Wednesday, September 6, 2017

Price Gouging is Good

I recall expressing outrage when, as a teenager, I noticed gas prices going up after 9/11. Price gouging, as it is often called, is when sellers raise prices in times of crisis. Water goes up. Gasoline goes up. General goods go up. Supplies go down.

We’re seeing this now with the hurricane in Houston and the one likely to hit Florida in a few days. On the surface, it appears to be a money grab by sellers as they seek to capitalize on the misfortunes of others, but is there a bigger picture we’re missing?
I readily acknowledge that the downside of allowing sellers to increase the price of in-demand products during a time of crisis (crisis: is there a universal standard for such an event? If yes, who decides what it is? And what measure are they using?) will make items people want more expensive. That’s the downside.

There are positive aspects to gouging and, in my estimation, they amount to a net good. In other words, gouging is good for those in need.
“Tim, you’re a capitalist pig! I hate you! You’re so greedy!”
Alright, alright. Hear me out.

Let’s use someone selling water as our example.
It’s not his responsibility to provide water for everyone in town. Nor is it his responsibility to sell water at a price that makes everyone feel good. His only real responsibility is to pay money to people he owes money to and to provide for his own family. He is at liberty to sell water for whatever amount he wants and I have no right to infringe. Those responsibilities and his freedoms don’t hinge on how people feel about the prices he charges. It is never my right and it’s never the right of the government to place a limit on how much he can charge for water. If he wants to charge 2x as much as the guy next door for the same product, then what business is it of mine? The most effective way to get him to lower his prices isn’t for me to shake my fist but for someone else to come in and offer it for less than he does.

“But Tim, that’s during normal time. We’re talking about CRISIS times, YOU BIGOT!”

Let’s consider crisis times.
If Mr Water Seller normally sells his water for $3 per gallon with a virtually unlimited supply at his disposal in hopes he will make $300 a week selling 150 gallons then what happens if he has way, way less water at his disposal for the week? If he, to pay his bills and feed his family, must make $300 per week but only has 30 gallons of water to sell for the week, how much should he charge for a gallon of water? Keep in mind we already agreed that it’s not his responsibility to provide water for everyone in town or to make people feel good. Why should he suffer a financial loss? Why do you hate Mr Water Seller so much that you’re willing to cause him to suffer? If people are willing and eager to pay, one time, $15 per gallon for water, then what is the problem? He’s not going to be making record profits for the week or month. He’s going to end up where he would have been elsewise (+$300).

When he’s not allowed to raise his prices in accordance with supply and demand then other sellers lose incentive to bring the in-demand product to the area where the need is the greatest. Other water sellers won’t have any incentive to bring more product to the area than they normally would, especially given the increased costs of transporting a product to and through an area recently ravaged by a natural disaster. If they see Mr Water Seller selling his water for $15 per gallon then maybe they’ll bring their business to that area and sell their bigger inventory for $11 per gallon. And then another water seller brings their water and their even bigger inventory to town and sells it for $7 per gallon. Now all of a sudden we see that Mr Water Seller’s gouging actually brought in MORE of the in-demand product than there ever would have been had he kept his prices what they were prior to the crisis.

 But then there are onlookers who say, “$7 per gallon is too much! Let’s do what we can, at a cost to ourselves, to send water down to that area for people to drink.”
Had the price of water reflected the price it normally sells for then neither competitors nor the generous would have known of the demand. The temporary increase in price actually helps the need get met at a considerably faster rate. And meeting the need is, as I’m sure we’d all agree, the primary goal for all the parties involved. The goal isn’t to keep some guy across the country from getting upset about high prices. The goal is to get people what they need.

"I can only ride like 3 roller coasters cuz the lines are so long."
"You might not get to ride any if admission were free."
Another positive effect is that it serves as a form of rationing. Higher prices help more people see the product. Someone is less likely to buy all the inventory of a product if it’s 3x more than they were expecting to spend. Mr Water Seller could limit the number of gallons one could purchase but that wouldn’t draw in competition or raise a red flag to the charitable the way gouging would. That’s also too easy to bypass. E.g. I buy one gallon, my wife buys one gallon, my son buys one gallon and then we move on to the next location.

Everyone understands that Alaska and Hawaii aren’t being gouged when they’re “forced” to pay more than other US citizens for milk and bread. Alaska and Hawaii are paying market prices. People are happy to sell them as much milk as they want but they have to sell it for a higher price because it’s much more difficult to get them the product. If sellers were forced to sell milk to Hawaii for the same price they sell to Wisconsin, then people would simply stop selling to Hawaii and Hawaii would have no milk.

As these areas scramble to get help there are those who want to help but, due to financial limitations, cannot help. People in Ohio can't just pack up and leave to go down to Texas or Florida. Obviously, some can and they do so at a cost to themselves and their family. It costs money to travel, they take time off work and spend time away from family. Such people should...must be applauded for their selfless acts. (Side note: even if their act is done for selfish motives I doubt those affected really care. Do you care if someone meets a need you have just so they look good? Probably not. If I'm starving to death I don't care why the chef is feeding me. But that's a 1 Corinthians 13 spiritual issue rather than a practical issue. God is going to deal with that.)

It's difficult to assemble enough volunteers to have an impact. Mindless tasks? Sure. But what about medical treatment? Then what? We need skilled and trained people in administering aid, not an accountant who doesn't mind physical labor. How can we get more RN's and MD's? We pay them. Pay them their normal rate? No. We pay them a lot more. Are RN's and MD's gouging those in need? No. They're doing a cost/benefit analysis of their own. For an RN with kids to go 1,000 miles away for a week is no small thing. The incentive to go has to be more than just the reward of knowing you helped. In a perfect world would we all just help one another for free? Yes. But our world is desperately fallen and people rarely do things unless their own interests are being addressed. So we can either mope around and lecture people or we can pay people what it takes to get the job done.

Maybe Mr Water Seller should keep his prices the same in hopes that people will remember his good deed and make him their primary water distributor in the future.

Maybe Mr Water Seller should close his store entirely so as not to upset anyone.

Are you going to tell him what he must do with his business? If yes, should he be allowed to dictate what you must do with yours?