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talkpoliticsI suppose it’s appropriate that we get this truly scary, fanged, and drooling glimpse of the face of modern capitalism on October 31st. CNBC Senior Editor John Carney has decided to weigh in on the subject of price gouging during a disaster.
What’s striking is the bland cluelessness, a level of naivete that, feigned or not, borders on the murderous. After pointing out that, once a few of these layabouts experience having to pay, say, $100 for a case of bottled water, they’ll have received a salutary lesson in being prepared for disaster, Carney observes:
Right. The poor never have to do without “necessary goods and services” in normal times, so they certainly won’t have to do without them during disasters like floods and hurricanes! For the most part, anyway. And if a few poor people are unlucky enough not to be part of that “most,” seeing a few bodies of neighbors who’ve died from hypothermia or thirst will teach the rest of those lazy beggars a lesson about the dangers of overconsumption!
Carney apparently believes the plight of many people during a disaster is about dickering over prices rather than access to resources that could save lives. “This is a problem better resolved,” he declares, “through transfer payments to alleviate the household budgetary effects of the prices after the fact, rather than trying to control the price in the first place.”
Of course, this is only going to help those people who managed to survive in a "marketplace" where the prices of goods are jacked up to the point where they end up having to choose what live-saving goods to purchase. Potable water? Uncontaminated food? Dry warm blankets? Hey, if you can't afford all of them that's just now how the marketplace works, buddy, and if you or a member of your family ends up not making it because you chose wrong, those are the Randian breaks.
Surely the transfer payment you get later will compensate for having to watch them die.
But wait! There's more! Carney has followed this post up with another mentioning merchants giving away perishable goods, in which he asks:
Is this man from another planet?
*
What’s striking is the bland cluelessness, a level of naivete that, feigned or not, borders on the murderous. After pointing out that, once a few of these layabouts experience having to pay, say, $100 for a case of bottled water, they’ll have received a salutary lesson in being prepared for disaster, Carney observes:
One objection is that a system of free-floating, legal gouging would allow the wealthy to buy everything and leave the poor out altogether. But this concern is overrated. For the most part, price hikes during disasters do not actually put necessary goods and services out of reach of even the poorest people. They just put the budgets of the poor under additional strain.
Right. The poor never have to do without “necessary goods and services” in normal times, so they certainly won’t have to do without them during disasters like floods and hurricanes! For the most part, anyway. And if a few poor people are unlucky enough not to be part of that “most,” seeing a few bodies of neighbors who’ve died from hypothermia or thirst will teach the rest of those lazy beggars a lesson about the dangers of overconsumption!
Carney apparently believes the plight of many people during a disaster is about dickering over prices rather than access to resources that could save lives. “This is a problem better resolved,” he declares, “through transfer payments to alleviate the household budgetary effects of the prices after the fact, rather than trying to control the price in the first place.”
Of course, this is only going to help those people who managed to survive in a "marketplace" where the prices of goods are jacked up to the point where they end up having to choose what live-saving goods to purchase. Potable water? Uncontaminated food? Dry warm blankets? Hey, if you can't afford all of them that's just now how the marketplace works, buddy, and if you or a member of your family ends up not making it because you chose wrong, those are the Randian breaks.
Surely the transfer payment you get later will compensate for having to watch them die.
But wait! There's more! Carney has followed this post up with another mentioning merchants giving away perishable goods, in which he asks:
Clearly, people could pay market prices for the perishing goods. Does the fact that they aren't mean consumers are gouging merchants? Should this be illegal?
Is this man from another planet?
*
(no subject)
Date: 2/11/12 00:11 (UTC)They can raise prices only because the supply chain is broken. If their competitors could easily restock their bottled water, bodegas would be bidding each other down to the original prices.
They only have a limited quantity of water, with no real way to determine who needs the water most. Unencumbered bidding guarantees that the people who need it most get it. Unequal access to wealth certainly inhibits this, but the debit cards or vouchers given by FEMA or the Red Cross can help mitigate this effect.
I mentioned it elsewhere, but take a long gas line where there is only enough gas to fill 25% of the tanks available. You need to somehow eliminate 75% of your current customers in a way that the 25% remaining are those with the most need. It's hard to come up with some questionnaire that would identify those folks, while price gives a clear method.
That doesn't mean it has to be unequal. Let's go crazy and give everyone 5000 dollars, and raise the price of gas so that a tank of gas costs 5000 dollars (we are assuming people only need gas in this economy. We're robots or something.) So that it's revenue neutral, let's recoup costs by imposing a 100% tax on any revenue that in November that is above the amount earned in October. Nobody is made worse off from the increase in price levels. Even the entrepreneurs don't get a windfall from the hurricane. But it would drastically reduce the demand for gasoline because people could decide to hold on to that money and spend it on something else.
Even though we've rigged the market so everybody can afford to buy gasoline at outrageous prices, by raising prices you still reduce demand to ensure that our decreased shortage is going to people who need it most.
If you have access to JSTOR, see if you can't find Ronald Coase's essays on the "Origins of the Firm". (Not his paper "Theory of the Firm") In it he talks about his transformation from a socialist to an ardent supporter of the price system. I haven't been able to find an ungated copy, but it's a great read on how central the price mechanism is to making an economy function well, and also about reconciling liberal beliefs with his understanding of what is a well-functioning economy.
(no subject)
Date: 2/11/12 00:52 (UTC)But it would drastically reduce the demand for gasoline because people could decide to hold on to that money and spend it on something else.
I guess my biggest issue is that I thought humans were premised on a need for gasoline, are they not? How can I spend on anything other than it? If I can't, how does the injection of funds lead to a lowering of demand and real prices? I suppose you could say that humans aren't solely predicated on say just water and instead have variety of substitutes, but hypothetically it's still hanging me up.
The Coase essay sounds right up my alley, though I'm more of autonomist than a socialist, but I'm having trouble locating it on JSTOR. I'm pulling up a bunch of his work but none titled "Origins of the Firm." Do you have a direct link?
(no subject)
Date: 2/11/12 01:23 (UTC)It's particularly fascinating because it talks about how devastating the fall of the USSR was to socialist economic thinking. We take the leftward jump after the Great Depression for granted, but I don't think we acknowledge how comparable an effect the USSR had in tilting people rightward. A bit in economic knowledge, but also very real in just that gut reaction of whether government hurts or helps a populace.
Also, it's quite the same the EITC. Both manage to maintain the price structure of the free market while also targeting the needy to mitigate harm. There's also some decent critiques of the critiques of Carter's failed revenue neutral gasoline tax. (High taxes coupled by a credit to all taxpayers. Windfall to non-drivers, as you'd want, while also giving everybody the financial means to participate in the market. At the time, most wonks didn't quite get the substitution effect, and thought that it would have no affect on quantity demanded.
I mean, 100% of the current customers probably do want a tank of gas. But when supply is constricted, that means that some people have to do without. Even if it's really really really important. I mean, I don't care how much oil is in Saudi Arabia or in Alaska, that doesn't do anyone in Jersey good now. So the whole idea of "we're a really rich nation/world" doesn't matter. So pricing is one method to help us determine who gets to be part of the coveted 25%.
There are other allocation methods. But I can't think of any that would improve on pricing. The work of our current Nobel's is particularly telling, because they work on trying to find allocation methods in situations where we refuse to allow pricing. It is probably for the best not to make a new kidney subject to price, but it has also taken decades between us finding out how to transplant organs and how to create a market in which we can equitably get access to the organs we need. And even with these improvements, there are plenty of people who could walk around perfectly fine on one kidney aren't being prodded to save lives and give up that kidney. (my mom is down to one kidney, so it's an issue that I worry about a lot from both sides of "oh god, we need a larger pool of possible kidneys to save lives" and "it's really bad to force the poor into giving up organs to pay for [rent, college, food]")
Price is impressive because it is able to convey a huge amount of information in a very binary and easy to understand number. If it is higher, it is more scarce, it is more valuable. Perhaps it is also riskier (litigation costs get built into the price structure when it comes to potentially dangerous consumer electronics). For any given set of supply and demand circumstances, price can only go up or down which conveys meaning to even the least sophisticated of economic agents. The more complex a market becomes, the harder it becomes for ordinary people to ably participate and advocate for themselves. (Like say, complicated subprime mortgage applications)
(no subject)
Date: 2/11/12 01:28 (UTC)politikitty [at] gmail [.] com
(no subject)
Date: 2/11/12 01:30 (UTC)