Super high prices for water etc are GOOD because they incentivize increases in supply. But also they are BAD, not because they "take advantage of the misfortune" of the people in Asheville, but because poor people who might need the water more will be outbid by rich people who need it less but are more able to pay. Surely that's an injustice? Those who object to price gouging focus on this bad, and pointing to the good of incentives doesn't answer their complaint, unless you argue that the good outweighs the bad. Maybe it does--if so, how and why?
Yeah I agree with what Delenda Est said. It's true that people without the means to pay the extra high prices not getting the goods is an injustice, but the other options aren't clearly better. If you go low prices, first come first serve, it's unjust that the people who couldn't get there fast enough miss out. Or if you ration it out, then it's unjust that no one gets enough.
The ultimate source of the injustice in all these cases is not the allocation method, it's that there isn't enough to go around. That's the central problem and high prices help to address it.
Emergency supplies and infrastructure to ramp up production and distribution are likely to be improved if the rules in advance are that the market is allowed to operate, thus making the use of the price system the least bad alternative because of its most effective incentives. This is related to an argument for a refundable consumption tax-funded #UBI to replace taxes on work and investment that have their own disincentives to productive and efficient allocation of resources.
I'm on the same side as you all, but I imagine your opponent will point, not to lower prices as the salient alternative, but to government allocation by need. (Gov't could still buy at a high price, preserving the incentive to increase supply.)
The assumption at the heart of this argument -- that the market is the only method of transmitting information about the needs of consumers -- leads you to conclude that prices are the best method of communication. I learnt about Hurricane Milton not from an increase in gas prices but from social methods of communication: news networks and social media. I am highly confident that you learnt though similar methods. As such, it is not necessary for an increased need to be communicated through price increases; any basic understanding of the devastation of a natural disaster would prompt the movement of aid.
The sole restraint on aid reaching the necessary areas given the necessary knowledge is hesitancy on the part of providers. For a government to do so is seen as a violation of human rights (c.f. Israel's attacks on UN workers recently), but you choose to frame the market's arbitrations of the value of these people's lives as a necessary response, rather than as a collective punishment of their misfortune. This gives agency to "the market" as an abstract concept, rather than the profiteers price-gouging victims of a natural disaster. They are the ones responsible for the hyperinflation of gas and water. The inflationary shock during COVID was also caused by greed on the part of PPE manufacturers and oil and gas companies, whose profits soared as millions died.
Your analogy, accurate as it is, underlines the inhumanity of the market, and how controls for the good of society are necessary for a healthy public life.
Prices are good at transmitting information, but they also attach an incentive for solving the problem along with that information and that is their central advantage imo.
Social media may spread news of the hurricane faster in some sense, but prices simultaneously spread news of the problem and the incentive for other people to help solve it.
Some controls on the outcomes of an unregulated market are necessary, but I think it's better to just directly correct the distribution of incomes after the fact rather than messing with prices themselves because of the information and incentives they spread.
Great article. But does this not work as a bounty only when there is elasticity of supply? So for example, if a $2k ticket price is unlikely to bring in more airlines/flights (supply) into NC because of logistics issues + time limit, is it not just rewarding the existing supplier with extra profit? It would be a bounty if other airlines could quickly come in and offer flights. But realistically, there is logistics and legal issues ( contracts with airports etc take a bit of time) so it won’t happen and so the bounty effect will not exist.
Yes the elasticity of supply is definitely important. One reason why it may be more elastic than you think, even in a disaster scenario, is preparation. When businesses are confident in their ability to raise prices after a disaster, they will stock up on more goods beforehand, which brings in more stuff for people and ultimately undercuts their ability to raise prices in the first place.
The extreme of perfectly inelastic supply is what leads Georgists to support high taxes on land, for example, something I am sympathetic to.
Most disasters don’t last very long. You’re not likely to have the sort of corrective market forces whereby gas flows into North Carolina to mitigate the sudden jump in demand. By the time the market would have done its thing, the crisis would be over and you’d just have oversupply.
It’s the same reason we don’t have privatized fire departments (at least not ones that aren’t paid for by the government). You aren’t willing to pay much for fireman to come to your house most days, but during the hour or so your house is on fire, you’re willing to spend almost everything. It’s a huge market inefficiency because markets are inherently inefficient, and the time inefficiency of a crisis whose peak is only a couple of days means the market has no benefits to give us.
Yes the elasticity of supply is definitely important. One reason why it may be more elastic than you think, even in a disaster scenario, is preparation. When businesses are confident in their ability to raise prices after a disaster, they will stock up on more goods beforehand, which brings in more stuff for people and ultimately undercuts their ability to raise prices in the first place.
The extreme of perfectly inelastic supply is what leads Georgists to support high taxes on land, for example, something I am sympathetic to.
Governments have to work a little differently. To start with, they have to capitalize their citizenry. Having a citizen with a level of loyalty, trained in various skills, in good health and so on is worth more than having a citizen with no loyalty, uneducated, in poor health and so on. That means that during an emergency, a government has to make sure that citizens' basic needs are being met. If that means interfering in the market, so be it. It's not like there would be markets or property without the government. There's a hierarchy of needs.
We've seen what happens when we let the private sector allocate goods during an emergency. During COVID, shipments of important medical equipment, medicines and protective gear were stolen. Contracts were abrogated. When the price goes high enough, criminal behavior becomes profitable since enforcement is weakened and legal action is slow and expensive. Do gooders providing food to famine areas run into the private sector too. Shipments are redirected and sold at market prices rather than distributed as desired by their owners. The current situation in Haiti, with private sector actors largely unregulated, has dramatically worsened the already wretched stte of things. (Haiti's terrible situation is largely a result of free market slave owners demanding former slaves pay them for their freedom. The massive debt was only recently considered repaid.)
Sometimes it makes sense to rely on market forces for allocation, but governments and the private sector are judged by different standards. A government is considered a failure if 10% of the population can't get the desired shoe color. The private sector is considered a success even if 10% of the population can't afford shoes.
Super high prices for water etc are GOOD because they incentivize increases in supply. But also they are BAD, not because they "take advantage of the misfortune" of the people in Asheville, but because poor people who might need the water more will be outbid by rich people who need it less but are more able to pay. Surely that's an injustice? Those who object to price gouging focus on this bad, and pointing to the good of incentives doesn't answer their complaint, unless you argue that the good outweighs the bad. Maybe it does--if so, how and why?
Yeah I agree with what Delenda Est said. It's true that people without the means to pay the extra high prices not getting the goods is an injustice, but the other options aren't clearly better. If you go low prices, first come first serve, it's unjust that the people who couldn't get there fast enough miss out. Or if you ration it out, then it's unjust that no one gets enough.
The ultimate source of the injustice in all these cases is not the allocation method, it's that there isn't enough to go around. That's the central problem and high prices help to address it.
Emergency supplies and infrastructure to ramp up production and distribution are likely to be improved if the rules in advance are that the market is allowed to operate, thus making the use of the price system the least bad alternative because of its most effective incentives. This is related to an argument for a refundable consumption tax-funded #UBI to replace taxes on work and investment that have their own disincentives to productive and efficient allocation of resources.
I'm on the same side as you all, but I imagine your opponent will point, not to lower prices as the salient alternative, but to government allocation by need. (Gov't could still buy at a high price, preserving the incentive to increase supply.)
The answer is the allocation under the basic counterfactual is even worse for those people you are worried about
The assumption at the heart of this argument -- that the market is the only method of transmitting information about the needs of consumers -- leads you to conclude that prices are the best method of communication. I learnt about Hurricane Milton not from an increase in gas prices but from social methods of communication: news networks and social media. I am highly confident that you learnt though similar methods. As such, it is not necessary for an increased need to be communicated through price increases; any basic understanding of the devastation of a natural disaster would prompt the movement of aid.
The sole restraint on aid reaching the necessary areas given the necessary knowledge is hesitancy on the part of providers. For a government to do so is seen as a violation of human rights (c.f. Israel's attacks on UN workers recently), but you choose to frame the market's arbitrations of the value of these people's lives as a necessary response, rather than as a collective punishment of their misfortune. This gives agency to "the market" as an abstract concept, rather than the profiteers price-gouging victims of a natural disaster. They are the ones responsible for the hyperinflation of gas and water. The inflationary shock during COVID was also caused by greed on the part of PPE manufacturers and oil and gas companies, whose profits soared as millions died.
Your analogy, accurate as it is, underlines the inhumanity of the market, and how controls for the good of society are necessary for a healthy public life.
Prices are good at transmitting information, but they also attach an incentive for solving the problem along with that information and that is their central advantage imo.
Social media may spread news of the hurricane faster in some sense, but prices simultaneously spread news of the problem and the incentive for other people to help solve it.
Some controls on the outcomes of an unregulated market are necessary, but I think it's better to just directly correct the distribution of incomes after the fact rather than messing with prices themselves because of the information and incentives they spread.
Great article. But does this not work as a bounty only when there is elasticity of supply? So for example, if a $2k ticket price is unlikely to bring in more airlines/flights (supply) into NC because of logistics issues + time limit, is it not just rewarding the existing supplier with extra profit? It would be a bounty if other airlines could quickly come in and offer flights. But realistically, there is logistics and legal issues ( contracts with airports etc take a bit of time) so it won’t happen and so the bounty effect will not exist.
Yes the elasticity of supply is definitely important. One reason why it may be more elastic than you think, even in a disaster scenario, is preparation. When businesses are confident in their ability to raise prices after a disaster, they will stock up on more goods beforehand, which brings in more stuff for people and ultimately undercuts their ability to raise prices in the first place.
The extreme of perfectly inelastic supply is what leads Georgists to support high taxes on land, for example, something I am sympathetic to.
Work as a bounty*
Most disasters don’t last very long. You’re not likely to have the sort of corrective market forces whereby gas flows into North Carolina to mitigate the sudden jump in demand. By the time the market would have done its thing, the crisis would be over and you’d just have oversupply.
It’s the same reason we don’t have privatized fire departments (at least not ones that aren’t paid for by the government). You aren’t willing to pay much for fireman to come to your house most days, but during the hour or so your house is on fire, you’re willing to spend almost everything. It’s a huge market inefficiency because markets are inherently inefficient, and the time inefficiency of a crisis whose peak is only a couple of days means the market has no benefits to give us.
Yes the elasticity of supply is definitely important. One reason why it may be more elastic than you think, even in a disaster scenario, is preparation. When businesses are confident in their ability to raise prices after a disaster, they will stock up on more goods beforehand, which brings in more stuff for people and ultimately undercuts their ability to raise prices in the first place.
The extreme of perfectly inelastic supply is what leads Georgists to support high taxes on land, for example, something I am sympathetic to.
Governments have to work a little differently. To start with, they have to capitalize their citizenry. Having a citizen with a level of loyalty, trained in various skills, in good health and so on is worth more than having a citizen with no loyalty, uneducated, in poor health and so on. That means that during an emergency, a government has to make sure that citizens' basic needs are being met. If that means interfering in the market, so be it. It's not like there would be markets or property without the government. There's a hierarchy of needs.
We've seen what happens when we let the private sector allocate goods during an emergency. During COVID, shipments of important medical equipment, medicines and protective gear were stolen. Contracts were abrogated. When the price goes high enough, criminal behavior becomes profitable since enforcement is weakened and legal action is slow and expensive. Do gooders providing food to famine areas run into the private sector too. Shipments are redirected and sold at market prices rather than distributed as desired by their owners. The current situation in Haiti, with private sector actors largely unregulated, has dramatically worsened the already wretched stte of things. (Haiti's terrible situation is largely a result of free market slave owners demanding former slaves pay them for their freedom. The massive debt was only recently considered repaid.)
Sometimes it makes sense to rely on market forces for allocation, but governments and the private sector are judged by different standards. A government is considered a failure if 10% of the population can't get the desired shoe color. The private sector is considered a success even if 10% of the population can't afford shoes.
To be fair, price gouging laws can sort of function as implicit disaster insurance.
https://web.archive.org/web/20160417204321/http://szabo.best.vwh.net/emergencyeconomics.html