I'm not sure it's even true though, don't most mainstream economists accept the need for intervention against negative externalities like price gouging? I think a certain segment assumes that every economist is tyler cowen or something.
So, default neoclassical economic theory would hold that preventing price gouging is "inefficient". If prices aren't allowed to rise to their natural level - the mythical intersection of supply and demand - resources will be misallocated.
That's a long way from saying "price gouging [is a] good thing" or that anti-price-gougers should be censored.
And, as biomatter puts it above, neoclassical economics is itself an ideology. Adherents like to put it on a pedestal as if it were an empirical science, so that people who balk at its precepts can be slandered as anti-science. But it's not.
For anyone else coming along, the pro- price gouging argument is as above, that it lets prices reflect actual availability. The immediate consequence, which is rarely included in blogs by free market idealogues, is that the government is then supposed to step in in the form of crisis management. If prices explode for a good and the firm doing it isn't pu ished by market forces, you import goods to compete with them or increase local supply, or you break up their monopoly, and so on. You rarely have detailed, good quality information on supply and demand at the level necessary for this kind of thing until it's too late, but because price gouging makes people a lot of money it's likely that someone will do it very quickly and you'll know about it because consumers will be (reasonably) enraged. "Free" markets are often held to produce better information and faster about this relative supply and demand.
Of course no plan survives contact with the enemy, so if you're a government it might not actually be a good idea to not punish people for price gouging. Doing that is a big bet that you'll be able to step in in time and correct the supply shock. If you're not able to do that, then the whole point of doing it goes down the tubes. The goods will be functionally unavailable either way and it's better to just implement something else- Like rationing.
The scalping argument I'm less clear on and I'm convinced that most people making it are scalpers themselves. It seems to be that it encourages firms to keep more inventory by creating an artificial demand surge as most of them keep very minimal inventory. Maybe this helps respond to real supply shocks. Certainly not the worst argument for e.g. toilet paper or game consoles, where supply is easier to correct. The most common goods for scalpers to target are inherently scarce though- Tickets and that kind of thing. This is annoying for consumers, doesn't give very much information about what prices "should" look like because the scalper is artificially constraining supply (by using bots, risky loans, or stolen credit cards) and often needs to be sort of quiet about their actions because firms don't like it when you scalp their shit. At best this is like saying that having a few parasites circulating encourages the population to get inoculated against parasites. There are many goods where scalping would result in unacceptably constrained supply- For instance, no one in their right mind would allow scalping vaccine appointments.
Not only that but people who buy up products for scalping are just annoying people. They act like entrepreneurs but in that way where they think they're "disruptive" or clever about it. They aren't. If they're gonna take advantage of bad vetting processes in online ordering systems, so should you. Make 40 eBay accounts, offer to buy a few of their stock at a time, give them a meet-up spot that will take them at least an hour to drive to, and then ghost them. Do this for a few different scalpers. Bonus points if you get them to meet each other. You're providing a valuable market service by encouraging them to not assume their customers aren't malicious shitheads trying to scam them. Leave negative reviews on their storefronts. Don't hate the player, hate the game, right?
>For instance, no one in their right mind would allow scalping vaccine appointments.
This is a good comment, although when I first read this sentence I was still thinking about the "parasite" metaphor from a few sentences earlier and I interpreted this as "no one would allow people to get the 'scalping vaccine'" (like, a vaccine that protects against scalping) and I was momentarily very confused.
> You rarely have detailed, good quality information on supply and demand at the level necessary for this kind of thing until it's too late, but because price gouging makes people a lot of money it's likely that someone will do it very quickly and you'll know about it because consumers will be (reasonably) enraged. "Free" markets are often held to produce better information and faster about this relative supply and demand.
This also sounds like something that is more and more untrue in the modern world, with telecommunications and sprawling bureaucracies--at least for necessities (which are usually the things price gouging arguments revolve around). If people are price gouging water, the shortage surely would end up going viral on Twitter *anyway*, right?
That's kinda my point- Price gouging is visible in a way that simple shortages won't necessarily be. Hopefully you'll hear about shortages in time, but it relies on reporting. Whereas with price gouging someone will complain virtually immediately.
As to whether or not any of this is true, I'm unsure and just wanted to figure out the logic going on here. I'd be happy if modern communications made markets more controllable. I'm not sure we're there yet, but things are moving in that direction. Hopefully.
I just looked it up, and it seems like economists are actually split [about halfway](https://www.igmchicago.org/surveys/prices-of-medical-supplies-2/) on price-gouging laws, from a survey of US economists, about the same number support or oppose the laws. So the poster in the OP is just flat out wrong.
I mean this is SSC spinoff subreddit The Motte where I'm pretty sure they mainly follow economists who think Jake Gyllenhaal's character in Nightcrawler is a cool dude
That survey specifically deals with essential medical goods with an inelastic supply. Feels like a different scenario than say scalping concert tickets or raising the price on umbrellas when it's raining
But those scenarios *actually are different*. I am significantly less concerned about how concert tickets are allocated than I am about how PPE and other vital medical supplies are allocated during a pandemic.
The run on toilet paper was more a result of just-in-time supply chains interacting really weirdly with a rearrangement of how people schedule their consumption than any actual shortage. Price gouging might have changed people's behavior so it didn't happen, but I don't know that it's really a big deal that it did.
Yeah we (as in society) should have made industrial large public toilet paper rolls available for normal house usage, because suddenly all the shitting was done on small rolls there was a shortage.
Yes, but don't you care about essential supplies like ice and food during natural disasters that have pretty elastic supply? In most contexts there actually is a case to be made for price gouging goods.
Note I do agree that price gouging isn't useful when supply is inelastic like in your example of medical supplies in the short term.
I mean, the actual best solution for supplies of any kind during a natural disaster is for a competent government to jump in and distribute supplies on a fair basis for free. Price gouging is not a good solution, because the rich can always buy as much as they want while the poor still won't get the supplies because they can't afford it.
You just assumed a lot of things with a 1) competent government with 2) enough funds and 3) enough information about shortages to deal with deficiencies of essentials following a natural disaster. Can we agree that most times these three conditions aren't meant?
The argument in favour of price gouging is that upon hearing the news that ice is selling is selling at meteoric prices in a disaster-stricken area, an influx of enterprising individuals buy ice low and travel to sell high. Eventually prices crash down as supply increases. Note the assumption I made with ice having an elastic supply curve, in some situations this assumption may not be met.
Yes, in the very short term only the rich can afford immediately and locally available essential supplies. But consider the alternative: the government imposes a price ceiling enabling even the poor to be able to afford goods. But a) in the very short term, local supplies go to the well-connected. If a seller has no profit to gain from selling her goods to a higher bidder, she'll just sell it to her friends. Also b) in the long term, prices don't rise, enterprising individuals don't come rushing with in-demand goods to correct the shortage, and everyone - the rich *and* the poor - suffer.
But yes, present a competent government, price gouging won't be necessary. Economics is focussed, though, on developing systems regardless of the people in power.
>Economics is focussed, though, on developing systems regardless of the people in power.
See, here is where you inadvertently smuggle ideology in. A *shitload* of economics is about how best to set government policy and set up government institutions to correct for market failures. You've taken "the government will fail" as a *premise* in your argument here. The economic question here should be "How can the government best ensure the equitable and efficient delivery of supplies in a disaster scenario", and governments across the world have done extremely good jobs at disaster relief.
That's what *actual* economists focus on, but pseudo-intellectual economist writers are more focussed on defending shitty policy that is slightly better than other shitty policy, because counter-intuitive = good.
Yes, a lot of governments have done a good job at disaster relief, but prolonged shortages of essentials in areas that have undergone natural calamities should tell you how rare these governments are. Absent a proper disaster relief plan, the *least* a government can do is not ban price gouging, which is all my point is.
Note that even in my previous comment I said that price gouging isn't necessarily effective when competent governance exists, but it doesn't do harm either - price gougers can no longer demand exorbitant prices when government relief programs provide essentials cheaply. So a case for banning price gouging (by introducing price ceilings and controlling black marketing) doesn't really exist.
EDIT: I reread your comment where you argue that "price gouging is not a good solution" because the rich get the essentials they want and the poor don't. After reading my response that in the long term shortages are corrected due to price signals, and in the short term essentials find their way to the well-connected, do you agree that your argument is wrong?
I accept that you can come up with scenarios where price-gouging is better than doing nothing. That doesn't make it a good solution, that makes it a better than nothing solution. The good solution is competent government, which is easy to find outside libertarian hellholes.
So I thought we had already agreed that for inelastic goods, price gouging is bad. If there's a limited supply of face-masks, price gouging has no benefit, it just preferentially distributes supplies to the rich. This is enough to justify anti-gouging laws, in my opinion.
And if the good is elastic and in plentiful supply, then won't the price be quickly brought down to market value again anyway as supply meets demand?
1) Yeah, for inelastic goods price gouging is bad (except in very specific scenarios like the supply of face masks in early 2020; high prices were *sort of* justified then as it ensured only hospitals which really needed face masks for dealing with COVID patients got them and not laypeople who could've done without them). But an important side-note: *only* in scenarios involving inelastic supply are anti-gouging laws justified, and even then they should be used with caution. This doesn't mean anti-gouging laws are justified in general.
2) Yes, the price will be brought down as supplies roll in *if price gouging is allowed*. That is exactly my point.
3) "Competent government is easy to find outside libertarian hellholes"... and countries that are 1) poor or 2) have weak democracies, like my country India and its next-door neighbours. So in poor countries price gouging is well-nigh vital following a natural disaster because history is replete with examples of govt relief failures.
But during a disaster situation, a lot of goods will become much less elastic (because roads are blocked, etc). So it's a matter of assessing whether the harm caused by gouging goods with limited supplies is outweighed by the good of bringing in extra supply, which seems to be an empirical matter that can't be solved just by stating econ101 simplifications.
I believe anti-gouging laws are appropriate in some cases and not others, depending on the context. Also I think [this article](https://www.currentaffairs.org/2016/10/incentives-and-price-gouging) does the best job at putting forth my opinion here.
The article makes your stand much clearer to me, although it sounds even less convincing now.
For one, the author makes an unstated assumption that willingness to wait in lines is a better indicator of need than willingness to cough up money. This seems plausible: the rich bloke can afford to buy an expensive water bottle but the poor guy can't. The argument goes, in a first-come-first-served system, only those who really need the water bottle will stand first in line.
Yet willingness to wait is as poor an indicator of need as willingness to pay. The rich guy can take a day off work to stand in line because they can bank on their savings or negotiate with their employer. For a poor guy, the wage losses from skipping a few work-hours represent much more crucial losses: food for their starving family, heating oil, et cetera. It's as heartless as demanding they pay sky-high prices for an essential good, because you are asking them to *pay with their time*.
Also, this paragraph struck me as ridiculous:
*"[If price gouging is allowed] we might expect supply to keep flowing in, as people in trucks bring water to the disaster area to make a killing, until water prices go down to their ordinary levels. But it could also be that, long before prices get down to the point where poor people can afford them, entrepreneur profiteers stop rushing in with replacements. The original water sells for $500. Then a bunch of guys come in trucks. They increase supply, so the cost goes down to $300. I (and my thirsty child) still can’t afford it, because I have $40. Then another wave of trucks comes. The price goes down to $200. I still can’t afford it. The next day, business as usual is fully restored and prices fall back to $2. But by that time, my child is dead."*
Two things to note here:
1) Sure, the author can't afford the bottle when the price is $300, but the $200 price drop just made the good far more affordable to a large section of the society. Even on the day the price crashes to $2, a lot of people will still benefit even if some people won't.
2) What is the counterfactual in a world with no price gouging? Prices don't *ever* come down. Isn't that bad for the author, who can ultimately afford the $2 bottle for himself but will never be able to pay $500?
It is worth noting that these two points address the scenario where supply is slightly inelastic - your broken roads example. Of course, we could pull a competent govt out of our magician's hat about now, but let's give some thought to poor people in libertarian hellholes and the global south.
BTW, I appreciate how civil our discussion has been so far. Thank you for a fruitful conversation, and I really mean to hear your response.
> Yet willingness to wait is as poor an indicator of need as willingness to pay. The rich guy can take a day off work to stand in line because they can bank on their savings or negotiate with their employer. For a poor guy, the wage losses from skipping a few work-hours represent much more crucial losses: food for their starving family, heating oil, et cetera. It's as heartless as demanding they pay sky-high prices for an essential good, because you are asking them to *pay with their time*.
I've heard this argument before, and it doesn't hold up at all. People are poor precisely *because* they are getting paid shit-all for their time. If a price of an essential good is jacked up to 200 dollars and someone makes 7 bucks an hour, they are already giving up 28 hours of time by proxy to pay for it. Giving up a whole day of work to stand in line for a 50 buck ungouged good is still a better deal.
> Sure, the author can't afford the bottle when the price is $300, but the $200 price drop just made the good far more affordable to a large section of the society. Even on the day the price crashes to $2, a lot of people will still benefit even if some people won't
But if there was no price gouging, the cost would *already* be below 300 dollars, it would be at the pre-disaster levels. Allowing it to that level is a social cost that results in real damage to people. I don't think it's worth it to have a slightly increased supply if said supply is prohibitively expensive to the majority of people.
> What is the counterfactual in a world with no price gouging? Prices don't *ever* come down.
There are many places where price-gouging is illegal, and yet after a disaster essential supplies do not stay permanently unavailable/expensive! As long as you make a profit from selling the ungouged water, there's still an incentive to amp up supply to meet the elevated demand, because selling a shitload of profitable things gets you money.
>Yet willingness to wait is as poor an indicator of need as willingness to pay. The rich guy can take a day off work to stand in line because they can bank on their savings or negotiate with their employer. For a poor guy, the wage losses from skipping a few work-hours represent much more crucial losses: food for their starving family, heating oil, et cetera. It's as heartless as demanding they pay sky-high prices for an essential good, because you are asking them to pay with their time.
In a real emergency , it's likely that neither have a job. More importantly, saying that the poor guy can't signal their needs by queuing doesnt grant the ability to do so by paying.
>the long term shortages are corrected due to price signals
In the long term , some of us will be dead. If you are talking a real emergency, and really vital goods, waiting for market adjustments will lead to people dying in a way that the alternatives, charity and rationing, won't.
Unlearning Economics generally at best promotes half-truths about the current state of both the mainstream and heterodox trends in contemporary and historical economics, and at worst uncritically repeats tabloid level bullshit
More specifically this video is just youtubers youtubing, I couldn’t get past the first two minutes without rolling my eyes: get to the point and back it up goddamnit
It’s unfortunate because I actually wrote my MSc dissertation on exactly this topic, and agree in the broadest sense with the case being made, but this is not the way to make it
poor guy. he thinks if he just licks harder another spot on peter
thiel’s boot is going to open up. you have to do more than that to get
yud off it pal
[deleted]
This is your brain on supply demand economics.
Alternatively: Marcus Licinius Crassus did nothing wrong.
poor guy. he thinks if he just licks harder another spot on peter thiel’s boot is going to open up. you have to do more than that to get yud off it pal
I didn’t say that anyone should be censored.