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Reality Isn’t Optional, #776

Here’s a letter to a Café Hayek patron:

Mr. Bennani:

Thanks for your e-mail.

You’re one of four people who’ve e-mailed recently to scold me for allegedly failing to understand what you call “real world complications which make price gouging problematic.” These complications lead you to “side with consumers and political leaders that want limits on businesses’ ability to jack prices up.”

I’m the last person to deny that reality is far more complicated and complex than any theory can capture and than any observer can grasp. Indeed, reality’s unfathomable complexity is among the chief reasons for my opposition to government-imposed restrictions on the ability of merchants to charge whatever prices markets will bear.

Observers such as you, me, and political leaders have no way of knowing the full range of challenges that suppliers confront even in normal times to do all the countless tasks that must be done to get goods from farms, factories, and warehouses – where they benefit no one – to markets where consumers can purchase them. During times of crises these challenges multiply – a reality that is reflected in higher prices.

In part because higher prices intensify suppliers’ incentives to bring more goods to market – and in part because merchants charge higher prices only because consumers pay these higher prices willingly – the best information available about the current level of any good’s scarcity is that good’s market price.

Therefore, those who ignore reality’s complexity are anti-price-gouging-measure supporters. Supporters of such measures simplistically suppose that the only consequence of forcibly capping money prices below market-clearing levels is more money left in the wallets of consumers and less money flowing into the cash registers of merchants. Among the myriad consequences that are unseen are the supplies thereby not produced or shipped to market, the wasteful consumption of the lucky buyers who find goods to buy at artificially low prices, the deterioration of the quality of goods, and the corruption spawned by merchants having on hand goods the true value of which exceeds the prices at which these goods can legally be sold.

That the simplistic belief in the justice of anti-price-gouging legislation is widespread and sincerely held, I don’t doubt. But the economist’s task isn’t to console the public by refusing to call out their economic misunderstandings. This task, instead, is to speak as plainly as possible to non-economists in the hope of opening their eyes to consequences that otherwise remain unseen in the swirl of a reality that in normal times is bewildering enough, and in crisis times triply so.

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