Price Gouging Saves Lives

[BWV 1080]

Every time a natural disaster hits, demagogues start talking about "price gouging" like the price of a hotel room or gas should remain the same in the wake of a major change in supply and demand. This is an excellent article pointing out the fallacy of trying to impose price controls in an emergency:

Price Gouging Saves Lives
by David M. Brown
[Posted on Tuesday, August 17, 2004]
In the evening before Hurricane Charley hit central Florida, news anchors Bob Opsahl and Martie Salt of Orlando's Channel 9 complained that we "sure don't need" vendors to take advantage of the coming storm by raising their prices for urgently needed emergency supplies.

In the days since the hurricane hit, many other reporters and public officials have voiced similar sentiments. There are laws against raising prices during a natural disaster. It's called "price gouging." The state's attorney general has assured Floridians that he's going to crack down on such. There's even a hotline you can call if you notice a store charging a higher price for an urgently needed good than you paid before demand for the good suddenly went through the roof. The penalties are stiff: up to $25,000 per day for multiple violations.

But offering goods for sale is per se "taking advantage" of customers. Customers also "take advantage" of sellers. Both sides gain from the trade. In an unhampered market, the self-interest of vendors who supply urgently needed goods meshes beautifully with the self-interest of customers who urgently need these goods. In a market, we have price mechanisms to ensure that when there is any dramatic change in the supply of a good or the demand for a good, economic actors can respond accordingly, taking into account the new information and incentives. If that's rapacity, bring on the rapacity.

Prices are how scarce goods get allocated in markets in accordance with actual conditions. When demand increases, prices go up, all other things being equal. It's not immoral. If orange groves are frozen over (or devastated by Hurricane Charley), leading to fewer oranges going to market, the price of oranges on the market is going to go up as a result of the lower supply. And if demand for a good suddenly lapses or supply of that good suddenly expands, prices will go down. Should lower prices be illegal too?

In the same newscast, Salt and Opsahl reported that a local gas station had run out of gas and that the owner was hoping to receive more gas by midnight. Other central Florida stations have also run out of gas, especially in the days since the hurricane smacked our area. Power outages persist for many homes and businesses, and roads are blocked by trees, power lines, and chunks of roofs, so it is hard to obtain new supplies. Yet it's illegal for sellers of foodstuffs, water, ice and gas to respond to the shortages and difficulty of restocking by raising their prices.

If we expect customers to be able to get what they need in an emergency, when demand zooms vendors must be allowed and encouraged to increase their prices. Supplies are then more likely to be sustained, and the people who most urgently need a particular good will more likely be able to get it. That is especially important during an emergency. Price gouging saves lives.

What would happen if prices were allowed to go up in defiance of the government?

Well, let's consider ice. Before Charley hit, few in central Florida had stocked up on ice. It had looked like the storm was going to skirt our part of the state; on the day of landfall, however, it veered eastward, thwarting all the meteorological predictions. After Charley cut his swath through central Florida, hundreds of thousands of central Florida residents were unexpectedly deprived of electrical power and therefore of refrigeration. Hence the huge increase in demand for ice.

Let us postulate that a small Orlando drug store has ten bags of ice in stock that, prior to the storm, it had been selling for $4.39 a bag. Of this stock it could normally expect to sell one or two bags a day. In the wake of Hurricane Charley, however, ten local residents show up at the store over the course of a day to buy ice. Most want to buy more than one bag.

So what happens? If the price is kept at $4.39 a bag because the drugstore owner fears the wrath of State Attorney General Charlie Crist and the finger wagging of local news anchors, the first five people who want to buy ice might obtain the entire stock. The first person buys one bag, the second person buys four bags, the third buys two bags, the fourth buys two bags, and the fifth buys one bag. The last five people get no ice. Yet one or more of the last five applicants may need the ice more desperately than any of the first five.

But suppose the store owner is operating in an unhampered market. Realizing that many more people than usual will now demand ice, and also realizing that with supply lines temporarily severed it will be difficult or impossible to bring in new supplies of ice for at least several days, he resorts to the expedient of raising the price to, say, $15.39 a bag.

Now customers will act more economically with respect to the available supply. Now, the person who has $60 in his wallet, and who had been willing to pay $17 to buy four bags of ice, may be willing to pay for only one or two bags of ice (because he needs the balance of his ready cash for other immediate needs). Some of the persons seeking ice may decide that they have a large enough reserve of canned food in their homes that they don't need to worry about preserving the one pound of ground beef in their freezer. They may forgo the purchase of ice altogether, even if they can "afford" it in the sense that they have twenty-dollar bills in their wallets. Meanwhile, the stragglers who in the first scenario lacked any opportunity to purchase ice will now be able to.

Note that even if the drug store owner guesses wrong about what the price of his ice should be, under this scenario vendors throughout central Florida would all be competing to find the right price to meet demand and maximize their profits. Thus, if the tenth person who shows up at the drugstore desperately needs ice and barely misses his chance to buy ice at the drugstore in our example, he still has a much better chance to obtain ice down the street at some other place that has a small reserve of ice.

Indeed, under this second scenario—the market scenario—vendors are scrambling to make ice available and to advertise that availability by whatever means available to them given the lack of power. Vendors who would have stayed home until power were generally restored might now go to heroic lengths to keep their stores open and make their surviving stocks available to consumers.

The "problem" of "price gouging" will not be cured by imposing rationing along with price controls, either. Rationing of price-controlled ice would still maintain an artificially low price for ice, so the day after the storm hits there would still be no economic incentive for ice vendors to scramble to keep ice available given limited supplies that cannot be immediately replenished. And while it is true that rationing might prevent the person casually purchasing four bags of ice from obtaining all four of those bags (at least from one store with a particularly diligent clerk), the rationing would also prevent the person who desperately needs four bags of ice from getting it.

Nobody knows the local circumstances and needs of buyers and sellers better than individual buyers and sellers themselves. When allowed to respond to real demand and real supply, prices and profits communicate the information and incentives that people require to meet their needs economically given all the relevant circumstances. There is no substitute for the market. And we should not be surprised that command-and-control intervention in the market cannot duplicate what economic actors accomplish on their own if allowed to act in accordance with their own self-interest and knowledge of their own case.

But we know all this already. We know that people lined up for gas in very long lines during the 1970s because the whole country was being treated as if it had been hit by a hurricane that was never going to go away. We also know that as soon as the price controls on gas were lifted, the long lines disappeared, as if a switch had been thrown restoring power to the whole economy.

One item in very short supply among the finger-wagging newscasters and public officials here in central Florida is an understanding of elementary economics. Maybe FEMA can fly in a few crates of Henry Hazlitt's Economics in One Lesson and drop them on Bob and Martie and all the other newscasters and public officials. This could be followed up with a boatload of George Reisman's Capitalism: A Treatise on Economics, which offers a wonderfully cogent and extensive explanation of prices and the effects of interference with prices. Some vintage Mises and Hayek would also be nice. But at least the Hazlitt.

"Price gouging" is nothing more than charging what the market will bear. If that's immoral, then all market adjustment to changing circumstances is "immoral," and markets per se are immoral. But that is not the case. And I don't think a store owner who makes money by satisfying the urgent needs of his customers is immoral either. It is called making a living. And, in the wake of Hurricane Charley, surviving.

---

[jbuck919]

First, you might want to cite your source, if only for copyright considerations.

Second, you've got to be kidding.

There is something called temporary rationing in an emergency. That's what happened in the gas crises of the 1970s, and station owners who tried to charge $4.00 a gallon for people who didn't want to wait in line were quite rightly sanctioned. I realize that price adjustment is de facto rationing but it results in windfall profits which are morally abhorrent. There is sometimes more than supply and demand in the equation of life.

In the ice example, many store owners would have the common sense to limit customers to one bag and the moral sense not to raise the price on it to make a buck on the backs of people in a short-term crisis.

[Ralph]

Perhaps offers were made and accepted for lifeboat places in April 1912. But there is a moral issue when entrepreneurs take advantage of limited resources to maximize profits.

Price controls such as during the past OPEC oil embargoes don't simply equalize access. They insure to the greatest extent possible the continued functioning of society, economically, socially and politically.

[BWV 1080]

First, you might want to cite your source, if only for copyright considerations.

I thought I did, here is the URL
http://www.mises.org/fullstory.aspx?control=1593

Second, you've got to be kidding.

There is something called temporary rationing in an emergency. That's what happened in the gas crises of the 1970s, and station owners who tried to charge $4.00 a gallon for people who didn't want to wait in line were quite rightly sanctioned. I realize that price adjustment is de facto rationing but it results in windfall profits which are morally abhorrent. There is sometimes more than supply and demand in the equation of life.

In the ice example, many store owners would have the common sense to limit customers to one bag and the moral sense not to raise the price on it to make a buck on the backs of people in a short-term crisis.

Actually the article does address rationing:

The "problem" of "price gouging" will not be cured by imposing rationing along with price controls, either. Rationing of price-controlled ice would still maintain an artificially low price for ice, so the day after the storm hits there would still be no economic incentive for ice vendors to scramble to keep ice available given limited supplies that cannot be immediately replenished. And while it is true that rationing might prevent the person casually purchasing four bags of ice from obtaining all four of those bags (at least from one store with a particularly diligent clerk), the rationing would also prevent the person who desperately needs four bags of ice from getting it.

Nobody knows the local circumstances and needs of buyers and sellers better than individual buyers and sellers themselves. When allowed to respond to real demand and real supply, prices and profits communicate the information and incentives that people require to meet their needs economically given all the relevant circumstances. There is no substitute for the market. And we should not be surprised that command-and-control intervention in the market cannot duplicate what economic actors accomplish on their own if allowed to act in accordance with their own self-interest and knowledge of their own case.

If the wholesale replacement cost of a vendor's supply of ice now costs double for him to replace it, you must agree there is nothing wrong with him raising prices. The term "windfall profit" went out with Jimmy Carter and avocado shag carpet. The markets for the items in question - ice, hotel rooms, construction materials etc, are fragmented enough that sellers will compete providing they are able to earn a return on their investment. No one talks about consumer "price gauging" of sellers when the supply / demand balance goes the way of the consumer. Economics 101 is that when you limit prices you create shortages. Rationing assumes a static supply whereas a profit incentive creates new supply which in the long run benefits everyone.

[herman]

As I said on "the other board": as I was reading the Times reports (I know, not an accepted source on these boards; I should check the blogs), I was puzzled by mentions of motel prices that were double or triple the prices I used to pay when I availed myself of cheap motels in the Mid Ouest, back in the mid nineties.

Economics 101 is that when you limit prices you create shortages. Rationing assumes a static supply whereas a profit incentive creates new supply which in the long run benefits everyone.

Excuse me, you were the die-hard Christian guy, weren't you?

I guess Jesus' folks wouldn't had gotten a place among the livestock if you'd been around at the time.

[BWV 1080]

As I said on "the other board": as I was reading the Times reports (I know, not an accepted source on these boards; I should check the blogs), I was puzzled by mentions of motel prices that were double or triple the prices I used to pay when I availed myself of cheap motels in the Mid Ouest, back in the mid nineties.

If Hotel costs go up during convention season is that "price gauging"? Higher room rates force people to double up, not go to a hotel if their home is only minimally damaged etc. thereby maximizing the availbility of rooms for those who truly need it. Again, as the hotel industry is extremely competitive and fragmented, no seller can really take advantage of the situation.

[BWV 1080]

I guess Jesus' folks wouldn't had gotten a place among the livestock if you'd been around at the time.

But ancient palestine did not have "price gauging" laws. Thats why they were in the stable. Supply and demand. If they had "price gauging" laws they would have been on the street as the innkeeper would not be properly inventived to come up with creative new sources of supply.

[jbuck919]

If the wholesale replacement cost of a vendor's supply of ice now costs double for him to replace it, you must agree there is nothing wrong with him raising prices.

We're not talking about a market which reacts within a time frame. The "ice emergency" isn't going to last long enough for it to make any difference one way or the other, so the judgment should be on the humanitarian side, which in the short term is not always the market side. In plain English, let the damn store owner and then up the line take the hit.

The term "windfall profit" went out with Jimmy Carter and avocado shag carpet.

I guess I'm going to have to burn my Jimmy Carter shrine and throw out my avocado shag carpet. If we had another major shortage of anything and the market adjusted the way you would want in such a way that private companies suddenly made billions where they did not yesterday, the term "windfall profits" would be instantly resurrected.

[herman]

I see

I'll think of that legalistic reductive frame of mind the next time you take that "but you can tell Terri's responding to visual signals" line.

[BWV 1080]

We're not talking about a market which reacts within a time frame. The "ice emergency" isn't going to last long enough for it to make any difference one way or the other, so the judgment should be on the humanitarian side, which in the short term is not always the market side. In plain English, let the damn store owner and then up the line take the hit.

Why should the store owner (who most likely is less financially well off than the customers he is supposedly "gouging") take the hit? Why shouldn't the consumer take the hit?

[Barry]

If Hotel costs go up during convention season is that "price gauging"?

When you make these comparisons between the situaion in LA/MS and other such places hit by disasters and the types of things like conventions, you keep ignoring the obvious difference. The people being hit with these much higher prices in LA/MS have just been hit with a huge disaster. Many of them may not even have a way to earn a living for who knows how many months.

I'm not a Communist, but I'm no Libertarian either. There is a happy medium, which probably lies closer to your side than what many on the left want, but isn't as far as you seem to think things should be. I simply don't agree that EVERYTHING in life that involves money should be left purely to market forces. There are special circumstances in which the government needs to step in, and this is one of them.

[BWV 1080]

I simply don't agree that EVERYTHING in life that involves money should be left purely to market forces. There are special circumstances in which the government needs to step in, and this is one of them.

Yes the government should step in with direct aid to the needy, not with trying to criminalize some poor store owner trying to earn a living

[herman]

Your "hit" has already been dealt by nature. Why should a store or motel owner add an extra hit to it?

Motel owners would not have had 100% capacity if Katrina had not hit. SO even if they'd maintained regular rates they'd be smokin'.

You're however saying they should take advantage of their fellows' needy situation.

From this to looting is not really a huge jump. That's market forces, too.

I'll never take your Xtian whining seriously anymore.

[Barry]

Yes the government should step in with direct aid to the needy, not with trying to criminalize some poor store owner trying to earn a living

In my view, when they raise the price of a room from $75 to $300 or a gallon of gas from $2.40 to $7 under these types of circumstances, the words "poor store owner" are not applicable.

[BWV 1080]

Yes the government should step in with direct aid to the needy, not with trying to criminalize some poor store owner trying to earn a living

In my view, when they raise the price of a room from $75 to $300 or a gallon of gas from $2.40 to $7 under these types of circumstances, the words "poor store owner" are not applicable.

Supply and demand. These prices impose a rationing of scarce resources and disincentivize waste. At $7 a gallon I am not going to make frivilous trips and at $300 a room I will double up, preserving more rooms for those who need them. Both markets are too fragmented and commoditized for a seller to charge more than what is fair under the circumstances. If $7 is really too much for gas then the station across the street will charge $6 same with hotels.

[Barry]

I'm reminded of Woodstock II (you couldn't have paid me enough to be there, but friends of mine were).

The only place to get water or something else to drink during the two or three day festival was from the venders. They were charging something like $8 per bottle. What is supply and demand about that? You either pay the outrageous prices or you go thirsty for three days. The people had nowhere else to go if they wanted something to drink. The venders (or whomever set the prices) should have been brought up on charges (assuming there was an applicable statute).

[herman]

Supply and demand. These prices impose a rationing of scarce resources and disincentivize waste.

For a bubble boy who's never walked the earth this is excellent reasoning.

In the current circumstances people who want to go vacationing in Mississipi need a disincentive, absolutely, and that's why it's sound thinking for motel owners to charge triple rates so as to really help the people who are without a home now - and many of whom have lost their means of making a living too.

Bad luck for them!

Sincerily your line of thinking is a disgrace, but I can tell you;re really pleased with your quasi dispassionate application of market thinking.

[BWV 1080]

I'm reminded of Woodstock II (you couldn't have paid me enough to be there, but friends of mine were).

The only place to get water or something else to drink during the two or three day festival was from the venders. They were charging something like $8 per bottle. What is supply and demand about that? You either pay the outrageous prices or you go thirsty for three days. The people had nowhere else to go if they wanted something to drink. The venders (or whomever set the prices) should have been brought up on charges (assuming there was an applicable statute).

Not an applicable comparison. The vendors had a monopoly. There was not competitive pricing of water. If all the gas stations in a city colluded to set gas prices at $8 per gallon (which is illegal under any circumstances) then your analogy would be applicable.

[Barry]

Not an applicable comparison. The vendors had a monopoly. There was not competitive pricing of water. If all the gas stations in a city colluded to set gas prices at $8 per gallon (which is illegal under any circumstances) then your analogy would be applicable.

It's about as applicable as comparing price gouging during a natural disaster like this and something like during a convention when people can just stay a little further away and pay less.

In fact, I had my own such circumstances a few years ago. I wanted to attend a round of the U.S. Open golf championship in Long Island. All of the hotels on Long Island significantly raised their prices during the tournament. So instead of subjecting myself to that gouging, I stayed in North Jersey and paid a reasonable price. People in the midst of a major natural disaster don't have that option. Just as there were seemingly NO hotels in Long Island that kept their regular rates the week of the U.S. Open, it's not like people in LA and MS can just go around comparison shopping. First of all, they don't have the time and means to do it, and second, there probably isn't a better option out there even if they did.

[jbuck919]

I stayed in North Jersey and paid a reasonable price.

Staying in North Jersey all by itself is an unreasonable price.

Seriously, Jersey is the next comin'-up place to live if you want to be a New York person. Live in Hoboken, take the Path train in every day to see the sights, keep your membership in the Princeton Club in case your toes get weary of the commute. I've thought about it for retirement.

Didn't mean to change the subject there. G'night.

[BWV 1080]

Not an applicable comparison. The vendors had a monopoly. There was not competitive pricing of water. If all the gas stations in a city colluded to set gas prices at $8 per gallon (which is illegal under any circumstances) then your analogy would be applicable.

It's about as applicable as comparing price gouging during a natural disaster like this and something like during a convention when people can just stay a little further away and pay less.

In fact, I had my own such circumstances a few years ago. I wanted to attend a round of the U.S. Open golf championship in Long Island. All of the hotels on Long Island significantly raised their prices during the tournament. So instead of subjecting myself to that gouging, I stayed in North Jersey and paid a reasonable price. People in the midst of a major natural disaster don't have that option. Just as there were seemingly NO hotels in Long Island that kept their regular rates the week of the U.S. Open, it's not like people in LA and MS can just go around comparison shopping. First of all, they don't have the time and means to do it, and second, there probably isn't a better option out there even if they did.

First off, the Hotels were not "gouging" in Long Island, simply pricing to meet demand. Secondly, the people in LA and MS do have options such as leaving the area, using a red cross shelter or doubling up on a room. Finally, in the face of the chaos and real needs currently in the area, how is devoting scarce resources to police store and hotel owners to ensure they are not "price gouging" going to help anybody?

[Barry]

....in the face of the chaos and real needs currently in the area, how is devoting scarce resources to police store and hotel owners to ensure they are not "price gouging" going to help anybody?

I don't expect them to go out policing it at the moment. I was thinking more in terms of them dealing with it later based on reports they receive from the "gouged." I also don't want to give the impression that I want these people locked up. A fine would be appropriate.

[Huckleberry]

No matter what the economic or logistical arguments are, once the rules are broken, misrule prevails. It is a free for all because the moral (ethical) law of the land has been cast aside. So what's wrong with looting then, as Herman says above?

We are speaking about breaking rules, not stretching them, say when one charges an extra 10% for a hotel breakfast because eggs and bread now cost 20% more.

==========
I have a question. How does a person check spelling before posting?

[Ted]

have a question. How does a person check spelling before posting?
The easiest way is to write in Word or some other program that has spell check

[Huckleberry]

Thank you, Ted.

Are people somewhat indulgent if one has a few typos on occasion since doing a cut-and-paste job is sometimes tedious?

[Ted]

since doing a cut-and-paste job is sometimes tedious?

Why on earth would you say that?

Are you new to computers?

Do you know that control c is copy and control v is paste and the whole procedure takes under 6 seconds? (Windows)

I can tell you that 99% of the posts here are spelled correctly, after all there’s no excuse for misspellings or typos with the available technology

[Huckleberry]

And run-on sentences?

Ted, don't be irate. Old men with arthritic fingers and poor eyesight can be tedious.

There are more things in heaven and earth ... than are dreamt of in your philosophy.

Of course, the great Bard Shakesper (a spelling from another thread here), meant "Horatio's" philosophy, but in my citation the possessive adjective has a generic reference.

[Kevin R]

The market is wondrous!

[Ralph]

Thank you, Ted.

Are people somewhat indulgent if one has a few typos on occasion since doing a cut-and-paste job is sometimes tedious?

*****

Sure but if someone is a rabid purist, just ignore him.

[Barry]

Clinton To Bush: Curb Gas Price Gouging

Aug 31, 2005 6:10 pm US/Eastern
(1010 WINS) (NEW YORK) President Bush should act to prevent oil price gouging in the wake of Hurricane Katrina, Sen. Hillary Rodham Clinton said Wednesday.

``I would hope the administration uses the legislative tools at its disposal to make it very clear they're going to prevent any kind of price gouging and profiteering because of this disaster,'' said Clinton, D-N.Y.

U.S. Department of Energy Secretary Samuel Bodman said Wednesday the administration would release oil from federal petroleum reserves to help refiners affected by the hurricane, which has devastated the Gulf Coast. The move is designed to give refineries a temporary supply of crude oil to replace interrupted shipments from tankers or offshore oil platforms affected by the storm.

Clinton said Bush should go further.

``I'd like to see a Federal Trade Commission investigation launched right now,'' she said. ``I'd like to see the administration and the president use the bully pulpit right now. I'd like him to send a very clear message to the oil companies, the distributors and refiners that we're going to do everything we can to help them get back into and remain in business but in return we expect them to fulfill their citizenship responsibilities as well and not take advantage of this situation.''

The production and distribution of oil and gas remained severely disrupted by the shutdown of a key oil import terminal off the coast of Louisiana and by the Gulf region's widespread loss of electricity, which is needed to power pipelines and refineries.

The emergency petroleum stockpile _ nearly 700 million barrels of oil stored in underground salt caverns along the Texas and Louisiana Gulf Coast _ was established to cushion oil markets during energy disruptions.

Clinton spoke at the New York chapter of the American Red Cross, where volunteers were taking calls from people affected by the disaster.

[BWV 1080]

How stupid does Hillary think we are? Refining capacity has been reduced by 10% by the storm. Prices have to go up otherwise there will be shortages. The higher prices will reduce unneccessary consumption, thus directing resources where they are most needed. Every windbag politician seizes on a moment like this with cures that are worse than the disease.

A poster on an other board posted an excellent summary of the economics of the situation (he did it based on Oklahoma, but the principle holds anywhere):

People's tanks are 2/3 full under normal circumstances ...

And there are 5 million cars in the state.

And the average car has a 15 gallon tank.

Then at any given time there are 50 million gallons of gasoline sitting in Oklahoman's tanks.

Let's say due to panic, people up their average tank amount to 3/4.

That would be 6 million gallons of gasoline suddenly and unexpectedly demanded.

Now lets say you run a station and you have a tanker truck of gasoline coming to refill your underground pump tanks next Friday. You need to price your gasoline so you don't run out before next Friday or you will lose not only gasonline business, but all the other business you get from selling things inside.

If you don't play it this way, someone who really can't afford it will lose their job or at least a lot of hours working at the register.

Nothing to do with taxes or costs or shortages.

[BWV 1080]

Read this and say with a straight face that it is "unfair exploitation" for gas prices to increase:

http://www.governor.state.nc.us/News_Fu ... sp?id=2404

[jbuck919]

Steve, I think most of us will realize that gas prices must rise after the loss of the refining capacity near New Orleans. In case you didn't notice in all your market education, that will have a depressing effect on the economy overall. And it is certainly not the same as spiking up charges for crucial needs, including lodging, in an emergency.

[BWV 1080]

Steve, I think most of us will realize that gas prices must rise after the loss of the refining capacity near New Orleans.

Apparantly not Hillary Clinton, but I will accept your concession on my argument

In case you didn't notice in all your market education, that will have a depressing effect on the economy overall.

Yes it will, and will most likely be felt for much longer than the effects of bigger storms like Andrew

And it is certainly not the same as spiking up charges for crucial needs, including lodging, in an emergency.

Again, unless suppliers can collude, prices will reflect reasonable rates that reflect the circumstances. Anything else is a form of organized theft from business owners, little different than looting. Hopefully business owners will act with compassion on the truly needy, but this is something that cannot be legislated or enforced.

[Barry]

John also wrote for me, there. I'm also aware that there are going to be price increases when supply is hurt because of a disaster. But again, as John said, that's not the same thing as raising the prices of necessary items way beyond what is necessary given the damage to supply with no motive beyond taking advantage of those who are not in a position to bargain or comparison shop because of a natural disaster.

And legitimate regulation by government to protect its citizens during a time of crisis is far from organized thef. It's dealing with a form of theft though; unorganized though it may be.

[BWV 1080]

raising the prices of necessary items way beyond what is necessary given the damage to supply with no motive beyond taking advantage of those who are not in a position to bargain or comparison shop because of a natural disaster.

But again, short of collusion by sellers, this is not possible. Hotels, food sellers, hardware stores are all highly competitive fragmented industries. The whole "price gouging" thing is simply not a real issue.

[John Bleau]

The price gouging issue was at the forefront here in Quebec, when the power lines went down in 1998. People were selling power generators for extremely high prices, but then were prohibited from doing so.

I have to say I'm with BVW 1080 on this. What emerges with price gouging is that those with better foresight, preparation, and better-built structures, receive greater financial incentive. $300 for a room under these circumstances is a bargain. I had to pay $150 for a Howard Johnson's once: simple supply and demand (Columbus Day fall colors in New England). Right after signing for that last room, some haggard driver came in and was terribly disappointed at being sh!t out of luck. I'm actually amazed that under the present crisis it's only $300.

But let's look at it from the buyer's angle. Suppose there are price controls, and the buyer gets it for $200, but would have been willing to pay up to $400. This turns into a first come first served situation. Another buyer shows up, but there's no vacancy (artificially low prices cause shortages). He offers $500 to buyer #1, who accepts. Is buyer #1 gouging #2? Of course not, nobody twisted #2's arm. However, the renter, forced to accept $200, has made a $300 gift to buyer 1.

This kind of consideration makes the uproar over gouging look ridiculous. Guess it would be best cop out and call buyer 1's deal with #2 'gouging' after all, wouldn't it?

A personal experience: during a terrible, windy, blustery and icy storm once, cars were going off the highway all over the place. My van was no exception, and when a tow truck showed up one minute later, I was happy to be 'gouged.' I congratulated the man on his initiative and wished him great success. The reader may feel free to perceive this success as meaning many were victimized, or many were helped: your choice.

[Barry]

John,
I just threw $300 out as a number. I have no idea what they are actually charging or the extent of "gouging." I'm just saying that if what I would perceive to be gouging is happening, I'm not as sympathetic towards it as you are.

In your towtruck situation I'm pretty sure I would have been both thankfull to get back on the road and pissed as hell that the towtruck company took advantage of the situation to "gouge" me. If the driver wasn't the one determining the rates, I would have been only thankfull in his or her direction and only pissed at his boss.

[John Bleau]

Barry, first I want to say that I read your reply in the other thread. Thanks for taking the time.

My point here is that the tow truck driver (self-employed and working illegally, btw), was more useful to me at that moment with his gouging than was the rest of humanity. And more to the point, his incentive to be there was the gouging. Of course, the term gouging is quite a flexible one. If a hotel room takes me off cholera-infested streets with bullets flying around and there aren't enough to meet demand even there, I'd be grateful to have that even for $1000.

Won't be able to reply after this: I'm watching The Thorn Birds on DVD, then going out for the night.

[Barry]

I understand how useful he was, John. That's why I said there would be an element of thankfullness along with the anger.

[John Bleau]

Barry: fair enough.

[Ralph]

The very nature of John's encounter with the tow truck operator demonstrates that it is inapposite to the current situation (or any mass disaster). The tow truck driver took a risk by acting illegally but his "crime" was venial at worst. He also acted in a short window of opportunity where conditions caused problems for John and others but there was little serious impact on Canada overall.

When an entire nation's economy is affected by a developing catastrophe the magnitude of which is still not clear government must act. The issue is to what degree and also at what level. "Price Gouging" is an emotional term. "Price Controls" are one way of trying to stabilyze society. Those philosophically opposed to government intervention will not change their views.

During the past oil embargoes a number of measures including rationing (remember "Odd-Even?") and price restrictions were implemented. Rigorous enforcement kept many people on the road working and engaging in leisure activities (our economy needs people out on the roads this Labor Day weekend, just one example).

If a limited inventory and the ability to charge what the market can merge those with enough money get what they want but the ripple effect is national and very, very bad.

Does anyone here believe WWII price controls were not essential to the war effort? "Price Gougers," people violating the OPA regulations, went to jail.

[BWV 1080]

Price controls cause shortages, they always do and always will. The choice is between paying $3-4 per gallon or shortages and long lines at the pump ala 1973. Furthermore, remove the profit incentive and no seller is motivated to bring more supply online. The supply and demand mechanisms for a commodity like oil are too complicated for the government to control without serious negative ramifications.

[jbuck919]

Price controls cause shortages, they always do and always will. The choice is between paying $3-4 per gallon or shortages and long lines at the pump ala 1973. Furthermore, remove the profit incentive and no seller is motivated to bring more supply online. The supply and demand mechanisms for a commodity like oil are too complicated for the government to control without serious negative ramifications.

Steve, may I pause to ask you for a moment--don't you think that the very intelligent and educated membership of this board, for which I would say a daily prayer of thanksgiving if I were a prayerful person, understands supply and demand?

And don't you think there is the teeniest tiniest possibility that Ralph hit the nail on the head when referring to the rationing of WW II, which produced no black market, or perhaps even that I might be allowed to aver that it is wrong to charge $18.00 for a glass of water for an emergency that, however horrible, will in terms of vending not last more than a few days?

[BWV 1080]

And don't you think there is the teeniest tiniest possibility that Ralph hit the nail on the head when referring to the rationing of WW II, which produced no black market, or perhaps even that I might be allowed to aver that it is wrong to charge $18.00 for a glass of water for an emergency that, however horrible, will in terms of vending not last more than a few days?

Ralph was referring specifically to gasoline in his post, stating how critical it was to our economy and the solution was to impose price controls.

Is it wrong to charge $18 for a glass of water in an emergency? Yes
but is it enforceable as a law? No, not anymore than refusing to help an old lady across the street.

The relief agencies are providing essentials such as shelter, food and water to the truly needy free of charge, as they should be. Beyond that merchants have the right to dispose of their own property at any price they see fit. Well-off surbanites whining about spending 25% more at the pump to fill their SUV makes me want to puke (not referring to anyone here BTW)

If the black market was not a problem with WW2 rationing, why did the government see fit to devote scarce resources to printing these?

[jbuck919]

Trust me, Steve, there was no significant black market in the US in WW II. There might have been hints and snips that were addressed by things like posters (I mean the thing you stick up on a wall), but everybody just got on. Are you an American? Do you have a grandparent who remembers this? My parents sure do. And many more things than gas were rationed. Many, many more things.

The US is a society capable of absorbing great violations of the law of supply and demand for the sake of a great cause, let alone a temporary emergency. Everywhere else in the world, there would be and was a black market not to mention worse. If you are a Yank, shut up and be proud.

[Werner]

Steve: You seem to divide market participants in an emergerncy situation like this into two sides: Ther poor innocent store owners (small businessmen rendering an unselfish service) and rapacious consumers, for whom you show no mercy.

Everone knows that price levels rise in emergencies. The extent can be a matter of argument, as some of the preceding posts show. I see no place here to bring in Hillary, the traditional bête noire to right wingers.

You'll well remember that fine civic ornament to Houston, Enron,thanks to whose efforts the economy of Californie was ravaged at the beginning of the Bush presidency. What connection existed between the two events I'm not sure of, but I suppose that even you would consider that a form of collusion.

At any rate, I see no justification for your headline "Price Gouging Saves Lives."

[BWV 1080]

Steve: You seem to divide market participants in an emergerncy situation like this into two sides: Ther poor innocent store owners (small businessmen rendering an unselfish service) and rapacious consumers, for whom you show no mercy.

and others here are not doing the opposite? The store owners have rights to their property while consumers have a choice whether to pay higher prices now or wait until the shortage abates. My point is that letting the market work itself out is the lesser evil.

Everone knows that price levels rise in emergencies. The extent can be a matter of argument, as some of the preceding posts show. I see no place here to bring in Hillary, the traditional bête noire to right wingers.

She was quoted by a previous poster, which I was responding to. It was not a gratutous argumentum ad Hillarium

You'll well remember that fine civic ornament to Houston, Enron,thanks to whose efforts the economy of Californie was ravaged at the beginning of the Bush presidency. What connection existed between the two events I'm not sure of, but I suppose that even you would consider that a form of collusion.

Why you had to bring in Enron, the traditional bête noire to left wingers, escapes me. Enron engaged in collusion in regards to CA and yes, even I disapprove of that

At any rate, I see no justification for your headline "Price Gouging Saves Lives."

It was the title of the Mises Institute article in the OP and a nice bit of hyperbole

[Ralph]

Of course there was a Black Market in WWII but enforcement efforts kept it well under control. The neat poster Steve provided doesn't show that there was a major Black Market-rather that the government was serious about suppressing any that raised its head.

The Office of Price Administration had significant powers and adequate staff. Violators were prosecuted and jail sentences were common.

All laws are violated. Environmental laws are callously disregarded in the name of profit. White Collar Crime is a major problem. And World War II Price Control (which included rent control) violations were one species of White Collar Crime.

During the last OPEC embargo gasoline prices were controlled and it was a criminal violation to gouge. One Mass. gas station owner defiantly doubled the maximum per gallon price. He argued a laissez-faire theory which he shouted at news cameras as they took him away.

If you agree with that libertarian theory I can't change your mind. But experience has shown that controlling profiteering in a war or transient crisis does play a major role in restoring stability and economic health.

[BWV 1080]

During the last OPEC embargo gasoline prices were controlled and it was a criminal violation to gouge. .. But experience has shown that controlling profiteering in a war or transient crisis does play a major role in restoring stability and economic health.

Again, all this does is create shortages as any economist will tell you.