It snowed a lot this weekend. This is quite remarkable, as in Lane County, Oregon, we are lucky if we get an couple inches of cumulative snow each winter. However, we got a bit more than half a foot on Sunday morning.
Because I lead worship at church, my wife and I made it in to church early, long before it got very bad. But it still took us over twice as long (an hour) to arrive, driving 20mph for the last 6 miles. By the time church was over and it was time to head home, we were quite hesitant to make the drive, as the full fury of the weather was still upon us. We stopped by the local retail store to pick up some snow chains: sold out.
Naturally of course, the price on the chains was still set at regular price. While we were in church, their entire stock had vanished, and, having no other choice, we risked the drive home.
While this wasn’t a dire emergency, and we made it home alright without snow chains, I can’t help but be a little frustrated with the store. As opposed to the locals in town, whose streets would be cleaned by the time they needed to do their business on Monday, my wife and I had 30 miles to drive - much of it on country roads that would not see a sander for some time. We needed those chains considerably more at that moment than some that bought them, and we would have paid double or even triple the regular price to ensure that we got some.
But stores wont gouge - many to preserve good will with ignorant customers, but some (in my state) because we have price controls in emergencies: anti-gouging laws. These laws force the prices of essential goods down during emergences (despite huge spikes in demand), causing them to be handed out on a simple first-come-first-served basis, ignorant of individual need and severity of conditions.
In my case, it is entirely possible that the snow reminded folks to go out and buy snow chains for all their cars, simply as a preventative measure. In real emergencies, goods such as water, ice, candles, generators and gasoline can be sold first-come-first-served to people who may not even need them very much, or may not need a large quantity. If lawmakers would allow it, and companies would gouge appropriately, then the short supply of essential goods would be distributed according to need and the high prices would prevent people from taking more than is absolutely essential.
Just as I lamented with ticket scalpers, economic law is being completely ignored - to the detriment of the people who have severe need.
Good article!
Snow chains, huh? Guess I’m not familiar with them, except for like farm tractors and pickups. Does Oregon not have plows?
again, not sure why, but GoogleBot is Darius. It won’t let me sign out either. Any ideas how to fix this?
We generally do not have a lot of plows because it almost never snows. Also, many cities have banned the use of any de-icing chemicals for the roads. When it snows here, even a couple inches, everything just pretty much shuts down.
I really don’t have an opinion on whether retailers should be able to gouge in general. From your perspective, it sounds like basic supply and demand.
But honestly, when I think of price-gouging I think back to 9/11/01. I was in Oklahoma and people were freaking out at the gas pumps. I’m talking about pandemonium. Some of the retailers decided this was a good opportunity to hike up gas prices. The state severely punished these retailers with hefty fines. So I guess in my mind gouging sounds bad. Even the word “gouge” seems to have a negative connotation. It reminds me of “eye-gouging”.
The gouging I think of was after Hurricane Katrina and a bunch of hotels doubled their prices for the people who were without homes… Disgusting, but I’m not sure what (if anything) government should do about it.
“The gouging I think of was after Hurricane Katrina and a bunch of hotels doubled their prices for the people who were without homes… Disgusting, but I’m not sure what (if anything) government should do about it.”
Yeah, I’m with you, GoogleBot/Darius.
From a Christian perspective, we shouldn’t try to profit from another person’s misfortune, if that is to their detriment. Raising prices can help to control supply and demand, but it also has the potential to price some people out of the market. Those people may truly be in need.
I’m a big proponent of the free market. I don’t want government interfering by passing anti-gouging laws. But I do believe Jesus was serious when he commands us to feed the hungry, clothe the naked, and tend to the sick. We are commanded to help those in need. That’s not optional for a Christian.
In Colin’s specific situation, I’d say that the shopkeeper should have recognized the limited supply of snow chains. He should have sold them only to those with a real need.
It’s not disgusting Darius. It’s essential to make a shortage of space be used economically. Hotels keeping their prices low has the same effect as rent controls - inefficient use of space in an emergency.
Jew, I agree with you that as Christians, it is not our policy to horde supplies for profit - we are to give liberally. What I would suggest for the Christian storekeeper in an emergency is to raise prices to adequately ration my goods. With the initial profits, the Christian thing would be to use those profits to subsidize those in need.
So take a shortage of water. Raise the price of water to $15 a gallon. Most people can still afford this, and will prioritize their budgets to account for water. For the rare person who still can’t afford this, the shopkeep should “buy the product for them” - and essentially pay the difference in the price.
Chris, I remember this as well. But we have to take out the “profiteering motives” for a moment and look at it rationally. After 9/11, we all were convinced there was a likely gas shortage on the way. Demand goes up in such a situation and the price has to go up to ensure that everyone can still get gas. Gas companies that hedge against possible shortages are only being wise - and are doing us a great service, even if it seems “evil” in the short run.
“Chris, I remember this as well. But we have to take out the “profiteering motives” for a moment and look at it rationally. After 9/11, we all were convinced there was a likely gas shortage on the way. Demand goes up in such a situation and the price has to go up to ensure that everyone can still get gas. Gas companies that hedge against possible shortages are only being wise - and are doing us a great service, even if it seems “evil” in the short run.”
Yeah, I see what you’re saying. But in Oklahoma it wasn’t a case of gas companies forecasting possible shortages, it was individual gas stations and convenience stores that were hiking up prices. It wasn’t widespread gouging. It was just in certain places. Maybe they didn’t have bad motives, but I’m just saying when I think of gouging that’s what comes to mind. Their actions may not have been evil, and I’m not accusing them of that, its just that the idea of price-gouging triggers the memory of that day.
During times of emergency, it can make sense to ration usage of vital resources. This is different from price fixing, in that it also regulates the amount of the product that can be purchased. A supplier seeking to help as many people as possible can restrict supply to ensure that others can get help as well. In this specific case, a charitable tire chain seller might set a “one set per buyer” limit, or ask for assurance that the buyer needs the chain immediately for an important usage. These are all options that should remain possible to a seller who wishes to charitably distribute their goods below market cost.
Market cost of a good DOES increase during an emergency or panic though. If the price does not increase or some kind of rationing takes place, all that will happen is that the product will become unavailable. Gasoline will run out, tire chains will be sold out, hotel rooms will be under utilized (one person per room instead of 4), and goods will be used inefficiently. That said, I do not believe that a seller has a moral obligation to sell their goods efficiently. A seller who would rather sell at a low cost to “preserve good will with ignorant customers”, they have the right to do so. The gas station has the RIGHT to value the “first comer” over the “highest bidder” if they choose to do so.
When demand goes up, you raise prices or run out of supply. The gas stations that raised prices did so assuming that if they didn’t they’d run out of gas. The ones that kept prices the same assumed the panic would not cause them to run out of gas. Any intelligent buyer would have bought gas at the lower price, and not been gouged. Only when less expensive gas was unavailable would an intelligent buyer pay inflated costs. It is not the sellers responsibility to ensure that their buyers are not idiots.
“When demand goes up, you raise prices or run out of supply. The gas stations that raised prices did so assuming that if they didn’t they’d run out of gas. The ones that kept prices the same assumed the panic would not cause them to run out of gas. Any intelligent buyer would have bought gas at the lower price, and not been gouged. Only when less expensive gas was unavailable would an intelligent buyer pay inflated costs. It is not the sellers responsibility to ensure that their buyers are not idiots.”
I agree.
“So take a shortage of water. Raise the price of water to $15 a gallon. Most people can still afford this, and will prioritize their budgets to account for water. For the rare person who still can’t afford this, the shopkeep should “buy the product for them” - and essentially pay the difference in the price.”
Exactly, Colin. I agree. That seems like the only reasonable solution to me. If we try to solve the problem through anti-gouging legislation, we just end up with the situation you found yourself in.
Atanamis, I agree with the idea of self-rationing that business could do. I still do not think it is as efficient as straight price level increases. For example, one man braves a blizzard to buy 40 candles on behalf of his neighbors, but the limit is only 4 per person. So while I think business on the ground can make better command-type decisions than a government, I think the market will still deliver the best and fairest distribution.
The problem is, of course, when someone cannot afford an essential service. Even you admitted to such conditions above with your acknowledgment that sometimes a charitable store owner should buy the product FOR the needy person without ability to purchase it. The market does not maximize efficiency, a fully knowledgeable command economy maximizes efficiency. It is because all the data CANNOT be obtained in the general case that a market based system wins over a command economy for large economies. In the case of an emergency, inefficiencies can readily be introduced based on panic (not a rational recognition of need) and varied resources.
Example: the rich man can buy water at $5,000 a cup, which the poor man cannot afford. I know that we have barely enough water to keep everyone alive until more water comes, so I will override the panic induced attempt by the rich man to buy all the water to hoard for his own use. In this limited case, it is possible for an individual to know enough about the conditions to effectively run a command economy.
The biggest problems of a command economy have never been theoretical, but that it cannot scale. Finding charitable commanders and enough information to make all interrelated decisions is what makes it inefficient. In an emergency, if enough information is available it can be more efficient to simply command the economy rather than wait for the information to infiltrate the minds of all buyers and then wait again for them to come to rational decisions based on market pressures. By the time my hypothetical rich man learns that more water really was coming, several of the poor men may already have died of thirst. With most of the normal variables removed due to the emergency, a command economy becomes workable. (Though it still requires high information and intelligence to be effective.)
“The gouging I think of was after Hurricane Katrina and a bunch of hotels doubled their prices for the people who were without homes… Disgusting, but I’m not sure what (if anything) government should do about it.”
I’m sure I must be missing something. Those who were fleeing the storm were charged double what other customers were charged??
Sorry, I phrased this wrong. Hotels increased their prices for everyone (to my knowledge), which was disgusting, because everyone down there needed a place to stay. There was no “I could use a room but it’s not essential.” Almost everyone was homeless. Bumping up prices a LITTLE might have been ok, but as I recall, room prices were much higher.
Darius, prices must reflect demand - if they don’t there are shortages. The high premium on hotel rooms would cause people to use that space more wisely in an emergency - sharing rooms, and people who could brave sleeping in a car/outside etc. would free up rooms for the sick, elderly and otherwise more needful of a room. If the prices remained low, or only a little higher, than anyone who wanted a room would get one, whether they could stay outside, in a car or only needed a small space - they would take a whole room.
Isn’t that what hotels ALWAYS do? Anytime a convention, sporting event, etc comes to town, all of a sudden a hotel room is 3x pricier. Why should it be any different in this case?
The difference is that convention goers aren’t desperate, like Katrina victims were. I see what Colin is getting at, and I’m not calling for government involvement, but I really doubt that the hotels were raising their prices for the good of the people or supply and demand considerations. They just knew that people were willing to pay almost any price, so why not raise them and make more money?
No, of course they weren’t doing it out of good-will. But that is the whole point of the invisible hand and the free-market. That men, who intend only private profit, end up serving the public interest.
Usually, not always. I still don’t know that, in the Katrina example, they were serving the public interest. Perhaps if they were doing that in Houston, where people who weren’t homeless were also looking for a room. But for those near New Orleans, there were no “housing is optional” people. But maybe the hotels I heard about were the ones outside of Louisiana, which wouldn’t be so bad.
Yes, always. The profit motive is always going to lead to greater overall benefit than otherwise.