On price gouging and free market foolishness

Governor Perdue declares a state of emergency at Earl's approach:

The state’s price gouging law has gone into effect because Gov. Beverly Perdue has declared a state of emergency due to Hurricane Earl. “We’re warning price gougers that you can’t use a storm as an excuse to make an unfair profit off of consumers,” said Attorney Gen. Roy Cooper in a news release.

Price gouging — or charging too much in times of crisis — is against North Carolina law when a disaster, an emergency or an abnormal market disruption for critical goods and services is declared or proclaimed by the governor.

Seems like a pretty basic and necessary function of the government; protecting us during times of crisis, right? Not in the minds of the extreme anti-government, free-market zealots.

Here's the opinion of one of the Puppets (from 2008):

These steps are counterproductive, Cordato said. "Higher prices play an important role at a time like this: they stem consumer greed," he said. "If consumers fear prices are about to go up, they'll all head to the gas station to fill up their tanks. If they have two or three cars, they'll repeat the process for each vehicle, whether they need the extra gas or not. Higher prices discourage this practice. Higher prices encourage conservation just when it's needed the most."

In terms of public welfare and social order, it is particularly important to allow the price system to work freely during times of natural disasters and emergencies, Cordato said. "Ultimately, higher prices that arise during emergencies prevent shortages and closed gas stations," he explained. "The higher prices are not about the exploitational greed of businesses. The high prices are about protecting consumers from the hoarding behavior of their fellow citizens."

Good Lord. Allowing businesses to take advantage of people during a catastrophe is good for the public welfare? What's next, looting as a form of inventory control dynamics?

Comments

the poor are ASKING for it

....people ( especially the working poor that the right wingers deny even exist) WANT the free market to allow people to charge them $100 for a bottle of water. If you take away that gouger's right to screw people during a crisis you're attacking liberty. You're like Hitler!

Syd

Here comes the "price gouging" crowd again...

You manage to come out at every "crisis", push for price controls which never work, and then never learn from the ordeal.

Go on. Tell the government you want to force businesses to keep things at "pre-crisis" levels and see how quickly there is a shortage. Luckily that's not what this law allows. Unfortunately, however, this law is so vague (assuming it is like the others in the Southeast) that the state is allowed to be as subjective as they want, thus they can go after anyone they choose.

You really believe that?

That businesses do this because they want to avoid a shortage? Or that the state put this in place so it could arbitrarily punish? If so, you've created two different entities that simply don't exist.

No...

That businesses do this because they want to avoid a shortage?

They do it to maintain the natural supply/demand equilibrium. Or, you know, you could implement artificial price controls like we did after the gas crisis in '73. They worked great, just ask Nixon.

From a 2008 article:

The Invisible Hand

The irony is that so-called "price gouging" is nothing but the market at work. When supply falls relative to demand, the price of that good or service climbs as a signal to consumers about the new reality. If there’s a panic among buyers, causing demand to rise as supply falls, then the price rises still further. On the whole, those higher prices cause people to voluntarily ration their consumption, because they can’t afford to use as much as they did before. The higher prices also alert businesspeople to the shortage, which signals producers to produce more, and retailers who already have more than enough supply in their region to send some of it into the shortage region, so they can earn higher profits than they could at home by helping to relieve the shortage elsewhere.

The Visible Glove

But when prices are forced to remain at pre-crisis levels, it produces the perverse incentive for the first people in line to take more than they would if the prices were higher, leaving less for the next people. Equally perversely, such measures also eliminate the incentive for businesses from outside the crisis area with surplus supplies to come in to alleviate the shortage, because there are no extra profits to be earned for doing so.

We’re seeing exactly this scenario play out now in the southeast. There could be plenty of gasoline available for $5, $7, $10, or whatever price per gallon would create equilibrium between present supply and demand. If that natural market process were allowed to occur, consumers could choose to do without gas for a while if they felt the price wasn’t worth it to them – or they could choose to still buy all they want – if they’re willing to pay the higher prices. Instead, the government has kept prices at unrealistic, pre-crisis levels, and the result is that consumers are forced to do without gas because there’s none to buy at the artificially low prices.

...

Or that the state put this in place so it could arbitrarily punish

I didn't say that's why they did it, only that they they have the power to. That alone should be a cause for concern.

No...

They do it to maintain the natural supply/demand equilibrium.

They do it to maximize their profits, period. Trying to award them attributes they don't possess, such as acting in accordance with some deeper economic principles, ignores everything we know about human behavior.

Price gouging may actually postpone shortages by modifying the behavior of consumers, but that's a side-effect, not evidence of intent. The actual intent is to take advantage of a situation and the people who are faced with said situation, all in an effort to make more money.

Now, in our society, where the average individual's quality of life is high, the manifestation of price-gouging is perceived as more of an irritant than an actual physical danger. Elsewhere in the world, people are forced into starvation as a result of this behavior. If left unaddressed, our situation could easily deteriorate to levels approaching theirs.

Well no shit

They do it to maximize their profits, period. Trying to award them attributes they don't possess, such as acting in accordance with some deeper economic principles, ignores everything we know about human behavior.

...and making profit is what is necessary when your supply is limited. And these "deeper economic principles" I'm attributing to them is called "self interest". You know, what every single human on this earth does under ANY economic system.

Price gouging may actually postpone shortages by modifying the behavior of consumers, but that's a side-effect, not evidence of intent.

That is 100% not true. Let's say I own a store that sells generators. On an average month, I get a shipment of 100 generators to sell. With that shipment, I'm looking to make a profit of $1000. Now a storm comes and hits the area I'm in. It's devastating. Well now, it looks like my supplier is not willing to make its way to my area for 2 months. So what must I do? I NEED to get $2,000 from those same 100 generators that I received this month if I plan on 1) meeting my/my family's needs and 2) keeping my business open after the storm. If people refuse to pay the price that I set in order to make that $2,000 profit, then I must drop my prices to a point where I can sell off all of my generators, while still coming in even for that 2 month period. IF, however, I am NOT allowed to raise my prices, and am forced to keep them at pre-storm rates, all of my generators will sell within a day or two (most likely before the storm even comes, with each family grabbing more than one). All of my stock will have gone to an extreme minority of the population, leaving many without generators.

In addition, if there is someone in, say, South Carolina with a brand new generator, which he bought for $200, sitting in his garage, there is no incentive for him to bring his 'supply' up to the effected area if he must sell it at $200. Not because this is some rich asshole looking to get richer, but because it would mean that he loses time/money/resources.

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You are simply failing to see both sides of this. Why is it that you don't complain about consumer "price gouging" whenever prices fall under normal market conditions? I mean, this is economics 101. You can't have a massive increased demand with a stagnant supply, and expect prices to stay the same. THERE IS NO FREE LUNCH. Believe it or not, government can't provide one for you, either.

Your argument is laughable

and absurd on its face. I sure hope you're not responsible for actually running a real business.

Just to say it, I've run and owned real businesses for more than 25 years. If I had approached any of my dealings with the logic presented in your comment, I'd have been laughed out of the board room.

Your broad, non-detailed response is great

Really shows that you have a great defense.

EDIT: I'll be back a little while later. I need a break before my blood pressure skyrockets.

oh joy.

Ask Art for a raise. You deserve it.

"Man is free at the moment he wishes to be." -Voltaire

Is that really the best you have?

Trying to link me to someone I have never 1)seen 2)met 3)talked to 4)watched speak 5) had any interaction with? Take the tin foil off. Not everyone who comes here and disagrees is some Republican plant. Besides the fact that I can't stand 99% of Republicans, that is such an absurd and unprovoked conclusion for you to come to.

Now you can continue to attack me and not my argument, or we can actually have a discussion. Your choice.

There is a real problem here lately

I got extremely pissed off because of exactly what you are saying, Minarchist: "Now you can continue to attack me and not my argument, or we can actually have a discussion. Your choice".

Here, it seems that if you are not a very liberal progressive, your statements are suddenly attacked from all sides by the regular liberal progressive people that contribute here. James and Scharrison are the leaders of this here, of course.

Anything not far left seems to be called "republican" which is a very bad word here and in many ways it truly is a bad word. But, attacking good discussion in this way runs people off. If the polls and pundits are correct about what is coming down the pike in November, this blog is going to turn into nothing but a hate source. I hope that doesn't happen. Good debate is important in our country regardless where it comes from.

Pardon me for talking about myself in the third person

But James owns this site and pays for 100% of its upkeep. Annually, that amounts to several thousands of dollars in hard costs, and hundreds of thousands in what would otherwise be billable time.

________________________________

My spending is a purposeful investment in trying to shift our state and our nation in a more progressive direction. I've never pretended otherwise. And unless I'm mistaken, you don't share my views or my goals.

Which means this:

Every time you try to undermine my intention, you are adding to the "liability" side of my political and financial balance sheet. Said another way, I personally am writing checks that fund the platform you're using to criticize my point of view and subvert my goals.

Why would I do that? Am I just plain stupid?

Probably so. But the truth is, I mostly do it because I am interested in the free flow of ideas. I almost never enter a discussion with a presumption that I know what is right. I am always open to cogent, contrarian ideas. That is what I do for a living ... and it has been my approach to blogging from day one.

Some would argue that I have been ridiculously generous in allowing dissenters of all stripes to join in the conversation here. I get requests every day to ban people who are constantly taking shots or challenging progressive ideals.

All that said, I'd like to comment about your last paragraph. I do indeed hate what Republicans are doing to this country and to this state. I hate that an unelected corporate traitor like Art Pope can throw his money around and influence the outcome of any election just because he happens to have been born with a silver spoon up his ass. I hate what his hand-picked racists are doing to Wake County Schools. I hate the idea that things I've worked my whole life for are at risk because a bunch of tea baggers can't stand having a black guy in the White House. And I hate the hypocrisy of Republican apologists who slop at the taxpayer trough while condemning government help for people who are really in need.

You're welcome to write here or not, as you wish. But please don't bring a Libertarian point of view to a discussion about price gouging, and then complain that the owner of this operation isn't receptive to hearing your ideas in all their gory detail.

I should have been more specific

Sorry ... I had to fly out the door to go to a meeting and I didn't really think through my response.

The basic premise behind my thinking is this: no retailer wants to forestall purchases until some future date unless that future date comes with guarantees of higher prices, which is a hard guarantee to come by. Conversely, almost every retailer wants to sell as much as they can NOW, no matter when NOW is.

To your point, if they can sell more NOW at a higher price because the consumers are captive ... up against the wall in distress ... they will do that as often as possible. That's called price gouging.

I agree with you about the general ineffectiveness of rules that attempt to set prices in any area. Just look at the failure of Congress even to use its purchasing power to control drug costs with Medicare and Medicaid.

That said, I still support a minimal effort to put businesses on notice that their natural predatory instincts must be restrained in the face of natural disasters. Governments have all sorts of powers under those circumstances ... going as far back in history as you want to go. Sometimes it works out, mostly it doesn't. Businesses will find a way to screw people and make an extra buck no matter what. They do it every day. But that doesn't make it right.

That's fine

The basic premise behind my thinking is this: no retailer wants to forestall purchases until some future date unless that future date comes with guarantees of higher prices, which is a hard guarantee to come by.

Right. And my point was that if we are talking about a true disaster situation, it should not be unreasonable to assume that a given store will not be able to re-supply their stock in the near future (or at least, no where near full capacity). Therefore, in order to survive as a business, they need to raise prices so that they can recuperate for their upcoming anticipated losses. After all, this is a disaster situation, and we are assuming (as I pointed out in an earlier post) that demand is rising quickly AND supply is dropping.

Conversely, almost every retailer wants to sell as much as they can NOW, no matter when NOW is.

And I would agree with that under normal market conditions.

Generators R Us

If you're actually thinking about opening a "generators only" store, I suggest you submit that business plan to a bank (or even a gullible angel investor) to see how they feel about such a prospect.

Among other things, I've managed multiple and varied (B2B and direct to consumer) product distribution operations for many years, and the only time I've even contemplated slowing sales had to do with earmarking some product for specific important customers. As far as raising prices as a method of preserving stock? That's just crazy talk.

Now, if you want to claim that demand, in whatever form (both desires and desperate needs of consumers), is all the same and businesses should be allowed to pursue whatever profits the market can bear, I'm cool with that. I don't agree, of course, because disasters produce more than enough pain as it is without compounding them. But it's a straight-up argument, nonetheless.

Trying to paint profiteering as beneficial to society is not an honest argument, however. It's bent, and it seeks to hide the darker side of those who would prey on their fellow citizens.

Time for the banhammer

guy's an obvious plant

"Man is free at the moment he wishes to be." -Voltaire

I just noticed a glaring

contradiction by Cordato in the article I linked above:

"If consumers fear prices are about to go up, they'll all head to the gas station to fill up their tanks...Higher prices discourage this practice."

But...it's the expected higher prices that drive the fear. Ergo, if consumers are aware their government is going to protect them from price-gouging, they're less likely to run to the gas station.