Resolved: Price-gouging shouldn't be discouraged when the government isn't rationing

Great Debates
1

This is in response to Georgia Gov. Brian Kemp’s order to suspend the gasoline tax and prohibit price-gouging in Georgia following the Colonial pipe disruption.

I risk permanently damaging my liberal cred over this, but if Kemp isn’t going to send in the National Guard to enforce a per-customer ration, then he shouldn’t attempt to control prices. It guarantees shortages. It encourages people to fill up every spare container.

Absent government-enforced rationing, prices are the only mechanism we have to effectively regulate scarcity. It is a wonderful mechanism to confront people at the gas pump, to ask the question “how much do you really need to fill up every spare gas container in your house” at least as a circuit-breaker to prevent hoarding.

It’s true that consumption pricing tends to benefit people who can afford those prices. I get that, and I’m not fond of it. But last week I assisted a stranded working man who ran out of gas because there simply no gas to be had. He was standing at the pump waving a $20 at anybody who would let him piggyback their transaction to fill his container. He was willing and able to pay elevated prices for 2 gallons of gas to get him out of a jam, but people were so paranoid about shortage that nobody would let him cut in. (I paid for his entire 2 gallons, and drove him to his empty truck, because I’ve been there and it sucks).

Either forcibly ration supplies, or let prices float. You’d think we’d have learned from watching Nixon, but controlling prices without rationing supply is a surefire recipe for shortages. Republicans are supposed to be the experts on market dynamics, so it’s just bizarre watching this play out time and time again.

2

They still believe in supply side economics. Some expert, right?

3

I tend to agree, but I suspect that even without any regulations, the idea that pricing* is a fundamentally unfair concept is so ingrained in so many people that lots of businesses wouldn’t want to take the hit to their reputations.

*In my experience, the basic concept of a price is controversial whenever people are smacked in the face with it. It’s almost like people see it as akin to usury. What people seem to innately want to pay is a cost, not a price (unless they’re getting a discount, of course).

4

It’s a similar problem to the toilet-paper “shortages” that we saw last year at the beginning of the pandemic. It wasn’t that people were buying excessive amounts, it’s just that they all decided to buy it at the same time ,rather than once every couple months, picking up some up.

That then seemed to be a shortage, so people started hoarding.

There is no shortage of gas, there is a temporary blip that, if no one had ever heard about, would have caused very little if any disruption to people needing gas.

In fact, there was a thread on this board telling people to go out and fill up right now, that’s the sort of thing that leads towards panic buying, creating a shortage where none really exists.

So, price gouging is just exploitative at this time.

Rationing on the other hand seems prudent. I would hope that the national guard doesn’t need to be called, and lesser measures can be effective. Many modern pumps allow you to limit a sale to a certain volume. Put up signs that there is a 10 or 15 gallon limit, and it will be legally enforced with a $xxxx fine.

If someone is seen going over the limit, their license can be noted, and they can pay a steep fine for violating rationing rules.

Enforcing a ration per station should be simple enough that way, but I don’t see how even the national guard could enforce a ration per customer. There are tons of stations around, and if I am panic buying, I’m going to by the limit at one station, then go to the next. Maybe disallow filling containers, then at least they have to go to the trouble of siphoning their fuel between visits.

5

Look at it from the other side. There is a shortage. Supplies will run out. The question then becomes who will get a share of those available supplies?

There are several possible answers. Prices stay the same, prices rise, the supplier can determine who gets the goods, or the government or somebody steps in with a lottery.

If prices stay the same, then those who can get there first or wait the longest win. But hording and panic buying can distort the fair distribution.

If prices rise, then those who can afford to pay the most win. But many legitimately in need will be passed over.

A supplier often knows who needs the product the most and what a fair price is, but will favor regular customers and those who have special ties over the general public.

A lottery is difficult and time-consuming to implement in a sudden shortage. No group is singled out but all groups suffer inequalities.

No one solution can be best in every case. Short-term panics and long-term rationing also need to be handled differently. The OP seems to be talking about short-term panics, though, and those almost never have time to pick through the options and settle on the best one.

The one we’ve settled on in out current era is the first, prices stay the same, no price gouging. The term explains why. Price gouging engenders the biggest fury among the public. On average, it benefits the least deserving and penalizes the greatest number. For all its faults, no price gouging feels fairest to the majority because nobody truly believes that the free market works to the benefit of the ordinary person. As price gouging indicates, the free market doesn’t ever work on any principle except greed.The rich also know that to their cores even if they don’t say it out loud, because they spend all their time gaming the system.

Since all systems have faults, they can be argued. The concept of “least damaging” is a slippery one. But please spare us the nonsense that an unregulated “free market” is ever an answer to any problem. Never, ever, ever, let the free market in the door without heavy regulation. You’ll still get screwed, but you might have some recourse in the end.

6

I agree that you can’t shut off gouging without rationing, but what prevents the rationing being decided by the businesses? That’s what WalMart did with toilet paper.

I am against gouging for the the reason @Exapno_Mapcase indicates. I do not buy the idea that it means the people who need something the most get it, as those who need the most are generally not the ones who can afford to pay the most. And I’m also not too keen on companies profiting from a disaster.

Without gouging being an option, I would expect businesses to have a natural desire to stop hoarding and panic buying in some other way, and adding their own rations seems to be the go-to method.

7

I don’t see how one could say this true thing:

and then logically segue into this:

If we had shortages because people were unnecessarily buying excess product, then letting prices rise is exactly the thing that would have prevented that situation (barring the enforcement of rationing). Not exploitive at all!

I shouldn’t have used the term ‘price-gouging’ in the OP because carries a moral valence that I don’t really agree with, but somebody was going to inject it anyway. Shortage pricing doesn’t need to become gouging, and if retailers were allowed to jack up their prices earlier, it would have discouraged hoarding, which would help keep product on the shelf for those who really need it.

A good government response in such a crisis, IMO, would be to issue gas vouchers to the people hit hardest by rising prices. If unused, they could be redeemable for cash once the crisis has passed. That would defuse the perennial complaint about the injustice of consumption pricing, and reward people for not hoarding and wasting.

8

Right, in an ideal world, price is just a scarcity signal. People think they should always pay what they paid yesterday, do not want to hear about scarcity, will always shoot the messenger. That’s why we need to start treating critical commodity prices as a message that needs some careful framing and delivery so it’s not seen as false messaging from a greedy middleman.

But even more ideally, work to insulate the economy from sudden supply shocks, and from dependency on goods that tend to cause supply shocks, and ramshackle distritubion networks that are prone to sudden interruption.

9

What’s the business interest in doing that? Inventory is a liability. Businesses have zero interest in paying rent to store products longer than necessary to turn a profit. It’s in their interest to clear all the inventory so those resources can be freed up for some other profitable product.

In Wal-Mart’s case, I don’t know the calculus, but obviously one of the biggest and most visible companies in the country is able to eat some of the cost of avoiding bad press to its brand (or fistfights breaking out in the store). That same calculus won’t work for smaller retailers.

One assumes companies are also experiencing elevated wholesale costs, so I don’t think it’s automatically a given that higher prices translates to higher profits.

But if they do, so what? They’re providing a valuable service in a crisis. People can’t drill and refine their own fuel in their backyard. Shouldn’t suppliers be compensated for continuing to serve angry people in a crisis instead of just closing up shop and letting it be someone else’s problem?

10

The idea is that rather than filling up on Monday like usual, I rush out and fill up now. I’m not buying an excessive amount of product, I’m just buying it at the same time as everyone else. This leads to temporary shortages at the station, even though there is plenty of product available.

And as I said, I’d be in favor of rationing as a temporary measure.

What do you mean by “jack up”? If you mean by 20-30 cents, sure, gas varies by that daily, and may discourage people from filling up prematurely. Gas went up here (hundreds of miles from the coast) by at least that much on the news.

If you mean by $5, then I disagree. It’s not keeping the product on the shelf for those who really need it, it is pricing it to those who can afford it. There are plenty of people who will need it that will not be able to get it.

Would you accept someone calling off of work because they can’t afford gas?

Do you really think that the gears of govt would be able to move that quickly? This is a “crisis” that came about swiftly, and will be over just as quickly. Having people apply for, get approved for, and receive these vouchers would take far longer than the situation exists, and in the meantime, they have no gas to get to work or to the store.

11

I’m totally with you HMS and you’ve explained it better than I could.

Why would Kemp do this? Trump has taken the GOP on a populist ride. Remember when conservatives were for free trade? Price fixing us an easy populist measure even though it hurts more in the end.

12

The reason is being seen as the place without supply us bad for business.

And. No, they’re not doing any more work than they were previously. And allowing people to make money on disasters creates a perverse inventive to not protect against disasters, or worse.

It is never a good idea to allow profit on things that cause harm. See also why you can’t profit off crime.

(Also note that it is irrelevant whether it is the wholesaler or retailer who gets said profit.)

13

The stations could for set the pumps to no more than 20 gallons at a time, I suppose, to create a mechanical single-sale rationing, that simply means you have to then go around to the back of the queue. That somewhat moderates the effect.

But having experienced fuel panics in multiple modalities, I can tell it is absolutely irrational behavior. AND that the average citizen just absolutely, positively, cannot possibly believe anything ever justifies charging him more when he is most anxious for it, and will blame whever’s in office for not doing something about it.

As HMS_Irruncible has corrected, there is a difference between price going up from legit scarcity and “gouging” to profiteer. But the public does not want to hear of it. And will blame the public officials if it happens and demand they do something about it. The general public are more willing to accept that events beyond our control means we no longer have a good, than that it now costs more, because “then, fine, if nobody has any, that is fair!”

Unfortunately just about every sector has moved in the direction of “just in time” stocking and not keeping inventories or idle reserve production capacity.

14

In a completely free market, sure. If other companies can come in and supply the product once it hits a higher price, then a higher price increases supply.

In a crisis, price signals that a crisis is occurring.

The price is being set by the producer of the product. It’s not a message to the producers of the product.

There’s a bit of a perverse incentive here. The ones in charge of those distribution networks are the ones who would stand to profit if there is a supply shock and no restriction on price gouging.

15

I was trying to avoid a hijack, but I was hinting at eliminating fossil fuel dependency forever. At least at the consumer retail level.

16

Well, right. You seem to be saying that it’s ineffective as a signal to producers, but I am talking mainly about the signal to consumers. As in, “this is how scarce gas is right now. You should cut consumption unless you’re desperate. You should eliminate unnecessary trips. If you’re in the market for a car, remember this while you’re evaluating the true ongoing cost of driving a gas burner.”

Consumer signaling is important because consumer behavior turned this supply shock into a crisis, as it often does. And it’s more effective than the president wagging his finger and telling you to be on your best behavior.

With price controls and rationing, the signal is “do whatever you want, the government will fix it.” I support that when matters are beyond the consumer’s control, but none of this panic buying was beyond the consumer’s control.

I’m no expert on incentives for critical businesses, but I would hope the businesses who caused this fuckup will be fined enough to claw back any excess profits arising from the event (and then some). If that’s not a law, then it could be.

And, needless to say, if gas profiteering caused enough consumers to switch to electric cars, obviously that’s a big downside that petrol companies would have in mind as well.

17

It depends on what you mean by it costing more. If it goes up 10-20%, then that costs more, but most people will simply see that as a normal fluctuation. It may cause them to combine some trips, to skip some optional driving, and save gas a bit that way. The problem is is that gas is a pretty inelastic commodity. It’s very hard to function in our society without gas in your tank. You can’t work, you can’t shop, you can’t do anything. People will pay any price for gas, up until they simply cannot afford it anymore.

If you raise the price to $10 a gallon, it will be hoarded just the same as at $3, just by those who can afford it, leaving those who cannot stuck on the side of the road.

I don’t know that it is wrong for someone who is starving to wish for someone who has far more than they can eat to be starving along with them. Considering that the actions of the person who has far more than they can eat contributed to the situation that leaves the other person starving, that would in fact be more fair.

18

I’ve been reading this thread with interest, as this is not my area of expertise. Why wouldn’t rapidly rising prices spur panic-buying? Wouldn’t people figure, “Oh, my God, gas prices just doubled! Better fill up now before they go even higher”?

19

Hmm… you must have missed all the news reports of people filling every available container including laundry hampers lined with trash bags. People were hoarding, well beyond an early fill, it’s really not debatable.

I’d say just let the price rise to whatever level is driven by demand. We don’t even really know what the relative demand was because of distorted prices, but with people filling every available container to turn a black-market buck, we can surmise the price wasn’t high enough.

One thing I do know is that, thanks to the hoarding, some folks faced calling off work because there was no gas whatsoever to be purchased. By contrast, if we knew prices reflected actual scarcity, then employers would understand the situation enough to make the right call. The government (or at least Georgia’s government) wrecked that with its dumb populist price controls.

No, that was an idealized aspirational “good response”, and is achievable if someone made it a priority. Electronic EBT cards exist, they have all sorts of conditions attached to them, it’s not outside the realm of possibility.

But if such a response is impossible, then I’d prefer no response over consumer price controls. Those made it worse in every case.

20

I admit I can’t forecast that psychology either, but my response would be that sellers should be able to raise their prices as fast as possible to discourage that kind of behavior. There’s a limit, and we need to be willing to find it so we can even begin to understand what kind of problem we’re solving.

And the other side of that coin is, once we discover the true shortage price, now the problem isn’t “there’s not enough gas”, it’s “some people don’t have enough money for gas”. That’s a more soluble problem. Money is everywhere, gas is not.