Mark Kleiman addresses an issue that has always puzzled me:
Florida authorities report a wave of price gouging in the wake of Hurricane Charley, and promise to enforce Florida’s anti-gouging laws.
Some of this is fairly straightfoward enforcement against bait-and-switch and false advertising, and raises no conceptual problems.
But from the viewpoint of orthodox economic analysis it’s hard to explain exactly why it’s wrong, in the wake of a disaster, for someone who has a limited amount of ice or gasoline or tarpaper to sell, and a large number of customers for it, to charge whatever the market will bear…
It’s not hard to come up with practical reasons to dislike price-gouging. Disasters call for, and in healthy societies elicit, altruism and solidarity, and price-gouging as a practice probably does something to suppress those valuable reactions. But some of that analysis also applies to other sorts of economic regulation that free-marketers are unequivocal in denouncing.
I can see both sides of the argument; my point here isn’t that anti-gouging laws are wrong, but that they ought to be controversial in a way they currently are not, at least among those who consider themselves principled advocates of laisser-faire.
Read the whole thing.
Slartibartfast
Being in the price-gouging zone, I have to say the following:
1) I’ve got no problem at all with giving pay bonuses to the folks out there clearing trees and rubble, reconnecting power, and doing debris pickup to get the roads clear. They’re doing a tough, dirty, dangerous, HOT job, and getting precious little sleep (and, in some cases, thanks) in exchange.
2) I’ve also got no problem with the hordes of tree-trimmers descending on the area to earn a fast buck. We need them, and they need us.
3) What I do have a problem with is monkeying around with prices of goods in the short term in the name of earning a quick profit. It makes you look bad, loses you custom, and none of the reputable outfits are doing it.
I think he makes several good points, not least of which is the call for services. Actually, I don’t think it’s as much a need for more government-provided services, as it is a need for logistics and centralized decision-making. Days before the hurricane hit, Progress Energy had summoned in caravans of power service trucks and crew to clear out the mess. Because they didn’t wait until after the hurricane to mobilize resources, the cleanup campaign moved rather quickly. I don’t know the details of what happened in Port Charlotte, but I can say that here in Orange County, where the damage wasn’t as catastrophic (but still substantial), the response to the hurricane was extremely well coordinated.
Still, it’s going to take months to clean up the mess. Months. And it’s nearly all trees.
Slartibartfast
Just to give you an idea on what I mean by price-gouging in the short term, by giving a counterexample:
At Lowe’s, the price of shingles has been a constant, even when they’re selling out faster than they can ship them in.
Sebastian Holsclaw
So called price gouging almost always dramatically increases the supply of the good in question as it gets diverted from lower paying locales. The classic example before hurricanes is wood sheets suitable for covering windows. The price goes up before hurricanes, which causes suppliers to send more of the product to the needed area. This allows there to be enough to cover the windows while causing a temporary shortage in other locales who don’t need it as desperately. Basic, normal economics and allocation of resources.
Slartibartfast
The problem WAS, if you remember Hurricane Andrew, there was price-gouging after the hurricane because of short-term lags in supply, due to lack of preparation and planning, and due to lack of supply mobility because of the storm damage. People were driving trucks down with bottled watter and charging a bunch of money for them.
Which pretty much reinforced Mark’s idea that what can reduce price-gouging is services, which I interpret to mean logistics, planning and exercise of state authority to mobilize relief efforts in advance.
capt joe
I heard of one guy who booked motel room for his family at one price and when he showed up the motel owner said that if he did not pay almost double, he would lose the room.
Slartibartfast
Rooms were kind of at a premium, here, too. We had one booked, until the hotel finally ‘fessed up to the fact that they couldn’t guarantee power that night. With hotels, some inflation of prices is forgivable. For example, hotels occasionally offer a limited number of rooms at discount rates. I might book a room at, say, $60/night, and you might call and book the exact same kind of room and get a price of $80. In this case, I happened to get a room at discount rate, and in yours there probably weren’t enough vacant rooms to justify the discount rate. A travel agent would probably be able to give you the lowdown on why this is done, but it does work that way. Still, discount rate is hardly ever %50 of the full price.
Francis W. Porretto
See also this.
Slartibartfast
I’d agree wholeheartedly, but there seems to be a difference in the pricing effect when the supply chain is induced to get in place to anticipate the increased demand.
In case it’s not obvious, I have zero economic credentials. I’m normally inclined to letting the market be, but sometimes the market is stupid, and benefits from a little push in the right direction.
Sebastian Holsclaw
“People were driving trucks down with bottled water and charging a bunch of money for them.”
Argh. Hello! There was more bottled water than normal because you could charge higher prices for it and divert it from somewhere else that didn’t need it as much. More bottled water in the area after the hurricane destroyed water delivery systems = a good thing.
Slartibartfast
“There was more bottled water than normal because you could charge higher prices for it and divert it from somewhere else that didn’t need it as much.”
I’m sure that came as a great comfort to those who couldn’t afford it: thanks to those wealthier people able to pay the price, they had more water than they otherwise might have.
Odd, arguing from the Left. I feel like I’m batting left-handed. Probably doing that well, too.
The Lonewacko Blog
Br’er Drudge on his show the Sunday right after said the FL tollbooths – which had been free immediately afterwards – were back charging money.
Motels don’t have, generally speaking, advertised rates. They have a rate that’s subject to availability. When a special event comes to town, they’ll raise the rate. If someone booked a room or saw an advertisement for that specific day with no disclaimer, then that’s false advertising generally speaking.
It’d be a shame if someone put up a website showing the products people bought from established stores and the prices they paid.
SDN
Of course, they can’t gouge me for a generator or a chainsaw, because I exercised my prudence and bought one ahead of time. I also have a couple of empty 55 gal barrels just to fill with water ahead of time. I know I live in an area where bad weather is a forseeable disaster. Why shouldn’t the imprudent have to pay a little more?
Slartibartfast
“Why shouldn’t the imprudent have to pay a little more?”
Depends on how far you’re willing to stretch the meaning of “a little”. Aside from that quibble, I agree completely.
Slightly OT, debris pickup is moving so…un-quickly that our neighborhood is considering hiring a truck and doing some of the removal ourselves. I don’t expect the cleanup to proceed all that quickly, but I just put in about a thousand bucks worth of sod a couple of years ago, and I’ve got about 1.5 very large trees deposited on top of it.
J MADDEN
WHEN CONSIDERING PRICE GOUGING AFFECTED FOLKS USING OUT OF TOWN/STATE CONTRACTORS SHOULD CONSIDER THE FACT THAT MOST REPUTABALE CONTRACTORS WILL HAVE THEIR OPERATING EXPENSES DOUBLED THEIR BILLS AT HOME DONT STOP JUST BECAUSE THEY ARE ( HELPING) WITH CLEANUP EFFORTS AFTER ANY STORM MUCH LESS THE FACT THE MEN AND WOMEN WHOM MAKE UP THE CREW MEMBERS THEIR BILLS ALSO DOUBLE AND THE COUNTLESS HOURS LOST LEARNING A NEW LOCATION WHILE STUCK IN TRAFFIC…. PRICE GOUGING REGUARDING TREES ? HMMM CHAIN SAWS ARE 1 OF THE WORLDS MOST DANGEROUS TOOLS HOW MANY OF THE POST HURRICANE INJURIES ARE RELATED TO TREE CUTTING/REMOVAL? WHEN YOU GET A HIGH PRICE FOR TREE CUTTING SERVICES FROM A TREE PROFESSIONAL I WOULD ASSUME THAT THEY UNDERSTAND THE DANGERS OF THEIR PROFFESSION EVERY DAY/ CUTTING YOUR DOWNED TREES FOR LITTLE $ ISNT WORTH YOUR LIFE OR THEIRS…..