your analysis is also bunk. People understand how the market works, but making a big profit off of people enduring the consequences of a major natural disaster feels very wrong. “Oh, you lost everything and want water to live? How much money you got?” is a really shitty, shitty thing to do to someone, full stop. Anti-gouging laws don’t arise from a misunderstanding of economics, they’re an unfortunate consequence of humans being decent and compassionate.
Big profits aren’t the only way to get things, quicker, to the place where they are needed – people will do that out of the goodness of their hearts. The question is, does a purely charitable response to a natural disaster result in the best outcomes. Allowing price gouging isn’t common sense, because intuition says that screwing over the downtrodden is wrong. But the economics say it must be done.
Whose to say the people who get there first need those supplies the most desperately, though? How do you ensure that the person who has no water gets to buy the bottled water versus the person who has water but is just a little bit worried? Indeed, those with money are more able to buy supplies they don’t actually need.
… it is necessary to make the observation that this assertion is not something that a trained economist will assert. It is indeed an economics 101 idea.
Climate change and the cost/benefit of policies to address is extremely complicated and full of uncertainty.
In contrast, ‘does a fixed price in time of natural disaster contribute to stockpiling?’ is a lot more like asking for a ‘cite’ that the apple falls down from the tree not up. 
And the second question IMO implies a fallacy other posts have. Just because something is a ‘necessity’ doesn’t mean there’s enough of it for everybody all the time. There’s some implication there, I take it anyway, that some policy would insure everyone gets enough of the necessity no matter what. But there isn’t any such policy. Take two scenario’s
Say there is just enough bottled water inventory in stores to last everyone for 3 days. Say at 3 days we rely on government and private sector to bring in more, it’s AFAIK the FEMA guideline, be ready for 3 days (meaning people should already have it normally, but say nobody does). Is the distribution of those cases likely to be closer to a uniform 3 days for every person if the system is ‘whoever rushes the fastest to get get it at $5 a case’ or if prices can rise? Again I think’s that’s pretty close to apples and trees. Why would poor people be particularly more likely to rush to the store faster? That might be grounds for ‘cites’ one way or another but very non-obvious IMO. They’re less likely to have cars, more likely to be disabled, chronically ill, way overweight etc. Again it’s focusing just on the hypothetical person who can’t pay a lot more, and ignoring the whole rest of the mechanism where lots of excess cases at $5 go to people who rush faster with a supercharged incentive to hoard because they made that effort, besides no price increase.
Say there are not enough cases. No ‘fairness’ oriented policy can make more cases, ‘necessity’ or not. But fixing the prices means fewer cases at the margin not more.
Others mentioned rationing in ‘per customer’ but even well developed rationing systems always have holes. An ad hoc ‘per customer’ by stores has huge holes. It’s not that stores shouldn’t do that, and are free to do it. But it can’t IMO be presented as the solution to the question whether to limit prices or not. It’s comparatively very secondary. And if instead the govt made a big effort to quickly put in place and enforce a limited holes rationing system there’d be a huge question whether that was worthwhile rather than focusing on supplementing market effort to bring in more water.
No I disagree, many of the previous posts do in fact show a very obvious ignoring of economics. They seem to think if you say ‘necessity’ there will be some kind of loaves and fish effect to get everyone what they need. It’s hard to understand the statements any other way. But there isn’t obviously, nor is there compelling logic that the poorest people would rush the stores first. And they ignore the incentive that normal prices in abnormal supply environment give to the rushers to stockpile more than they need.
Your post I would grant is more honest at least has glimmers of it. Economics say more necessities would arrive sooner if prices rose. One could at least try to read your point as admitting that, but saying it doesn’t ‘feel good’.
Some people make new contributions to supply ‘from the goodness of their hearts’. And probably on a larger scale as I mentioned big national retail chains do it from their perceived self interest. Again it’s not worth it to Walmart to get a national PR black eye raising prices, basically at all, to make more money for a short time at a few stores. Gouging laws aren’t the reason those chains don’t raise prices in disasters, usually at all.
However as other posts mentioned, all kinds of other participants (or potential ones) in the supply chain would react to higher prices working harder, or for the first time, to supply the affected areas. Nor would that effort in any way dissuade people doing it for purely altruistic reasons, by any logic I can see anyway. So it’s not one or the other.
If people will die if they can’t afford to pay $20 for a gallon of fresh water, then they have a choice: They can loot it, or they can die. If they die, problem solved. If they loot, they get shot. Problem solved. Right? Then those that can afford to pay the price of living, can go on living, and not be bothered by garbage men and domestic workers.
[Agreeing with elbows, in case anyone reading this is sarcasm-impaired.]
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Ironically, the only reason that absurdly expensive health care in the ER doesn’t count as “price gouging” is because it’s consistently high.
Otherwise, the same arguments apply. Someone who has ruptured their appendix, or fractured their pelvis, is in no economic position to bargain or negotiate.
Let’s differentiate, then, between ignoring economics and not understanding it, but also between ignoring economics and fully understanding the economics and wanting to override the free market anyway. The fact that so many people here have suggested “per customer” limits indicates that they’re not ignoring the stockpiling concern, and in fact do understand that price caps + steady supply would result in shortages. I think the disconnect is that if people see disaster survivors being gouged for necessities, then even if they understand basic economics they see that as evidence that the market has already failed. Hence the desire to override the market with price caps and quotas. The counterintuitive part is getting people to accept that gouging, while icky, results in better overall outcomes.
Of course, your last point is true the other way too – in a world of price caps and quotas, there will exist a black market for those willing to pay.
A market only works when both parties have a vested interest in further interactions.
But suppose you’re dehydrated, and come across a dude in a truck with a bunch of bottled water. He says the bottles are $10 each. You don’t have the money.
What happens next? It seems to me that the most likely thing that will happen is that you walk over to his truck and start unloading some water, and tell him to fuck himself. Is he going to shoot you for stealing his precious water? I mean, maybe he has a gun on him, if he goes into a disaster area charging $10 a bottle for water then he’d be an idiot not to be armed. But maybe you have a gun too.
So what happens next? Where’s your free market now?
Ordinarily if there’s a guy selling goods at an outrageous markup there’s no need to pass a law against it, because that guy won’t have any customers, people can just go next door to the store selling the goods at the reasonable price. But it’s a disaster area. The stores are closed. The shelves are empty.
So what’s the fair price for that water? Is it really $10? Or is it zero? Because there really will be people going to the disaster area with supplies and handing them out for free. Isn’t that irrational? Why are we handing out free water and food to refugees when we could be charging them an arm and a leg?
It seems to me that when there’s a breakdown in social order then a free market becomes impossible. People revert instinctively to primitive economics, in which case there are only two prices for things. Either it’s shared freely if you’re part of the group, or it is taken or defended by force if you’re not part of the group. The guy in the pickup trying to sell water for $10 has shown he’s not part of the survival group, which means he’s very likely to find that people aren’t willing to pay any price for that water, they’ll either get it for free or he’ll have to use force to defend it.
The argument is that allowing the price to rise gives incentives to suppliers to make the extra effort needed to bring in more supplies to the damaged area, to alleviate shortages. Preventing suppliers from covering the cost of resupply (which rises in a natural disaster) means that they won’t come, leaving the survivors to fight it out over whatever’s there.
The ideal solution would be for the government allow a moderate amount of price gouging - enough to create a profit incentive for people to rush in and deliver additional supplies to a region in need, but not enough that victims can’t afford to buy what they need. So maybe publish a list of price ceilings such as $8 for a gallon of water (as opposed to $20,) $7 for a gallon of gasoline (as opposed to $30), etc.
Yeah Milton Friedman, Thomas Sowell, Friedrich Hayek, and Ludwig Von Mises would never make such assertions. They’d have to do a lot of math to understand supply and demand curves.
How would the ideal profit be calculated?
The problem, then, isn’t that the water is 10/bottle, it's that dehydrated people have no money. The same problem would exist if water were .25/bottle and you had no money, and the problem would be drastically worse if there wasn’t any dude in a truck at all (no water to buy at any price).
Which is why I said upthread, the solution isn’t to try to muck with the market, but to give thirsty people money.
Under a price gouging law regime, there would be no man, pickup truck, or water.
The alternative to the free market is not “everyone gets water and no problem” the alternative is less water for thirsty mouths.
If there is an empty shelf, you either die or fight your fellow humans for a smaller overall amount of water than if prices were permitted to rise.
Or there could be guys from churches and fraternal organizations and relief agencies and perhaps even governments handing out water for free?
My point is that the guy trying to sell water for an outrageous price is very likely to find his water taken by force rather than people searching their wallets for cash. I suppose that’s why he has to charge so much, because of the risk of losing everything he has to charge a risk premium.
Behind every market are men with guns who enforce the rules of the market as they think best. If the market isn’t protected by formal or informal means then it just becomes a target for bandits. So the king’s soldiers enforce the rules of the market. Why don’t the king’s soldiers just use their weapons to take the goods of the peasants? Because the king is smart enough to realize that you can shear a sheep every year, but only skin him once.
Under normal circumstances a store selling water doesn’t have to have armed guards protecting the goods. It’s enough that there are cops around somewhere, and if you try to steal a pittance worth of goods from the store eventually you’re going to get caught, and the risk/reward structure is all wrong. If you’re going to steal from stores there are better things to steal than cases of water.
In a disaster area where one guy with a pickup full of highly needed goods drives up to a group of refugees, that calculus is completely different. Where are the king’s soldiers that are going to protect him from the mob of refugees? And if the soldiers were there would they protect him and his goods, or would they simply appropriate his goods and distribute them as the soldiers see fit?
My point is that free markets work when all the participants in the market have a vested interest in the workings of the free market. While any one transaction might feel unfair, you continue to work within the system because going outside the system doesn’t make sense. But when the people feel the system reaches a certain level of unfairness, they stop agreeing to abide by the rules. Even if that means in the future fewer people are going to bring truckloads of water to disaster areas. What incentive does the mob of refugees in this particular case have to care about the refugees in the next disaster?
It’s in all of our long term interest to protect free market economics, because that’s the way our economy will grow and function more efficiently. But it’s in a lot of people’s short term interest to defect from those agreements. And so we have robbery and embezzlement and on and on. The point is that we have to have laws against robbery enforced by men with guns, otherwise the spontaneous workings of the invisible hand of the free market can’t work.