Price Gouging, Shortages and the Free Market

This is a very thought-provoking article. The premise is that laws against price-gouging during an emergency will actually impede access to vital supplies. The article makes a couple very good points.

Thoughts?

LDS Magazine

At least 34 states have adopted some version of them. They certainly sound like a justified policy solution to a serious problem. What if the neighborhood grocer had, in response to Eagle Mountain’s water shortage, jacked up its prices on water? Wouldn’t that have been unfair, unscrupulous and amoral? Perhaps. It certainly wouldn’t have won the store any new fans from the locals and likely would have cost it customers in the long run. Which is probably why the grocer didn’t do it.

But as the picture shows, when demand rises but prices don’t, you get shortages. Because the price is so low, those in the front of the line buy more than they need, leaving none for those who follow. There likely were people in Eagle Mountain left without any water at all that night and the following day.

In a town about an hour away from the hurricane zone, a few enterprising guys rented refrigerated trucks and filled them with readily available ice and drove to Munger’s city. Along the way they cleared fallen trees from the roads so they could pass safely and get their product to market. This also had the effect of clearing it for the general public and emergency responders.

Once there, they started selling ice for an expensive $8 a bag. According to Munger, people were angry at the price, but they lined up to pay it. And life-saving ice began to flow into the city. But North Carolina had an anti-gouging law, and soon police came and shut down the operation, took the sellers to jail, and impounded the truck full of ice. No more sellers came. Neither did any ice.

a reply to: AnonymousCitizen

This is not a subject I have put much thought into, but it does make some good points about immediate needs in a disaster situation. The best advice is to be prepared.

I was without water to my house for one day last year. One day. You would not believe how it screwed up my lifestyle for that one day.

I have put a great deal of thought and planning into this issue. I believe the free market is the best and most egalitarian method of distributing goods.

I watched Home Depot charge $2000 for a generator and $100 for a sheet of plywood in the path of a hurricane.

I remember an entrepreneur selling flashlights for $8 after the San Francisco earthquake. He was also taken to jail. So everyone was left in the dark....

The law always acts like "the man" is the only source of justice and equality. Actually, their only power is to curtail the free flow of goods. They don't actually establish supply lines. After a hurricane, it isn't enough to bring the survivors a bottle of water. you have to bring them a distribution network, with the promise of future water. without that, they will stay in survival mode, not venturing to get out and clear brush, etc. They will remain victims until the community re-forms. Commerce is a primary dimension of community, but THE MAN freaks out if someone is providing a good, and being compensated for it.

The government always sides with the grasshopper, never the ant.

I have stockpiled first aid equipment, as well as liquor and other things, with which to barter in a catastrophe. I know it'll be under threat from the authorities. Oh well.

This is what I cant understand about America, it is supposed to be a free market capitalist society, but it isn't. So, I am probably getting it, i.e. it isnt anymore? The water is worth what people will pay for it. If people cant afford it and suffer, is that the fault of the seller? That is the message I see in every movie about how America was built and what it stands for. Dont you guys believe in that anymore? Those poor people had the same chance as everybody else to be prepared, to have enough money, to be healthy enough. The sellers are just doing the American thing. America's constitution guarantees everybody's right to pursue happiness, it does not guarantee happiness. That is for countries like Canada and Australia, and the Scandinavian countries. Which is why I am so happy not to live in America.

*No offense intended, I know there are a lot of nice Americans who will help out people in need. I am just making comment on how I have seen, through the media so it could all be lies, America change. In my opinion it all worked really well till they started taking God out of the picture in the 60s, now it seems there is widespread greed, and I don't give a f**kness.

a reply to: Cinrad

I agree with you, Cinrad. It also depends on the culture where the "gouging" takes place, and the degree of market control put in place by LOCAL government.

So, the seller of flashlights after the San Francisco earthquake who was jailed; that figures, since San Fran wants to be a socialist paradise and already had laws in place.

The Florida case against the hardware chain was based on the fact that they "gouged" the federal government. The chain halted the practice, and refunded the money its federal customer was charged.

On the other hand, there was a famous incident in Dallas on 9-11 when a gas station charged $6 a gallon for it's gas. The state agriculture commissioner (who controls retail gas sales(!)) ordered them to stop. The owner pointed out that there was a shop across the street with lower prices for people who wanted to wait in line (which was a mile long). He was selling "premium" gas to folks in a hurry---who due to emergency didn't have time to wait in line. I think he won in court, because right afterward it became FEDERAL law that a station has to declare the price for the whole storage tank of gasoline, and cannot raise or lower the price until the whole tank sells. Of course, if the competitors lower their price, you are stuck high and dry with overpriced gas, and it gets worse as the price goes down. No one wants to pay more for your gas, and so you have to sell it back to the vendor at a loss(!) in order to buy a cheaper product to sell. The whole thing hurts small stations that sell gas slowly and may not buy their next truckload of gasoline for a week. But then Big Government always favors Big Business.

It is what sucks about America the most right now. And it's what some of the ruckus was on the election on Tuesday. A lot of folks voted what looked like more pro-enterprise folks into office.

The lefties don't have even a basic understanding of market dynamics---that the middle man is paid to manage risk. If you try to stock up for an emergency (like hauling ice to a hurricane) you risk losing your product when nothing happens.

One way I have seen this circumvented is also a very "American" technique. Give away 1 bag of ice to each customer. Free, with no obligation. But the second bag is 8 bucks. The Psychological impact of that statement ensures that every person takes AT LEAST 2 bags. Humans are funny that way. Plus, you can argue that you gave away half your inventory for free--and that's the opposite of gouging.


PS. There are a lot of good things to offset the bad. Most of the goods are, in my opinion, centered in the American west. In addition to cheap land and legal freedoms that protect the individual and personal property rights, it is often quite easy to form your own business, with a minimum of licensing.

This is just a perfect example of why capitalism and our society is not built to sustain. Yes, an open market can slow the usage of essentials... as a whole. However, if you break it down it just means that those with plenty can afford to buy what they can't even use themselves and the those with little can't afford just want they need to live. You can't just round it off as "less gets used". Investors never consider the human and environmental factor. It is not in their portfolio.

Here in FL, the gouging (and limits) only apply after the Governor declares it.

So, vendors can't gouge, but buyers are also limited to quantity, to ensure availability for all.

Still though, the better solution is to be prepared ahead of time.

If a hurricane came tomorrow, we've got cases of bottled water stocked, barrels full of water for the animals, and rain barrels to replenish it all, and this is without yet having a manual backup pump for the well (which we'll have soon).

originally posted by: MALBOSIA
However, if you break it down it just means that those with plenty can afford to buy what they can't even use themselves and the those with little can't afford just want they need to live.

I'm not quite sure what you have in mind with this statement. Are you thinking that in a catastrophe, the millionaire can buy up all of the items he wants, and no one else gets any?

That isn't the case with the examples I've seen.

For instance, the flashlight salesman after the San Francisco earthquake. No individual is going to want to buy more than about, oh, TWO flashlights. So the individual demand from a millionaire looks the same as it does for a cab driver: 2 flashlights, please.

True, the homeless guy doesn't get a flashlight. But it isn't like the Government was going to give him one, anyway. Their plan is to put him in a "refugee camp" that is strung with concertina wire and armed guards. No flashlights for anyone in there. Whatever flashlight he might deserve, the government will give to a reserve cop or a medic to search the wreckage. See? Still no flashlights for the poor. But with free enterprise (different from capitalism, btw) the middle class gets a flashlight. Or two, if they really, really care enough to shell out $16.

What about the $100 sheets of plywood? The millionaire has a mansion, with 40 windows that have been shattered. But he doesn't need to buy 40 sheets of plywood; without his groundskeeper, he would be lucky to finish a window a day. Besides, he's too busy trying to save his art and antiques, to worry about more than the 2 sheets of plywood for his library, which is where he will sleep until he can rebuild the rest of the house.

The homeless dude doesn't need even ONE sheet of plywood---he's got nothing to lose.

If, on the other hand, the government is in charge of the plywood, they requisition ALL of it for their 'refugee camp' encircled with armed guards and concertina wire. Or they use it for the county commissioners' homes.

See, Free Enterprise maintains an elite; that much is true. But BIG GOVT maintains its own, overlapping elite. So government control of resources in a disaster just means a different elite gets the goods. The business man who donated to the governor's campaign still gets his flashlights and plywood---he just doesn't have to pay the going "market price" to get it. He has armed guards or the national guard get it for him.

The governing elite always takes care of their own families first, ESPECIALLY in a disaster. Free enterprise lets more people get some kind of access than would otherwise profit from government control.

a reply to: tovenar



put an "our presently existing " in front of "government" and I'll agree with you.

some government's are better than others.

the presently existing US government is incompetent and corrupt.

Frankly the barbed security fence sounds like what the rich man would want... allows the police to shoot anyone on the street as looters, and keeps his property protected... the rich man of course will be allowed to stay in his estate...