Here’s a follow-up e-mail to a young, self-described “socialist-leaning progressive”:
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.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030