Isn't price-gouging usually (and definitely in this context) about someone who bought an item at a standard wholesale price and is reselling it at a markup? That's not about the reward for producing it, that's about the reward for being in the right place at the right time.
You can still try to argue that it's economically reasonable to reward people for being in the right place at the right time (to incentivize people to ship goods around etc.), but that's a very different argument from whether companies are able to fund increases of production.
Price gouging is the supply side artificially raising prices significantly above normal to take advantage of a temporary imbalance in the anxiety vs actual threat being experienced by the demand side.
The day congress declares war on Iran, if you significantly raise fuel prices at your gas station but the wholesale supply hasn't changed, you're generally trying to take advantage of the consumer's fear.
We're for some reason cool with this in the financial markets, but for tangible consumer goods like food and fuel it's (rightly) considered predatory and criminally anti-social. Unchecked gouging can lead to real and dangerous social destabilization.
While that is in fact the stated reason for the law against price gouging, that rarely happens in the real world
What does end up happening is something (like a outbreak or natural disaster) causes a regional shortage of a good, which is often extended because there is no real incentive to divert goods to fill the shortage.
Today that if often mitigated because of large national companies like CVS, Walmart, Lowes, Home Dept, etc who will move their supplies around based on normal prices
But in some situations Mr. Bill that owns the local store may have an excess supply of Good X, and would be incentivized to move them to an area of shortage if the price was higher. With Price gouging laws he will not bother.
Further Increasing in prices also in some ways allows for people with the greatest NEED for the items to actually get them, and discouraging hoarding.
Actually I took the gas price bit from specific experience and saw enough examples in a quiet Midwest area growing up to expect my experiences weren’t unique.
The other issue is people, like in the article, just buying up a bunch of stuff so that other people literally can only buy from the opportunist. Consider the battle for concert tickets, which the band might sell for $20 but a scalper would buy and try to resell for $100. Yes it’s technically possible, but it’s fine for a society to determine it’s better for everyone if you’re not allowed to take advantage of people’s needs or vulnerabilities like that (when it comes to health supplies, for example).
>>The other issue is people, like in the article, just buying up a bunch of stuff so that other people literally can only buy from the opportunist.
While I am sure there are opportunists as you call them, that is not the primary reason people are buying up the stocks of goods. Most people are not bulk buying with the intent on reselling.
>>Consider the battle for concert tickets, which the band might sell for $20 but a scalper would buy and try to resell for $100.
That is not what is happening right now, and personally i have no issues with scalpers but I am also anti-social and never attend events for which a scalper would be able profit from. The solution to scalping is not price gouging laws, but non-transferable tickets, or individually named tickets. Many events are already doing that because the practice of scalping hurts attendance and the fan base. No government intervention is needed to resolve that issue
>but it’s fine for a society to determine it’s better for everyone
This will be our deviation point in philosophy, I am an individualist, holding the individual rights are in fact more important thank what society determines to be "better"
> it's (rightly) considered predatory and criminally anti-social
It is this attitude that creates these opportunities. If we collectively understood that allow "surge" pricing is the fastest way to respond to a spike in demand and to quickly return to a more normal market equilibrium we would have fewer and shorter situations like this.
I do understand the mathematical thinking you're employing here, and if it were an abstract situation I'd be there with you.
There's a pretty prevalent model for Risk Communication that compares the actual hazard (how bad something will be if it happens) against a person's outrage (how bad a person thinks a thing will be).
When the prevalent authority communicates risk in a way that lowers a person's outrage too low you can get inaction (like a president saying "don't worry" or “I think that whole situation will start working out.")
When the prevalent authority communicates risk in a way that raises a person's outrage (like surprising a population who were told to ignore a situation by then banning travel, closing borders and telling people we don't have testing capacity) you can get very strong reactions.
It's good when outrage matches hazard, that's where we want to be. But when hazard is, say, in the middle, and outrage is raised above that, you can end up with people feeling like they desperately need things.
At this point, they throw whatever money they have to at the things in order to mitigate their perceived hazard, and that's where opportunists and gougers come in. These people aren't acting rationally (they're perceiving a higher hazard than is real) and are vulnerable to ignoring market conditions in that "a free market works when both parties have perfect knowledge" sort of way.
So understanding this, we take actions that kneecap the unrestricted free market, because it doesn't have compassion and we want to be compassionate toward our neighbors that got too freaked out for their own good.
No one should try and take advantage of a vulnerable party, and it's a good thing to have safeguards against that.
Why do you value the idea of preventing people from meeting demand for a good or service? You are advocating for some magical price point that is morally virtuous regardless of the context and dynamic nature of supply and demand. Why? Why do you think that is better than actually incentivising people to satisfy demand by increasing supply or alternatively to signal to those people making irrational decisions that there is a cost to the irationality?
You are choosing to create shortages and encourage irrational purchasing behavior because it is better to "inflict a social cost". I just don't understand that tradeoff.
Arbitrage does nothing to solve any issues in a situation of universal demand. What these people do is not satisfying overall demand. It's taking from one place, and reallocating to another output earmarked for distribution to a particular geographic area. They create problems ascertaining realistic supply and demand.
If you cannot understand why this type of middleman profit-taking centric arbitrage by which no product is created but merely has it's destination altered via people looking to move the supply to the highest bidder, I don't know what to say to you other than you are clearly not thinking with the best interests of those where you're raiding that stock from. There was no shortage until these speculators created it. And no, the production, was fine, or would have been less problematic without their intervention.
Information does not magically propagate. The manufacturer has to receive orders through their customer's acquisition processes; which is triggered through the data that feeds them. In order to have an accurate forecast of what real affordable growth they can manage to fund or pull off goes into their (the supplier's) calculation of backlog time and CapEx to satisfy demand for new equipment or hiring, which influences what they can commit to, which then feeds back intopurchasing decisions by retailers, as well as requiring them to forward the orders to their suppliers, and so on and so forth. None of that gets done lightly or pivots on a dime, rendering disruptive arbitrage transactions as a highly destabilizing occurrence to the supply chain that only ends up being made obvious through careful analysis of data exterior to the in-place logistical chain. Something no directly involved actors tend to specialize at doing, seeing as they are the typical supplier. Furthermore, seeing as these people failed to make arrangements in the sense of properly batching their shipping, the energy cost per delivered goes through the damn roof.
If you want to solve increased demand, you go to the supplier directly, and get in line. You don't arbitrarily make the decision for an entire town that they don't need those supplies their demand facilitated the staging of at the local Dollar Store, and schluff them off elsewhere because you want an effing 3.5 to 7x profit factor. Not when everyone everywhere needs it at the same time. This isn't a case of statistical multiplexing. There is no "well they don't need it as much as we/they do."
When probability is unity, you spread your finite supply of mitigation of new viral spread as far and thin as you can in order to slow the viral propagation as much as possible, and damp it's intensity as low as you can overall; the more "holes" you create by arbitrage buying, the more vulnerable and intense will be the resulting propagation of the disease through the locale.
It isn't my fault these people can't seem to grok higher order consequences well enough to realize they should have left well enough a-damn-lone. Nor is it my fault you seem to think the laws of physics can be bent by throwing enough money around. It's a bloody crisis man. Information and supplies being where they need to be saves lives. Not sticking your %;&_ in everyone else's slice of the bloody logistical pie!
These aren't securities! These aren't "potential value". These are physical lots on which people's lives will be dependent upon. There should be a damn social cost to this destabilizing behavior, because it's like being a damn agitator in an already on the brink confrontation. We cannot afford for everyone to engage in this type of behavior throwing off everyone else's capability to plan and smoothly execute a bloody response which doesn't upset the overall allocation of finite human capital too disruptively.
You want to engage in arbitrage and play "the Free Market cures all ills"? You do that with your own community. Don't go and start ransacking everyone else's supplies, and expect everyone else to clap you on the back and say "Good on you, lad! Making all that profit! Hell, I'll miss Gram/Mom/Dad and I'll have to figure out how to pay Little Johnny's/Jane's/my wife's emergency room bill due to not getting my hands on some sanitizer/masks for them, but I'm pleased as punch you managed to eke so much more profit selling that product that we through our purchasing habits managed to keep stocked at a local business we fund as a support to the logistical needs of our own community. Bloody genius move!"
I'm not the one encouraging irrational behavior. You are, by applying magical thinking to just how all that signalling has to get translated before any meaningful intervention can take place.
I know what these systems look like. I know as much gets done as it is within the capability of the people making up the chain can manage to sift through, and I damn well know how disruptive particularly egregious acts of greed can change the logistical landscape because of the long-cycle nature of the signalling and pattern recognition. Thankfully, we have this wonderful communication network, and mechanisms for modifying human behavior through social pressure and legal processes to be able to short-circuit these malevolent practices before things get too chaotic or too much damage is done!
> You want to engage in arbitrage and play "the Free Market cures all ills"? You do that with your own community
Free market is already solving this problem. I was at my local store today and they were restocking the shelves with TP and paper towels. There was no line.
You seem to have completely missed my point that the price surge should have been happening in the regular stores. By not raising their prices, the stores enable the hoarding, speculation and secondary market nonsense you are blabbering about. By threatening to fine vendors when they raise prices, the government enables these arbitrage schemes. By arguing as vociferously as you are that the market can't solve these problems you also enable these schemes because this attitude changes the nature of the regular market in favor of these ad-hoc markets.
You and many like you seem to think that being in favor of price surges is the same thing as being in favor of the hoarding and speculation. But that is not true. I also am not arguing against sellers choosing to limit quantities, that is their prerogative. I'm arguing against government intervention when the market will address this all on its own. The Mayor of New York City seems to be in your club. He is arguing for the nationalization of industries to solve the shortages (https://townhall.com/tipsheet/bethbaumann/2020/03/14/de-blas...).
> Thankfully, we have this wonderful communication network, and mechanisms for modifying human behavior through social pressure and legal processes to be able to short-circuit these malevolent practices before things get too chaotic or too much damage is done!
> Information does not magically propagate. The manufacturer has to receive orders through their customer's acquisition processes; which is triggered through the data that feeds them.
Which is it? Information does or doesn't propagate quickly?
> I'm not the one encouraging irrational behavior. You are, by applying magical thinking to just how all that signalling has to get translated before any meaningful intervention can take place.
>By not raising their prices, the stores enable the hoarding, speculation and secondary market nonsense you are blabbering about. By threatening to fine vendors when they raise prices, the government enables these arbitrage schemes.
Prices going up does not achieve the goal of enabling universal access to current supply in order to damp the strain on the currently existing medical/distribution infrastructure, which is the primary goal to be achieved in a global pandemic situation. By looking at the problem through a primarily economic lens, the resulting world does not accurately reflect those meddlesome details that economists handwave. Like the fact that there are portions of the population that won't be able to make the tradeoff of paying higher prices for these goods, and still get other necessities. That trade-off, more shock to the medical infrastructure before we have effective mitigation/treatment is not the kind of thing we can just handwave through more money.
Furthermore, it isn't price hiking that is so much an issue as unconscionable price-hiking facilitated by sub-optimal logistics, or outright greed. The end problem is getting supplier output to an area where people in need can get it. Any unnecessary obstacles in that chain for the express purpose of profit-taking are the problem.
>You and many like you seem to think that being in favor is the same thing as being in favor of the hoarding and speculation. But that is not true.
Saying that is is easy, but it doesn't make it true. People interpret the baseline increase of price as being an externally imposed privation. This degenerates to a man v. society response encouraging an every-man-for-themselves attitude which doesn't result in an optimal outcome, and instead encourages the type of half-thought out environment where you'll find desperate secondary market buyers, and secondary market suppliers creating a self-reinforcing disruption created by seeking sources of dwindling supply to reroute everywhere else willy-nilly. The system thrashes, in short. A non-price surge mediated response however aims at enabling access to the resource across the board, and degenerates down to a logistics problem of getting product from here to there and matching replacement rates with consumption rates in lock-step. This approach doesn't inspire fear, but instead relies on wide-scale disciplined thinking, along with the ability to know with reasonable certainty that product earmarked for a particular geographical area is still there.
>I also am not arguing against sellers choosing to limit quantities, that is their prerogative.
We are agreed somewhere!
>I'm arguing against government intervention when the market will address this all on its own. The Mayor of New York City seems to be in your club. He is arguing for the nationalization of industries to solve the shortages.
To be clear, the only "government intervention" I'm advocating for is for the prosecution of those that participate in widespread buying out of supply for arbitrage purposes in order to ensure the primary market with visibility is the primary means of distribution, and to minimize the level of chaos. I in no way endorse transition of manufacturer or distributor, or logistical mover to government control. Hence my advocation of The enactment of voluntary purchase limits by the end distributor. I'm not that hot on nationalization, nor do I believe we're at the point where things are severe enough for the overhead of having to legislate out the details involved in fully specifying the response. I'm just trying to make it clear that right now everyone is in the same boat, and the best way forward is to not let ourselves fall to the temptation to turn a universal crisis into a mint. The entire system can handle it as long as we give it the room to work while at the same time constraining it to work for the end goal of not enriching a few outrageously, but getting things where they need to be.
We may be somewhat talking passed each other for some reason. The only major difference I'm seeing in our approaches after a few re-reads and attempts at trying to coax out an alternate message from what you wrote is I'm coming at it from the grounds of a logistics problem, and you from the economic market side, where mine makes the implicit assumption the work must be done, and yours doesn't seem to account for that axiom in any way, or at least in a way explicit enough for my sensibilities.
>Which is it? Information does or doesn't propagate quickly?
It's both. Social signals such as shame or disapproval travel quickly and can facilitate rapid modification of individual behavior based on consistent responses to undesired behavior. Logistical signalling is not that. It requires existing relationships, confirmation that funding is staged properly, several stages of analysis and propagation through particular human actors who are still burdened with everything else that isn't the crisis as well. These are longer cycle signals that are more rigid, but most importantly, have exhaustive levels of in place infrastructure to increase the visibility of the overall signal; something lacking in secondary markets.
Again, to summarize:
>Not advocating nationalization.
>Am advocating intervention where purchasing for arbitrage purpose disrupts the smooth logistical flow of output (I.e. buying out the next town's supply to sell at a markup online)
>Universal access is the priority until the severity of the crisis is dampened sufficiently by developing herd immunity/vaccines/treatment
>Do not be a dick. If someone else you know is being a duck, make sure they know it; because now isn't the time for it.
>Stable logistical picture facilitates smooth Market based optimization without excessive distortions created by ghost supply flow.
> To be clear, the only "government intervention" I'm advocating for is for the prosecution of those that participate in widespread buying out of supply for arbitrage purposes in order to ensure the primary market with visibility is the primary means of distribution, and to minimize the level of chaos.
The market is penalizing those people long before the government will get around to it. Shelves will soon be stocked again, there are alternatives to pretty much everything that is in short supply, the arbitragers have found themselves with stock that they can't easily get rid of without loosing money as well as finding themselves hated by the public in general. They made poor choices and the market is penalizing them.
The danger of your prosecutorial approach is that it is often applied to the wrong people. The current situation is somewhat unusual in that demand is increasing everywhere but these laws are often applied during localized disaster situations (hurricane, etc.) where it would be helpful for people to take unusual/more-expensive steps to get supply relocated. That involves extra costs and price controls work against those initiatives.
I think the biggest failure here is the media, whose terrible reporting caused people to believe that there would be a shortage of things like TP and also caused people to focus on hand-sanitizer as opposed to plain old soap, for example. The not-quite-panic buying is unwise and ill-conceived.\
Well, from the perspective of the buyer it doesn't matter if you're buying it for 20x the price from CVS or from Joe Schmoe Markup Inc. It matters to CVS, but that's their problem.
For the most part, CVS isn't producing it, they're reselling it. I agree it doesn't matter which reseller is gouging, but it does matter to me whether I'm paying a markup to someone who was clever enough to hoard important goods (and thereby incentivizing hoarding) or whether I'm paying for increased cost of production (and thereby incentivizing production).
Markets are a way of managing information. That's why things like "the stock market went up" or "the stock market went down" matter: it communicates what people believe about whether things are underpriced or overpriced. In turn, those beliefs are only worth paying attention to if participants have some reasonable information about the things they're buying and selling. While my individual purchase of a $50 bottle of hand sanitizer is a small drop in a bucket of information, it is conveying information, and everyone else paying for it absolutely does influence the market. When we communicate that we're willing to pay $50 for a bottle of hand sanitizer even if the cost of production has not gone up, it tells resellers that they should start hoarding. A clever reseller will stop selling their reserves entirely and wait for discovered prices to max out. That does matter quite a bit to me as a buyer!
No, it matters to the buyer, and everyone else, because that one transaction doesn't exist in a vacuum.
If the buyer is giving the factory an extra 19x the price, the factory is incentivized to produce more, the buyer is substantially more likely to be able to buy more then next time they want to. Averaged over society the buyer is much more likely to be able to buy whatever they need the next time they need to buy anything.
If it's Joe Schmoe Markup Inc getting the extra 19x the price, there is no benefit to society or the buyer. Joe Schmoe is just an asshole profiting off of making other people worse off. That should be criminal.
You can still try to argue that it's economically reasonable to reward people for being in the right place at the right time (to incentivize people to ship goods around etc.), but that's a very different argument from whether companies are able to fund increases of production.