Comments due by Sept 30, 2017
Neoliberal/conservative economists are at it again. They want you to believe that price gouging is good for you. Why does market fundamentalism insist on demonstrating all the time that economists know the price of everything but the value of nothing. Yes high prices for bread will increase availability for the rich but will force the poor to go hungry. Will we ever learn that fairness and equality are two basic criteria upon which a prosperous society rests? I doubt it.
When a devastating hurricane like Irma or Harvey arrives, stories about price gouging inevitably spread quickly. Last week, a one-way coach flight from Miami to Phoenix jumped in price from $547.50 to $3,258.50, prompting immediate outrage. In Houston, a picture of a case of water being sold for $42.96 at Best Buy did the same. (Best Buy apologized and said it was a “big mistake” by a few employees.)
Over all, more than 8,000 complaints of price gouging on items like gas, food and ice were lodged with the Florida attorney general’s office through the weekend.
On its face, the very idea of price gouging, especially during a natural disaster, feels outrageous. Indeed, 34 states have anti-gouging laws meant to protect consumers.
However, in a small slice of the world of economists and businesses, there is a fascinating debate about the topic — with many arguing that price gouging is actually a good thing.
Yes, you heard that correctly.
This is surely heartless, and may offend our sense of decency. But several respected economists from the Milton Friedman school of free-market theory take it seriously. They contend that anti-gouging measures, by effectively enacting price controls during emergencies, remove the incentive for consumers to conserve essential supplies. They also say that the incentive for suppliers to bring goods to dangerous areas — or keep extra stock on-hand before disasters — becomes distorted in ways that hurt people.
“Price caps discourage extraordinary supply efforts that would help bring goods in high demand into the affected area,” Michael Giberson, an instructor with the Center for Energy Commerce in the Rawls College of Business at Texas Tech University, wrote in an opinion piece from several years ago that was widely circulated around parts of Wall Street this weekend. Meanwhile, he suggested, “You discourage conservation of needed goods at exactly the time they are in high demand.”
He added, “In a classic case of unintended consequences, the law harms the very people whom lawmakers intend to help.”
Consider this scenario, as described by Matt Zwolinski, the director of the Center for Ethics, Economics, and Public Policy at the University of San Diego: If a hotel that normally charges $50 per room were allowed to double the price to $100 a night during an emergency, “a family that might have chosen to rent separate rooms for parents and children at $50 per night will be more likely to rent only one room at the higher price, and a family whose home was damaged but in livable condition might choose to tough it out if the cost of a hotel room is $100 rather than $50.”
The result, he contended in a paper titled “The Ethics of Price Gouging,” is that allowing higher prices “increases the available supply — as a result of consumers’ economizing behavior, more hotel rooms are available to individuals and families who need them most.”
Of course, these arguments may make sense in the most theoretical context, but when it comes to trying to protect the poorest among us, who can’t afford the most basic of goods, they seem like an inhumane affront to our sensibilities.
Still, Tyler Cowen, an economics professor at George Mason University, believes that something even more insidious can happen during national emergencies: a sort of black market, made worse by anti-gouging laws and businesses that fear a viral outcry if they increase prices.
“If the store doesn’t raise prices, attentive customers may buy up the whole stock, resell it during the emergency and price gouge themselves,” he wrote last week. “Or store employees may funnel the scarce goods to their friends and relatives. Don’t think the alternative to corporate price gouging is necessarily a fairer outcome, but that subtle point doesn’t always translate well to social media.”
That may or not be true. But the fact remains that there is a gaping hole in the price-gouging-is-good argument: how to make resources “available to poor individuals and families, many of whom may barely be able to afford normal prices,” said Joe Carter, a senior editor at the Acton Institute, a right-wing think tank.
One idea that has gained currency in this camp would be to create surge-pricing vouchers backed by the government.
“Prior to a natural disaster,” Mr. Carter wrote in a blog post last week, “individuals and families could apply to receive government-provided vouchers that would cover the cost difference between the normal price and the emergency surge price for a specific basket of essential goods and services.”
Businesses would be reimbursed the difference in price by the government by submitting the voucher.
That might seem like a sensible idea at first blush, but it gets complicated quickly: Will the poor and elderly really go through the hurdles of getting vouchers in advance of a storm? That’s hard to believe. More ominously, there could emerge a black market for the vouchers.
Maybe there’s something to be learned in this thought experiment, but national emergencies are the ultimate distortion in daily economic activity and, as appealing as the free-market may be in certain circumstances, it will likely make economic distortions during a disaster worse, not better.
Sorkin, NYT 9/12/2017
YANG Peidong
ReplyDeleteFrom this blog context, I have learnt that one of the negative influence of natural disasters is the consequential economic distortion due to the price gouging for certain products in the market. In the view of this phenomenon, it is obvious that environmental events definitely has an intimate relation with the economic stability and progress. For example, when the devastating hurricane Harvey arrives, rumors of price gouging spread quickly and widely. The products whose prices jumped up involve basic commodities, such as gas, water, and food. Higher prices of these rigid demands undoubtedly do harm to those people with moderate or low income who may even have problem of meeting these demands with normal prices, disturbing the stability of economy and society.
However, some economists believe that the price gouging is good because it stimulates people to purchase and merchants to bring commodities to areas striken by natural calamities, being in urgent need of food, clean water, and cloth. Therefore, they argue that it is unreasonable for government to set price caps, which will damage the natural economic activities and promote the prosperity of black markets. From my perspective, such argument is only viable in the theoretical context, but the real social management is far more complicated. Accumulating large sum of wealth by taking advantage of others’ adversities seems to be immoral and the outrageously high prices of common commodities definitely will enrage the poor and cause chaos, which is one of the most unpleasant thing that the government expect to see.
Daniella Antolino
DeleteFrom this blog, one thing I learned is there is no positives to natural disasters. When people hear of a natural disaster they are in panic mode for the basic goods you need to survive or get by such as water, food, and gas. When natural disasters hit so does the economic economy. Business' raise prices of those items because the demand is so high. Although, some economist think price gouging is great others think it is inhumane. Business' that raise their 24 pack of water to 43 dollars harm those families with moderate or low income. Families that are struggling with regular prices will only struggle more during these terrible storms. If hotels raise their rate 50% families that may have gone before will stay home or not give them the business. If they keep their prices relatively normal at the same rates they will still fully use their resources and sell out of rooms.
Some economists think price gouging is actually a good thing. They believe if they keep prices the same attentive consumers will just buy the goods in bulk and price gouge themselves. Or employees will funnel goods to family members which will hurt their business.
One Economist believes that people that can't afford the price gouging price they can apply for vouches to get money from the government. The government will pay the difference. This sounds like a good idea but how many poor families and elderly people are going to go out of their way to do these forms before disasters. I believe price gouging is inhumane. From this a lot of families struggle and its taking their basic needs to survive almost impossible for them to buy. I think if business's want to raise their prices during natural disasters do it at a sensible price.
DeShawn McLeod
ReplyDeleteAfter reading this article, it seems there are more externalities we do not consider when thinking about capitalism. Capitalism exploits human vulnerability/insecurity to make a profit. Capitalism in an area where there is natural disaster (based on this article) exploits people in terrible, life threatening situations. The price elasticity for goods of necessity becomes quite inelastic and stores know that they can charge outrageous prices to people in dire situations – they need it, so they will buy it anyway.
Understandably, areas that have been affected by natural disaster, merchants are looking for a bigger payday. The risk they take having the goods there, the high demand for a quantity of a good that was not meant to be sold as fast, and the risk of staying open are understandable in the point of view of the merchant. Unfortunately, in order for the public to get what they need, the supplier (and politicians) need to have a kinder heart without the bottom line in mind. Human fallibility comes out in times of need – when everyone is thinking about themselves and their best interest.
I wonder what the national solution to this problem will be? The U.S. is not exempt from natural disaster, it just does not happen as often like in other territories. Politics, economics, capitalism, and other theories including the allocation of money affect people’s lives, how can we look at this objectively and come up with a solution?
This comment has been removed by the author.
ReplyDeleteOlivia Gonzalez
ReplyDeletePrior to reading this article, I had viewed price gouging as something that is always bad. Raising prices steeply before and during a natural disaster seems inhumane. This article exposed me to the other prospective and encouraged me to think. Unfortunately, we live in a society that capitalizes on vulnerability of the population, especially of the underprivileged. I think the point about the fact that if businesses do not raise prices on their own, people may consider buying up stock and reselling at higher prices on their own was shockingly true. In a society that inherently capitalizes on the weakest parts of the culture, a solution only exists in an alternate "perfect" universe. Until then, the government must try out different solutions, such as the voucher solution, to try to correct some of society's wrongs without hurting business owners or those directly affected by natural disasters, and hope that some people will act humane in dire situations.
Paola Idrovo
ReplyDeleteI also felt outraged when I heard of the price gouging that was taking place in the wake of hurricanes Irma and Harvey. However, I found Matt Zwolinski’s scenario justifying price gouging to be unconvincing. In his scenario, inflated prices would encourage families to be more conservative in their spending and buy less, thereby creating a surplus of products (in this case hotel rooms) that could then be purchased by other families. I think the problem with this scenario lies in the fact that humans do not behave economically. Other factors contribute to or dictate choices. In the aftermath of a natural disaster, affected individuals may buy more than they need in order to create a reservoir and prepare for the worst. Price gouging may reduce this over-buying as people will not be able to afford as much, but it is likely that those individuals who can afford to will buy in excess of what they truly need. The problem with doing this is the number of individuals who are priced out by the inflated prices increases, disproportionately overburdening the poor who are already experiencing a time of need.
Natural disasters cause society to act in ways that economics do not expect and cannot always predict. Individuals and organizations make donations and volunteer, investments of time and money that do not increase profit, and are therefore, not necessarily the most economic decisions. Is it not reasonable to say that given the nature of these situations and society’s responsibility to provide relief that policies governing natural disasters do not have to be based solely on economics?
Alison Zhabotinskiy
ReplyDeletePrior to reading this article, I have already held a strong stance on price gouging in the case of emergencies and natural disasters, that it is wrong and takes advantage of people. Reading this article, I am now aware of a different stance than my own, and though I do not agree, I understand where those that believe price gouging is good, are coming from. Looking at the points made, from a business and economic perspective, those that are in favor of price gouging are making rational points. From this perspective resources like food, gas, water, and shelter are conserved due to the high pricing, and business can generate more revenue. However, realistically, in emergency situations such as recent disasters like hurricane Harvey and Irma, the earthquake that struck Mexico, and Hurricane Maria, there is absolutely no way that price gouging is rational for the well-being and safety of the public. During times like these people are rushing to leave their homes and their belongings. After disasters like these, there is little to no access to any power which means there is no way that many people can access the funds –cash– that they would need, or enough of it to support themselves and their families, further preventing them from even having the opportunity to afford price inflated goods. If business want to conserve their resources, then a solution would be to put a maximum on how many goods an individual can buy depending on how many people there are in that family. Therefore, individuals are not cleaning out resources, and the business does not have to increase prices. This could also be applied to Matt Zwolinski’s scenario of booking hotel rooms. Rather than increasing the price of a room to prevent families of booking multiple rooms out of comfort, the hotel can enforce a maximum of rooms one can book. This would allow people to have the shelter they NEED to survive, while saving funds, and allowing more people to seek shelter within the hotel. The last point, of creating vouchers does seem reasonable, but is also unlikely and would not be cost effective to wither businesses nor the government. It would only cause more of a financial burden as well as increase of the time needed to handle the situation. With all of the recent disasters, the government is already struggling to provide the funds and aid to those in need and to the effected areas. By creating vouchers and compensating businesses and paying price differences, that is only more time and more work and more money added on top of everything the government can barely handle already. In situations like these, it is imperative, that everyone works together to make sure everyone has enough resources that they NEED to survive, and that everyone in effected areas can remain safe.
Price gouging seems no matter what wrong. The point made about how the stores do it first to make sure there is enough supply first hand is funny to me. the way it is worded in the article comes off to me that the business owners are just trying to scam the people before the people are able to try and do it to them. Yes, if things are going to be in high need some people may plan to buy up some product and resell at a competing price to make themselves money, but when you are about to lose your home or do and need money you are going to try and make a buck where you can. If individuals are competing with stores than they are going to make their price compatible and more accessible for the people who need it. The businesses yes, then lose on some profit but they still have a chain of products and access to more money than probably the majority of people buying the product. To price gouge just sounds wrong and yet another dirty business done by money hungry business officials. If prices are raised than there really only will be more product to hold because the people who need it won't be able to afford it and until the want is so desperate that there's no choice the company loses out on profit anyway. When if they just left the prices alone could have made a sufficient amount of profit. Plus the price tags that are made up are just atrocious. People already cannot afford the prices that are displayed so who is going to be able to take something that is thrown way of of proportion and quadrupled in amount? Nobody. This idea just seems absurd. It sounds like yet another way for big businesses to scam people out of their money and egg on a corrupt system.
ReplyDeleteJaquille Ward
ReplyDeleteWhen I first heard about the incident at the Best Buy store, it left me furious. I find it morally wrong to charge people in desperate need of supplies a large sum of money that many may not be able to afford. After reading this article, I dislike price gouging even more. I understand that price gouging can be great for businesses to capitalize on products because in devastating events, people will pay an outrageous amount of money for the things they're in need of. It is a smart and very selfish strategy that only benefits the producer. On the other hand, consumers suffer and is put into tough predicaments. Even with government-provided vouchers, it doesn't make price gouging that much of a better strategy because going through the whole process of applying for it will be too time consuming and too exclusive for some, if not, many individuals/families. If price gouging is going to be used, then it should not drive prices up to an extreme amount where low-income families can no longer pay for a certain product. In situations of natural disasters, price gouging should be eliminated so that everyone can can get the things they need.
Yunjia Guo
ReplyDeleteI understand that price gouging is logical while seems unethical. Under the situation of post natural disasters, it is a "correct" thing if the prices of certain goods rise if we consider this academically. Since the natrual disaster may affect the electricity and water supply so the demand of water, food, and other essentials will increase, which causes the price to increase. Meanwhile, the supply of these essentials will decrease, which also leads to the increase of the prices. Because we are in a free market in the US, it seems should be some policy or regulation published to prevent this situation. However, after reading this article, I realize it is better not to interfere rather than only follow the supply and demand pattern. According to the post, Tyler Cowen's idea about the black market mentioned if the price does not rise as it should be there will be people trying to get benefit from the situation. I understand and agree with this arguement, and I think this not only happens in the environmental circumstance. Take the cake shop "Lady M" entered Chinese market as an example, as a New York brand cake shop, it is very famous and popular in Asian Markets. When the first Lady M in China opens in Shanghai, there are huge lines of customers waiting. The next thing happen is that some people sees the opportunity starts to get on line early to buy big amount of the cake and sell them outside of the store with much higher prices. I talked about these with my friend saying that the owner of the shop can rise the price to the high price someone sells outside since there are still a huge demand at that price, but my friend criticize it is so not ethical. I feel this is also the situation of pricing gouging.
As an economist student, I am clear understanding that the price of goods and services are decided by the demand and supply in the market. In the case here, the Hurricane cause the supply be destroyed and those people who living in the places need more water and food to survive.I will consider it as market failure. However, it's really unethical behaviors to raise prices under this situation! The natural disasters are not a good reason to make profits, so the government should intervene in the market to control the price of the goods and products needed by consumers. I strongly believe that food and water is not a good product for speculators to make profits since that's related to the people's lives.
ReplyDeleteHowever, as Tyler mentioned, "“If the store doesn’t raise prices, attentive customers may buy up the whole stock, resell it during the emergency and price gouge themselves,” he wrote last week." The resell situation will happen if the store did not raise the price for goods and products. But, I still not consider raising price is an appropriate and ethical way, the stores can prevent the resell situation by checking the ID of residents and limit the quantity for every resident to purchase. The market should have power to decide the prices of goods and products, however, when the market is failure, the government should intervene it.
Jordi Isidor.
ReplyDeleteLiving in a capitalism system as the United States, is very easy to see price gouging even when laws prohibited but there is a economic reasoning behind it as some economist explained on the article. Also for the increase on the price there is also associated a increase on the cost of providing this resources to these affected areas, so making prices increase ilegal affects the consumers in a way that the resources that they need may not be available because it is a loss for firms to supply them.
Another factor of this scenarios is that if prices stay the same and supply these good increase in cost, there will be only a few goods at the time on the market and families will be running out of options. However, if the only issue in getting goods is that they are expensive, but firms do are supplying them, so there is an incentive to families to try to get these good when they need it in cases like hurricane irma. Many of the ways that families can use to try to get goods is buying it with government aid.
After reading this article, I'm baffled that price gauging is considered as a relatively "good" thing. During the most recent hurricanes, it was devastating enough to witness the aftermath and what families lost throughout the entire ordeal. I couldn't imagine needing a necessity and the price is 10x more what It usually would be especially in the wake of something as devastating as a hurricane of that magnitude.
ReplyDeleteThe argument that price regulating on goods creates scarcity is bizarre. If that was the case, all varieties of resources would have begun to deplete many years ago. I know that in natural disasters, it's harder to obtain necessities because of loss and an influx of requests but, that leaves people who relatively cannot afford outrageous prices in the dark. I view this as the same motif that we see in economics consistently "keep the rich rich and the poor poor." With that being said, if there is a poor family needing necessities in a natural disaster, it's most likely that a portion of their income is funded by the government. Doesn't this defeat the purpose of helping the poor if they have to spend more than usual on a necessary good? In the article it stated that a solution to make price gauging okay for the poor would be getting the government involved for a voucher system. Even though it does sound like a quick fix to allow it to happen, there are so many issues that could arise making price gauging a burden for everyone. For example, the government would have to step in more than they already are in poor people's lives. This can create higher taxes and a burden for everyone else. Also, how would everyone who needed assistance get this voucher? It would be hard to give vouchers to every poor person the hurricane affected. There's other issues with the argument of the vouchers but, that's where I will leave it today.
I don't see how anyone would want to benefit from someone else's demise especially from a natural disaster. Even with the dramatic increase in flights. I can understand that the massive influx would increase cost for the airlines because of operating expenses but, I don't understand why companies wouldn't try to help out more when it came to a natural disasters.
Another argument that the article listed was greed. While that could easily be possible, why wouldn't all stores put a certain limit on how many of a certain item that customers could purchase? This would eliminate people saving all of the necessities for themselves and help the items to be more spread out. In addition to that, it could help the second hand price gauging that was discussed in the article as well.
The recent hurricanes haven't been the first of their kind and certainly will not be the last. For the future disasters, I hope that price gauging stops or has certain limitations in order for everyone to have the basic necessities no matter what monetary class they come from.
What is the right thing to do in regards to price gauging? The answer to this question lies within one's definition of "right". The right thing to do is approached many different ways, by many different people. This concept ties into justice and morality, both of which do not hold a sole definition. Price gauging is difficult to agree with when you think about the emotional turmoil experienced by those harmed by a natural disaster. With that being said, I understand the argument for price gauging. If a grocery store does not raise their prices when a hurricane is coming, then people will come in and buy the entire shelf out of fear. Price gauging instills a sense of conservation. And, unless there is a governmental law put into place to stop it, companies will continue to use these tactics. And, if everyone else is reaping the benefits of raising their prices, then why shouldn't you? Prices are set based on demand. For example, the government starts to put out advertisements about the harmful effects cheese can have on your immune system. Demand will drop because people trust the government and do not want to consume something that is bad for them. When demand drops, less products are being sold. The company needs to drive sales up somehow, so they will decrease the price and people will continue to buy cheese again. Consumers dictate the price of goods. This is not always a good thing for businesses. So why shouldn't it be the same for the opposite side? People are worried that they will not have access to food for an extended period of time due to a natural disaster, so they buy food in bulk. This means demand rises and companies raise the price in order to meet that demand. This goes back to the simple supply and demand chart. I am not saying this because I do not have a heart. I am saying this because I feel it is a reality that we cannot change. I think the article made good counter arguments to anti-gauging laws.
ReplyDelete