In defence of price gouging

In the wake of Hurricane Sandy there is concern that people may be price gouging. Gov. Chris Christie has said he will come down hard on culprits caught price gouging.

During emergencies, New Jerseyans should look out for each other — not seek to take advantage of each other. The State Division of Consumer Affairs will look closely at any and all complaints about alleged price gouging. Anyone found to have violated the law will face significant penalties.

Mark J. Perry, though, schools the governor on market dynamics:

With that statement, the New Jersey governor demonstrated a fundamental lack of understanding about how markets actually work.  Sellers always try to take advantage of consumers, in the sense that they always charge “whatever the market will bear,” and this condition of a well-functioning market doesn’t change because of a natural disaster.

Just like earthquakes, hurricanes, or floods don’t change the fundamental physical laws of gravity or aerodynamics, those natural disasters also don’t change the basic laws of supply and demand.  If sellers of electric generators in New Jersey are guilty of illegal “price gouging” for charging market prices after a major disruption to the market like Hurricane Sandy, then sellers of all products at all times are guilty of “price gouging.” Sellers always charge “whatever the market will bear,” and in that sense are always trying to “gouge” and “take advantage of” buyers to the maximum extent possible.  To act any differently would be foolish and even disruptive to our economic system based on market prices.

I’m very confident that the last time Governor Christie personally sold one of his own homes, shares of stock, or cars, he sold his possessions for the highest price possible and not a penny cheaper, and in the process he did his very best as a seller to “take advantage” of the buyer.  That’s how markets function.

Rising, market-based prices following a disaster are the most effective method possible of allocating scarce resources, eliminating shortages, and attracting essential supplies to the areas that need them the most.  In fact, market-based prices are also the most effective method possible of allocating scarce resources, eliminating shortages, and attracting essential supplies to the areas that need them the most before a disaster – wind and rain don’t change that reality.  Governor Christie and others fail to recognize that the coordinating role of market prices becomes even more important following a disaster, not less important.  To prevent the price system from operating following a disaster with price gouging laws will make the situation worse, not better.  Thanks to the strict enforcement of their state’s price gouging laws, New Jerseyans should expect possible shortages of fuel, food and generators.

It’s only in the fantasy world of politics that the “anointed elected officials” think they get to be the “price deciders,” and determine if sellers are guilty of “price gouging.” In the real world of the marketplace it’s much different and much more democratic – the impersonal market forces of supply and demand become the “price deciders,” and we’re all much better off with those market-determined prices than with the artificial prices determined by politicians and bureaucrats.

 

  • Saccharomyces

    Right on. As a previous boss and mentor of mine used to say “charge what the market can bear – and the market can bear a hell of a lot”.

  • cows4me

    I would have thought Mr Christie would have known better, he is after all somewhat of a champion for the right. Perhaps he has caught politician disease and know believes he has the power to regulate all. I suspect he has the best of intentions for the citizens but as we all know the road to ruin is sometimes paved with the best of intentions.

  • blazer

    Mr Christie is obviously…’unamerican’!

  • JC

    Just as the laws of supply and demand are immutable so are laws applying to a Republican Governor in a sea of socialists on the North East coast.

    Christie, knowing better, is obliged to meet the immediate concerns of his constituents and moreover knows that he could badly damage Romney if he were to become a cheerleader for right wing orthodoxy at a time when people are looking for comfort and reassurance that their Govts are “looking after” them.

    With just a week to run to the election Christie is doing the “least worse” thing for Romney.. indeed, NY Mayor Bloomberg has told Obama to piss off when the prick tried to come into the city for photo opportunities.. the “Nanny” socialist mayor knew enough to know the Big O wanted to push Big Govt as the saviour at the expense of the state officials and workers doing the real work in the emergency.

    Bloomberg might be as wet as a dogs tongue but he knows a power play when he sees it and has reacted accordingly. The much drier Christie needs to deny the hysterically left media its headlines.

    JC

    • blazer

      good thinking…fuck human need and despair…get your priorities right…its the election stupid…how can we ever have WW3 without a Rep in the White house?

    • Mediaan

      Bloomberg is a socialist? Nonsense.

      Socialists are complete dunderheads at business.

      Bloomberg went into a money-heavy and spook-heavy field. Media. He saw a niche, business news at a fully professional level. Not just soppy fools rewriting press releases. Real news, written by people with a brain, and punched out fast. He developed it and ran it so brilliantly it made him billions.

      Along the way, his employment practices became legendary. I hear the (excellent) food in the cafeteria was free, because he appreciated people who got so caught up in their job they stayed at their desk in a busy patch.

      The usual if-it’s-good-let’s-steal-it mob were too thick to understand the value nd potential of what he was doing.

      As so often, the really huge money and the spookerati were too stupid even to understand what he was doing and see where he was headed.

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