I don’t disagree entirely with that, though struggling to see how differentiating ignoring something and not understanding it (including understanding that you can’t ignore it) would have made my initial post ‘bunk’. I read in many of the earlier posts at least an implicit bogus assumption that ‘what we have now’ is everyone getting their 3 days of bottled water if there’s around 3 days supply per person on average in the stores or that somehow happens if you just freeze the price, which is the basic status quo as far as laws. There’s clearly some lack of understanding there IMO.
Nor does some recognition that rush hoarding pretty much wipes out the ‘fair’ distribution of fixed price goods mean somebody fully understands the economics. Even an effective system of rationing, which an ad hoc ‘per customer’ in various stores isn’t, only solves in the limit the issue of evenly distributing the water cases available when you limit price to $5. It doesn’t address the other part of the equation: that you might have significantly more water cases available within a meaningful period if suppliers expected to sell them for $20. So there too hard to see how attributing that to a lack of understanding is ‘bunk’.
So people completely 100% not understanding economics maybe not. But if you don’t recognize the likelihood ‘gouging’ would likely result in better overall outcomes I don’t see that as the likely outcome of a thorough understanding how markets work. People who are reflexively hostile to markets, of whom there are many, maybe most somewhat paradoxically in an at least mostly market economy, often don’t have a lot of interest in really thinking about how markets work IME. They are more likely to just say any ‘icky’ outcome is a market failure.
Then what good are anti-gouging laws? How can anyone charge $20 for a case of water if churches and fraternal organizations and relief agencies and governments are giving the stuff away?
Clearly, they’re not always doing the best job. And that’s not a dig on them, it’s just hard to figure out what supplies, in what quantities, need to be in the right place at the right time, especially from the outside.
Yeah, I’m not seeing how shopowner’s overcharging people changes that the bridges are washed out. I’m thinking that ‘it encourages resupply’, is utter nonsense. You might have a point if the supplier was getting some of that sweet gouging cash, but he’s not. If the bridge is out, it’s out. No matter how much you offer the guy delivering it.
It feels a lot like, “But…but…I have money therefore I should suffer less!”
The suppliers that are affected are really the local stores and suppliers anyway. That guy with a pickup full of water (or plywood, or chainsaws, or generators, or whatever) that he bought from his local Home Depot and drove down to the disaster area hoping to resell at X% markup is probably not going to be stopped by the cops anyway.
The real people affected by the laws are the standard retailers. There’s a storm coming, do you raise your prices on generators and water and chainsaws? Or keep selling at the “regular” price?
That retailer is still going to exist after the disaster is over, right? And what is the community reaction going to be towards that retailer that raised their prices? They’re going to be pissed. Are they wrong to be pissed? Maybe? It’s simply a fact that human beings are not Vulcans, and they don’t always respond in perfectly rational ways.
If there really is going to be a shortage of bottle water due to the anticipated disaster, why don’t the stores just order a lot more? Because the distribution isn’t set up for that, and the stores are competing with each other for the limited amount in the distribution chain? But that means that raising the price to the consumer doesn’t increase supply, because there is no way to increase supply that quickly.
The bad PR from selling water at $10 a bottle isn’t worth it. Some short sighted guys who aren’t in this for the long haul, like that guy with a pickup, might try it. Walmart would be foolish to try it.
But the shelves never empty if prices are set to meet demand. The reason you’re looking at $20 for a case of water is the whole reason the case of water is still there. If it’s wasn’t $20, it wouldn’t be there for you to look at and get upset about.
Uber’s surge pricing demonstrates this concept well. Uber implements surge pricing to get drivers out to areas where there is heavy demand. What this means for consumers is that they pay more, but they get a car, whereas with traditional cab services where rates are always the same, you might get a cab in 10 minutes, or you might never get a cab. Before Uber, this was a reality I always had to take into account. With Uber, I can confidently travel anywhere at any time and know that I will receive a fairly quick pickup. And that’s all due to prices that respond to demand, as opposed to fixed prices.
That sounds like a decent compromise in theory, but in practice getting people to hop into their trucks and head to a miserable disaster area takes a lot more than the prospect of “reasonable” profits.
Fortunately, since due to politics there are no laws against labor gouging management with higher wage demands, labor will usually flood into a disaster area seeking a big payday. However, if the supplies don’t rush in with them due to price controls, they don’t find work and just go home.
I disagree. Every day is actually a day for survival. You don’t see the average person stealing because they are hungry. They usually engage in normal commerce.
Which bridge is that? And people have boats. Hell people have brought boats to Houston this week from out of town. It’s not like we’re typically dealing with completely islanded cities. Right now you could be bringing supplies to Houston. Why aren’t you?
But a system of fixed prices can’t work if there’s no order either. Which comes back to the mistaken assumption I still believe is embedded in most posts countering the OP: that if the store doesn’t raise the price then everyone just gets their water at the regular price. No. The real situation is the people who rush out first buy generously (for themselves) based on the normal price* and there’s a more skewed distribution of the water than there would be if prices instead rose, plus no added price incentive to resupply.
And very well off people aren’t the most likely to rush out first. They are more likely to have reserve stocks (like everyone is supposed to) to begin with. Nor are poor people likely to be proportionately represented in the rushers (since typically less mobile and less quickly informed). But many posts focus on rich and poor.
So no you wouldn’t have a free market with chaos, or a controlled market either. You’d have chaos. But you haven’t shown why allowing prices to rise would be more likely to result in chaos than empty shelves. That’s a key weakness IMO to that line of argument.
Also why argue just at the extremes? In the real world local relief orgs and ad hoc good Samaritans are handing out water for free. Well guess what, albeit under more constraint and organization, people are handing out food (and water) for free all the time. That doesn’t make it irrational for supermarkets to exist and compete and the prices comes out where the come out. Likewise as I’ve mentioned, big national chains are typically not interested in optimizing revenue on inventory in their locations affected by disasters. In the political world as it exists it’s not worth it to them. So besides the problem of lack of proof that the ‘Lord of the Flies’ situation would be made more likely by letting prices change, allowing it doesn’t mean everyone would. But some would, and create some more incentive to get more supply to the locale.
Also I think a lot of smoke can be cleared on this if we just admit that what sticks in most people’s craw about higher prices in a disaster area is some other people making a big profit. It isn’t really a well thought out argument why the results would be worse overall for consumers, or it’s just a zero sum assumption: profit must represent screwing of someone.
*X per customer at a given store is a weak counter to that, and the thread isn’t about designing a strict rationing system ready to go at all times if disaster approaches.
And the anger isn’t at high profits per se, it’s WHO gets them. Consumers cleaning out a poor merchant’s freezer for nothing is just the way things are. Laborers getting triple wages because of high demand for their services during rebuilding is just paying a fair wage. It’s only the business owners who aren’t supposed to benefit from a storm.
The crazy part is that almost all of the “gougers” are middle class folks. Very small business owners, and a lot of those increased costs, at least for services as opposed to retail, represents higher labor costs, but the business owner still gets the heat for it. We’d need some professional economists to weigh in, but I’d bet that almost all of the extra profits from disasters, when those extra profits are allowed to happen accrue at the lower end of the income scale: mainly laborers and small business owners, as well as Joe six packs who buy a bunch of generators in Little Rock and travel down to Houston to sell them at a 5x markup.
There is nothing stopping the rich from stockpiling. In theory, if the rich stockpile, then the price stays high. If the price stays high more people will try to profit by bringing in more goods. Eventually the rich will stop stockpiling and prices will start to drop as more goods chasing a price point enter the market. Your question seems to assume a fixed amount of product and who gets access. The question is how do we increase the amount of product over time.
I’m not going to bother to read through a whole thread after this statement, because it is the crux of the issue.
If you allow price-gouging, most people go without (just because you can charge more doesn’t mean SUPPLY will increase! It’s an EMERGENCY, with limited supply available). The ones who don’t are the ones with the most money. If you don’t allow price-gouging, most people go without, but the ones who don’t are the ones who get there first.
As between the two, in a Democratic society, most people feel the latter is a better system for necessities. I tend to agree.
I think you miss the point. Although it is possible that supply will not increase with price gouging it is definitely more likely. Therefore price-gouging may result in more product available and less people going without. To quote Thomas Sowell your response is long on indignation and short on economics.
It is here to highlight that the econ 101 slogan level understanding indeed is too simplistic for the actual reflection on the usage of markets in the response to the natural disasters as it is an understanding that is too simplistic and it indeed does not represent the actual framework of the analysis.
The short term inelasticities indeed - the price signaling does not serve achieving the pareto optimal result if the conditions for response can not be obtained - the moment of crisis contre the disaster recovery.
It is not the market framework analysis is not used in the development of the responses to a disaster, I am aware of the work on usage of the market mechanisms indeed in disaster response as superior for long term recover. But it is in all the literature I am familiar with about the post crisis moment - widely understood where the logistical and the informaoitn mechanisms that are needed for market resposne to work efficiently have broken down and the command and control becomes temporarily superior.
I do not know the purpose of the superstitious repetition of mid 20th century economist names of which two being most famous for being worshipped in a religious fashion by a certain religiousitic political tendency, but the first point of departure for the real economists who are not engaged in political sloganeering is to examine if the assumptions for the achieving of the basic criteria of the pareto results in a market are in fact present, and if not what actions on the margin might be taken to enable.
a religious creed level of understanding of markets is not the approach of the real economists and sadly damages the idea of free market frameworks.
You are looking at the system a bit too simplistically. In a world with tremendous productive potential prices serve as a signal to shift production. When prices go up production goes up to increase supply. That takes time in many areas and for many goods. Water and food in the US? We have a surplus so higher prices provides an incentive to change logistics and start shipping in large quantities. The concept of supply and demand and prices work surprisingly well.
Now, lots of companies might feel that public goodwill outweighs some temporary larger profits and might just sell at normal prices or give stuff away anyways. The whole idea of labeling it price gouging is an attempt to exploit emotion over reason.
On the subject of price fixing, where has it actually worked?
Higher prices do increase supply, and they also control demand. If water is $20 instead of $5 for a case, you’ll only buy what you need, whereas if it’s $5, you will buy extra “just to be safe”.
Price gouging could work if every disaster victim has $500 in their pocket, a good sense of personal-finance math, access to (limited) resources, and an understanding of what supplies are coming in and what are not.
Unfortunately, many disaster victims hit the road with probably only a $30 in the wallet, a desperation or lack of info about the situation that clouds decisions, etc. If that $30 buys only a case of water, what to do about gasoline, food, etc.?
And if they can’t afford the costly goods, do they then resort to robbery?
If the bridge is out, the suppleier can deliver goods via boat, or even helicopter. But that’s more expensive, for reasons that have to do with the difficulty of transport, the time spent, and the size of the load, not because boat guy is getting rich. The point is to think like a supplier; it’s going to incur those extra expenses to get goods there if it’s worth it to do so, but not at a loss.
Higher prices don’t increase supply; they cover the cost of resupply.
With money. Enough money to buy up what’s there. Or at least an arbitrary amount of money. And there’s no reason to assume that arbitrary = fair.
I get that thinking for the longer term is hard, particularly when the incentives to encourage what we want to happen over the longer term seem like they’re unfair. But one of the roles of government is to do that longer-term thinking.
Think of it this way: How are prices set for necessities in non-emergency times? Do you think the supermarket prices for water, bread, and batteries reflect some social concept of fairness, or some reflection of their underlying production and transport cost (plus profit)? If it’s the latter, then why should the law tolerate that? Why don’t we insist that prices for necessities be “fair” at all times?