A small handful of people will agree that it’s OK for those who bring new supplies to disaster areas to charge unusually high prices. But what about merchants who, in the wake of disasters, charge unusually high prices for goods that they already had on hand and which they themselves acquired at “normal” prices? Isn’t it wrong — and shouldn’t it be unlawful — for merchants to charge more than normal mark-ups?
No.
How many people believe that someone who in 2005 bought 100 shares of Apple stock at $10 per share acts unethically by now selling that stock at today’s price of $220 per share? How many people believe that someone who purchased a home in 1980 for $65,000 is an evil “price-gouger” if that person sells the home today at its market value of $900,000?
If we don’t look askance at people selling assets such as corporate stocks and real estate at prices as high as can be fetched on the market, why do we look askance at merchants who sell goods at prices as high as can be fetched on the market? Merchants’ inventories, after all, are among merchants’ assets.
Yes, charging prices as high as can be fetched for the likes of plywood and propane might make these goods unaffordable to some people. But the same is true for charging market prices for corporate shares and houses. I, for one, simply cannot find an ethical reason for treating the sale of some assets differently from the sale of others.
And note this: By allowing merchants to charge unusually prices for their inventories, merchants are encouraged to have more inventories on hand — a happy outcome if and when natural disasters actually strike.
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David Henderson e-mailed me earlier today to ask if I’ve ever updated this post on the work-time cost of some goods found in Sears’s Fall/Winter 1975 catalog.
I did do so – in a fashion, and then only in a PowerPoint presentation.
But I just now checked to see if there’s been any change between 2006 and today in the work-time costs of the particular (kinds of) goods mentioned in that 2006 blog post.
At the websites of Amazon, Home Depot, and Lowe’s, I found goods today comparable to ones in 2006. Using the August 2019 average hourly earnings of private-sector production and nonsupervisory employees – which are $23.59 – I calculated the 2019 work-time costs.
Even I was surprised to find that, for the goods listed in that 2006 Cafe Hayek post, the work-time cost of acquiring them has fallen, from 2006 to today, by an average of nearly 30 percent. (My guess is that this fall would have been slightly greater were it not for Trump’s trade war war on trade.)
… is from page 13 of Deirdre McCloskey’s August 2019 manuscript titled “Bettering Humanomics: Beyond Behaviorism and Neo-Institutionalism” (footnote deleted):
Monopoly or inequality or externality or informational asymmetry “exist,” to be sure. Some economists have been vigorous in measuring their local effects, on telephone pricing, say, or the imperfect market for defective horses or automobiles. But their national significance has been nothing like established in economic measurement. Posited externalities among other allegedly significant imperfections have been used without serious empirical inquiry in order to justify all manner of governmental actions. Listen to the rhetoric defending a new policy: we need regulation of this terrible, new imperfection, just as we have anti-trust policy against allegedly harmful “monopoly” by Amazon or tariff policy against allegedly harmful “dumping” by China. Meanwhile the highly “imperfect” economy has yielded a rise of income for the poorest of . . . wait for the news from economics history . . . 3,000 percent. An economy riven with terrible imperfections has yielded a rise by a factor of 30 in the ability of the poorest among us to buy goods and services, a Great Enrichment. Hmm. In Yiddish syntax: some imperfections!
Here’s a follow-up e-mail to a young, self-described “socialist-leaning progressive”:
Mr. Michaelson:
Thanks for your follow-up e-mail.
You write that economists such as me, who argue against government restrictions on so-called “price-gouging,” “will and should get nowhere using heartless logic to excuse the greed which deprives desperate people of things they need.”
I admit that – as your follow-up e-mail itself shows – making the case against anti-price-gouging legislation is a challenge. It’s a challenge, however, because most people have no understanding of what determines prices or of what role prices play. Most people believe prices to be arbitrary impositions, usually by sellers upon buyers. If this popular belief were correct, the economic case against prohibiting “price-gouging” would be much weaker.
But prices are not arbitrary impositions. And among the most important roles they play is to encourage suppliers to better meet the needs of consumers, as well as to encourage consumers to share – and, thus, to ease – each others’ burdens. By revealing both the unintended good consequences of price increases in the wake of natural disasters, and the unintended bad consequences of prohibitions on such price increases, economics shows that desperate people who need the likes of bottled water and motel rooms are more likely to obtain these things if prices are allowed to rise than if prices are prevented from rising.
If all someone cares about is snatching cheap thrills by moralizing against “greed,” then, yes, no economist will ever get anywhere with such a person, for such a person lazily – and heartlessly – refuses to exert the intellectual effort required to understand how best to serve the welfare of natural-disaster victims. But for people who are willing to use their intellects to look at more than mere superficial phenomena, and who care more about helping victims than about winning tawdry praise from the intellectually lazy, then economics is enormously helpful in revealing what my dear friend and former colleague Russ Roberts calls the market’s “invisible heart.”
This heart’s invisibility doesn’t make it less real. But it does require that those of us who wish to reveal this heart’s reality use, in our conversation and writing, logic – logic that in this case is emphatically not heartless.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
David Henderson takes stock of supply-side economics.
Phil Magness reports on the not-so-sweet history of Swedish statism.
My GMU Econ colleague Bryan Caplan is indeed wise.
In this podcast, Aaron Powell and Trevor Burrus talk with the grateful Steve Horwitz.
In this video, Taleed Brown discusses millennials and socialism.
Jeff Jacoby laments the lack of principles in American politics. Here’s his conclusion:
The Democratic and Republican parties are always in flux. Their values, their rules, their powerbrokers, their supporters — all change over time. Only one thing remains fixed: the quest to win elections. That was true long before Trump showed up. It will be true long after he’s gone.
In any case, America cannot be described as a place where the rich only get richer and the poor only get poorer. Nor can one say that income inequality has reached crisis proportions, as some of those politicians are inclined to say. The evidence, which speaks well for the operation of our market economy, suggests strong economic mobility.
These results are shown graphically in the below chart developed by American Enterprise Institute economist Mark Perry. Notice that in 1967, just 9.7% of U.S. families were included in the high-income group. In 2018, 30.4% were high-income households. And in 1967, some 53.8% of all households were counted in the middle-income group. In 2018, the middle-income share included 41.7% of all households. Finally, take a look at the low-income category. The share fell from 36.4% to 27.9%.
… is from pages 23-24 of the transcript of late John Blundell’s conversation (I think in 2000, and the audio of which is available here) with the late Peter Bauer, as this transcript appears in the 2002 volume A Tribute to Peter Bauer; these remarks are those of Bauer:
First of all, I would say we shouldn’t talk about inequalities, but differences, because difference is a neutral term, and inequality is a loaded term. Inequalities often are equated with inequity. Except this leads to the idea that the poor are poor because the rich are rich, i.e. that the rich have extracted their incomes or wealth from the poor, which is not true.
… is from page 361 of Liberty Fund’s 2011 collection of Frédéric Bastiat’s writings, The Man and the Statesman: The Correspondence and Articles on Politics – which is the first volume in what will eventually be six volumes, expertly edited by David Hart, of The Collected Works of Frédéric Bastiat; specifically, this quotation is drawn from Bastiat’s 1846 letter “To the Electors of the District of Saint-Sever” (original emphasis):
Let us suppose that this regime were not forced on us by law, but directly by the will of the monopolists. Let us suppose that the law left us entirely free to purchase iron from the Belgians or the Swedes, but that the ironmasters had servants enough to prevent the iron from passing our frontiers and to force us thereby to purchase from them and at their price. Would we not complain loudly of oppression and injustice? The injustice would indeed be more obvious; but as for the economic effects, it cannot be said that they would be any different. After all, are we any the fatter because those gentlemen have been clever enough to have carried out by customs officers, and at our expense, that policing of the frontier that we would not tolerate were it carried out at their own expense?
DBx: By draping their plunder with superficially plausible but utterly ludicrous rationales, calling it “trade policy,” and having it carried out by impressively titled state officials, protectionists not only enrich themselves at the greater expense of their fellow citizens, they insult the intelligence of every person with intelligence by promenading publicly as benefactors of the general welfare.
In response to this post about some unintended ill-consequences of price controls, my Mercatus Center colleague Bob Graboyes sent me this e-mail, which I share here with his kind permission:
My parents ran a children’s clothing store in the 1940s, back when the Office of Price Administration was sending clipboard-carriers around to make sure that merchants weren’t raising prices. My folks would take the best merchandise and stow it under the counter for their friends. Later on, they employed high school kids to clean up the store. When the minimum wage shot up, Dad had to stop using the kids and mop the place up himself. Unhappy people all around.
