Gah. Here we go again with the outrage over "price gouging." I blogged about this in the aftermath of Hurricane Dennis but economic ignorance is damn near impossible to cure. Georgia governor Sonny Perdue signed an executive order Wednesday authorizing state sanctions against gas retailers who "gouge" customers. Two excellent articles explaining the reasons prices tend to spike in times of crisis, and why price controls and sanctions for "gouging" are such horrible ideas, can be found here and here.
It's understandable why most people feel disgusted when prices spike in desperate times: it's immoral for people to profit from others' suffering and misfortune by charging exorbitant markups on staple items. But understand this: prices signal to market actors the relationship between supply and demand. This is immutable economic law and no less true in times of crisis than under ordinary circumstances. There are legitimate reasons beyond "profiteering" or "gouging" for why prices increase, and politicians would do well to just let the situation run its course.
The economic science is covered in the articles cited above but the shorthand is this: rising prices encourage wise consumption patterns. People tend to buy less when prices are high, leaving more gas (or water or whatever) for others. Higher prices are also an incentive for entrepreneurs (or others who have saved) to deliver goods to market when scarcity prevails.
There is a moral issue beyond the economic realities: what is "moral" about the government limiting consumer choices? Sonny Perdue's grandstanding will only harm Georgia consumers in the long run. It's hard to believe that gas retailers are "gouging" consumers when people lose their minds and willingly pay high prices. Caveat emptor and all. Just yesterday at work, several people literally ran out of the building to go fill up their tanks. By falling for rumors about dry pumps and skyrocketing gas prices, people helped to ensure that these dire predictions came true. The smart thing to do was stick with normal fueling habits, maybe conserve a little, and just wait it out.
Personally, I don't understand what's "moral" about punishing voluntary exchange. Ask yourself which is worse: having to pay $4.00+ per gallon for gas, or not being able to buy any at all? This is no false choice: Perdue's punitive measures will reward poor consumption habits and cause shortages in the future. This is political opportunism masquerading as consumer protection. And that's way more immoral to me than so-called gouging.
It's understandable why most people feel disgusted when prices spike in desperate times: it's immoral for people to profit from others' suffering and misfortune by charging exorbitant markups on staple items. But understand this: prices signal to market actors the relationship between supply and demand. This is immutable economic law and no less true in times of crisis than under ordinary circumstances. There are legitimate reasons beyond "profiteering" or "gouging" for why prices increase, and politicians would do well to just let the situation run its course.
The economic science is covered in the articles cited above but the shorthand is this: rising prices encourage wise consumption patterns. People tend to buy less when prices are high, leaving more gas (or water or whatever) for others. Higher prices are also an incentive for entrepreneurs (or others who have saved) to deliver goods to market when scarcity prevails.
There is a moral issue beyond the economic realities: what is "moral" about the government limiting consumer choices? Sonny Perdue's grandstanding will only harm Georgia consumers in the long run. It's hard to believe that gas retailers are "gouging" consumers when people lose their minds and willingly pay high prices. Caveat emptor and all. Just yesterday at work, several people literally ran out of the building to go fill up their tanks. By falling for rumors about dry pumps and skyrocketing gas prices, people helped to ensure that these dire predictions came true. The smart thing to do was stick with normal fueling habits, maybe conserve a little, and just wait it out.
Personally, I don't understand what's "moral" about punishing voluntary exchange. Ask yourself which is worse: having to pay $4.00+ per gallon for gas, or not being able to buy any at all? This is no false choice: Perdue's punitive measures will reward poor consumption habits and cause shortages in the future. This is political opportunism masquerading as consumer protection. And that's way more immoral to me than so-called gouging.
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