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December 27, 2004

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» Disastrous Price Controls from Muni Lawyer
Don Boudreaux, over at Cafe Hayak, has been explaining supply/demand issues as they relate to disaster relief. In response to a claim that merchants are "just being greedy" Boudreaux explains that, even granting that the price hike motivation is "gre... [Read More]

Comments

Don Boudreaux

The motivation of those who jack up prices in the aftermath of natural disasters is irrelevant. I quite agree that such actions are self-interested, and I don't object to describing them as "greedy."

Regardless of motivation, higher prices serve a useful purpose. Without them, some other means must be resorted to for allocating now-scarcer goods and services among the now-greater demands for these goods and services.

The empirical question is: are these other means more likely than higher prices, or less likely than higher prices, to allocate resources to where they are most needed?

Perhaps I'm mistaken in my conclusion that higher prices (for all of their drawbacks) are the best available means of allocating scarce resources to their most-valued uses -- and, simultaneously, the most reliable means of calling forth additional supplies. At bottom, my conclusion is an empirical one that might be wrong.

But if it's wrong, it's not wrong because of the "greed" that motivates suppliers to raise prices. And if it's right, the motivation of the suppliers who raise prices is irrelevant.


This is one of those round and round questions that never has an actual solution. I get what you're saying but I think we can both agree that those who have more money aren't always the ones who should be the ones who benefit.

jomama

When I really need something, I mean need it
bad and there's only one guy supplying it at
an outrageous price, I certainly wouldn't
question his greed.

That's cool and all as long as you have the money to spare. No matter how much you may need something, it doesn't mean you have the means to attain it.

Russell Nelson

Prices are information. Anti-gouging laws are censorship.

Free Ranger

Two fallacies in the pro-gouging camp:

1. Anti-price gouging laws will lower the supply of needed resources in disaster areas.

This assumes that there are not enough generous people out there. Well, if that is correct, then the liberals are right in relying on the hand of gov't (instead of the invisible hand of the market) to make those goods available by using the tax base. Also, Anti-price gouging laws do not say prices can't rise, only that they cannot rise unconscionably.

2. There aren't enough needed goods to go around so the market is the most reliable and effective way to determine who will receive them.

That's entirely speculative. Would it not make more sense to voluntarily keep the price as low as possible after disasters (especially in areas without insurance) just in case there turns out to be enough supply?

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