Justice and the Case of Price Gouging

Last summer I got to hear Michael Sandel speak on the morality of markets. Sandel teaches at Harvard and his class on Justice is one of the biggest draws on campus. What is amazing about Sandel is his ability to use a Socratic question and answer format to make a huge auditorium feel like a small graduate seminar. I saw Sandel do his magic and it's really impressive. I wish I could teach like that.

Harvard joined with PBS to film Sandel's Justice class. You can see the class in action at the course website where you can dip into the readings or watch entire classes. Sandel also recently published the book Justice as a companion for the filming. The book is a nice overview of political theory and ethics with lots of real world examples. I found Sandel's discussion of Kantian ethics to be particularly helpful.

Sandel starts the book Justice off with this moral issue:

In the summer of 2004, Hurricane Charley roared out of the Gulf of Mexico and swept across Florida to the Atlantic Ocean. The storm claimed twenty-two lives and caused $11 billion in damage. It also left in its wake a debate about price gouging.

At a gas station in Orlando, they were selling two-dollar bags of ice for ten dollars. Lacking power for refrigerators or air-conditioning in the middle of August, many people had little choice but to pay up. Downed trees heightened demand for chain saws and roof repairs. Contractors offered to clear two trees off a homeowner's roof--for $23,000. Stores that normally sold small household generators for $250 were now asking $2,000. A seventy-seven-year-old women fleeing the hurricane with her elderly husband and handicapped daughter was charged $160 per night for a motel room that normally goes for $40.
Obviously, many people were outraged by the price gouging. Florida did have price gouging laws on the books, and some penalties were handed out in the wake of Charley. But many economists argued that these laws and the public outrage over price gouging were misinformed. There is no such thing as a "moral" price, it was argued. The markets set prices via supply and demand, and if demand is high and supply is short prices will rise. Even during natural disasters. Many pushed back on this extreme version of free market ideology claiming that, during a natural disaster, people are entering into these market exchanges under duress. Sandel cites the argument made by the Florida Attorney General at the time:
This is not the normal free market situation where willing buyers freely elect to enter into the marketplace and meet willing sellers, where a price is agreed upon based upon supply and demand. In an emergency, buyers under duress have no freedom. Their purchases of necessities like safe lodging are forced.
So, Sandel asks, which version of justice should prevail in this case? Is price gouging immoral? Or is it amoral, a simple consequence of the markets? Interestingly, our answers to questions such as these reveal a great deal about our competing visions of the common good.

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82 thoughts on “Justice and the Case of Price Gouging”

  1. Dr. Beck,
    I heard a very similar argument put forth during the congressional health care debate regarding medical care as a market. Basically that the consumer (patient) was not free in his negotiations with the supplier (doctor). In the "free" market, the doctor could basically charge what he wanted, and the patient was forced, out of self-preservation, to pay it.

    Not quite the same market dynamic as me moseying down to the mall to negotiate for a new iPad.

    Frankly, this simple argument changed my mind in the debate.

  2. On the one hand, in duress situations people can behave quite irrationally; if prices remain stable, limited resources could be quickly wasted by people with more money than brains (happens all the time anyway). On the other hand, necessities could be priced out of reach of those who desperately need them. Answers don't come easy.

  3. Consider gaseline prices. Demand is reportedly low, but prices are volatile and have pushed upward, not from the real demand of the real market, but from those trading in oil speculation.

  4. I think in the long run allowing prices to rise to reflect a product's true scarcity is the better policy. In the short run, there isn't much difference:

    -If there are laws against price gouging (a term I don't like because it suggests that it is something people are intentionally, maliciously doing rather than a spontaneous response of the market to a sudden imminent shortage), the people who get to the products first, whether they need them or not, will get the products and everyone else will be out of luck as supplies run out (talk about survival of the fittest, or the fastest anyway).

    -If there are no price controls, some people will see the high prices and be discouraged from purchasing because it was something extra in the first place. This leaves more of the products available for those who really need them. But there will, granted be some people who cannot afford these products, and so some will still lose out (just as there are poor people who cannot afford extremely expensive cancer treatments).

    By definition in a natural disaster, things don't go well. As Nathan observed, no matter what happens, people will suffer. I see no evidence whatsoever for the claim that more people will be better off if price gouging is forbidden, or that it would be more just to do so on some abstract level.

  5. "Basically that the consumer (patient) was not free in his negotiations with the supplier (doctor). In the "free" market, the doctor could basically charge what he wanted, and the patient was forced, out of self-preservation, to pay it."

    Pardon my British, but this 'argument' is total bollocks. For one thing, the doctor is not free to charge whatever he wants. If he charges exorbitant rates and there are other doctors who will provide the same care for a smaller fee, this doctor will lose business. Whether a market is skewed towards the producer (so producers compete with each other to lower their prices in order to entice customers) or towards the producer (consumers attempt to outbid each other in pursuit of a coveted resource) depends on the scarcity of the good in question. If a particular doctor is 'the only game in town' and there is high demand for his services, he is entirely justified in charging a fee that reflects the scarcity of the product. Because odds are, if the good is particularly scarce, it is also hard to procure, and therefore the cost of producing it is high. A highly sought-after doctor, for example, has gone through years of medical school and incurred significant debts to pay for that education.

    If the price of a good is lower than its true scarcity, it will quickly run out and there will be less incentive to produce more of it, because it will be produced at a loss. If the price is high, however, it will act as a beacon to attract producers to the market, increasing its supply. So hefty fees for doctors in a particular specialty will attract more bright young med students to the field, increasing the number of doctors who can practice this field and therefore encouraging the fees to go down, since we now face the situation I outlined in the beginning, where if a particular doctor charges too much and there are other doctors around who charge less, that doctor will lose business.

    So perhaps ironically, the best way to increase the supply of a particularly valuable and scarce good is to allow the price to remain high, high enough to attract additional producers, which then lowers the price, placing it in the range of more and more people.

    Or would you argue that, even if an organ transplant costs hundreds of thousands of dollars, doctors should charge 100 bucks merely because a person really really needs it? In the long-run, that's counter-product for that person and others like him.

  6. @JDW,
    You wrote: Or would you argue that, even if an organ transplant costs hundreds of thousands of dollars, doctors should charge 100 bucks merely because a person really really needs it? In the long-run, that's counter-product for that person and others like him.

    Counterproductive to whom? Do you have a disease or a condition that is not only chronic, but also if left untreated leads to certain death? The transplant patient does. He is not free to see a lower-cost alternative with little to no risk. The market you describe takes that consumer completely out of the equation, period. Your market works great for boob jobs and lasik, not reality.

    Here's a real-world example:
    I am a type-1 diabetic. My condition is not a result of poor diet or bad lifestyle choices. Nothing I could have done would have prevented the disease. I was thrust into the medical care market against my will. Therefore, I must purchase my care and my meds as a captive consumer.

    One manufacturer makes the insulin that works with my body's chemistry--I do not have the choice to shop for a better deal. Further, if for some reason I decide the cost is too high, I cannot simply set aside the purchase until a better day, financially. If I do not purchase my meds, I die, period. Therefore I pay what the manufacturer/doctor charges.

    Since the fraction of the general population that are type-1 diabetics is so low--in that way demand is low--the manufacturer has every "market" incentive to lower prices (keeping the same supply levels). But they are not. The fact of the matter is demand is not wholly described in this way. If the balance of life and death of the patient is included, demand approaches infinity, which provides the incentive for raising prices not matter the supply. If the manufacturer did, I would have no choice but to pay it. I have no other alternative except to die. I am not a free consumer.

    The "theory" you propose would say it is counterproductive to keep prices low in that situation. Again, I ask, counterproductive to whom? If you kill off all diabetics, demand is zero... who get's to make the money off us then? There is no hint of supply/demand balance in that situation.

    Bullshit indeed.

  7. If one has a unique gift or ability or resource that others want to employ, then "price gouging" would be under-cutting the market value of a particular job value. This is why we have negotiations concerning business contracts...

    At the same time that you argue that those that sell the goods at a phenomenial price are making above and beyond what they would normally make, and at the expense of another...the seller also is at the mercy of replenishing his stock, which might not be so easy to do, when suppliers are forbidden to stock stores until debris, etc. is cleaned up. How long will the business owner be able to live on what he has in stock. He is trying to survive, as well!

    ENFORCED CHARITY is nothing other than co-ercive political muscle! And I think it is tyrannical.

  8. I guess I will add that my 9-yr-old son is also a type-1 diabetic. So, that adds to the demand-side of the equation.

    I'm sure Dr. Beck could determine some interesting psychological tidbits about my vision of the common good. :-)

  9. "Price gouging" is entirely moral and necessary for the functioning of a market.

    First, a transaction can only occur when two parties agree. If you AGREE to pay $10/lb for ice, how is that gouging? If ice doesn't sell at $10/lb, it will sell at $7.50/lb. Or $3/lb. As a matter of fact, I had a margarita party a couple days ago. I bought ice from the corner store at $2 for a medium sized bag. Are you kidding! It's just cold water! That's hardly fair is it, considering that the ice probably cost three cents to make and package? Well I guess it IS fair - I wanted it, agreed to the price, and purchased it.

    Frankly, staying in a dangerous area like a post-hurricane disaster zone in order to supply people with fuel should be LAUDED. Of course the price is more expensive - there is a severe shortage and it must be allocated somehow. Since demand outstrips supply, price must go up in order to determine who gets access. Would you want the local government to pay $12/gallon for fuel - in order to keep the ambulances running and to keep it out of the hands of lookie-loos from out of state?

    Or should we instead form some kind of bureaucratic board to decide how to allocate sparse resources? We could call it the Council, or maybe the Soviet.

    Also, high prices help capitalism heal wounds after a disaster. If you can make several hundred dollars for one run of ice a few hundred miles south, it creates an incentive for people to bring food and fuel and ice into an affected area. As more people strive to make good of this opportunity, supply rises and prices fall.

    High prices after a disaster:
    1) help allocate sparse resources
    2) create an incentive for merchants to increase supply of the high-priced items
    3) lead to a faster recovery by supplying goods first at any price, then steadily lower as an opportunity for profit is seen

  10. I look to the day when the sky is rolled back as a scroll and the market comes to save us all.

  11. Here's another form of justice that has emerged in the free market of ideas: the Professor's blogosphere once having been thought a liberal monolith, his incessant prodding has called the free-marketeers out.

    The monolith was a myth, in other words. And happily so. If you like true diversity of thought, you must be in favor of this outcome!

    qb

  12. qb would add to JD Walters and Dammerung the following: Where rationality prevails, the so-called "price gouging" phenomenon following a natural disaster forces humanitarian organizations (e. g., the church, or government agencies, or non-profits) to use their resources for the most direct and critical aid, to prioritize that aid, and therefore reduce waste. And that's indeed what happens, in a first-order approximation: the first aid money goes to clean water and medicine, then food and shelter, then everything else.

    Clean socks are down a ways on the list. If we can't afford the water without sacrificing the socks, we'll defer the purchase of socks. That is, if rationality prevails.

    qb

  13. As much as I hate self-promotion...well, not really. But I've written an article on this topic for Business Ethics Quarterly that might be of some interest. You can download it here:
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1099567

  14. It forces me to do the same thing if I am a person of modest means. Given a choice between gasoline to drive to Shreveport and clean water for a week in Thibodaux, I ought to do the wise thing and settle for Thibodaux even if I like Shreveport better. Prices help us sort out needs from wants, as they should.

    It's funny, now, that some dude in the EU hierarchy is saying something akin to, "vacations are a fundamental human right." That's the kind of absurdity that is only available to a wealthy, leisure-soaked society. I don't think he expects the EU to extend Gold Coast vacations to the whole aboriginal population of Australia, does he? And if not, why not?

  15. Consider another case:

    The modern food supply requires the logistical operation of computers. A computer virus that really actually knocked all computers out of commission would result in the starvation of millions.

    A personal computer used to cost $10,000, and had as many as hundreds of bytes of RAM, no hard disk, and processors that could perform dozens of operations per second.

    Today, computers have gigabytes of RAM, terabytes of disk space, and they perform gigaflops of calculations.

    But there has been no government oversight. No price controls. No regulations of hardware or software. No efficiency demands. Cost has gone down logarhythmically. Energy efficiency has gone up logarhythmically. Processing power, data storage, and RAM has gone up logarhythmically. All this, without the government setting standards in the industry. Computers are so cheap and powerful that even the poor can afford a used computer with a thousand times a thousand times more power than the best university supercomputers of a mere 30 years ago.

    Capitalism works. If you have a problem with the painful effects of natural disasters or disease, BLAME GOD. Take it up with God. God is the one to whom you must direct your petitions. Bad things are not the work of the free market.

  16. Check this out from the Sandel quote that started off the post:

    "At a gas station in Orlando, they were selling two-dollar bags of ice for ten dollars...A seventy-seven-year-old women fleeing the hurricane with her elderly husband and handicapped daughter was charged $160 per night for a motel room that normally goes for $40."

    It's quite possible, isn't it, that the only reason THERE WAS A ROOM AVAILABLE *AT* *ALL* IN THEIR TIME OF NEED was that the price was so high. People who didn't need the room all that badly passed it by and drove on if the price was too high for them. But if the price had been $40, those healthy folks might have bought that room for the night instead of driving further inland. And then the issue is MOOT for the needy ones: there ain't a room available, no matter what price they might have been willing to pay!

    qb

  17. qsblog,
    Your last statement is the REASON WHY Marxist ideology doesn't work. It appeals to the lower natures of man, in envy, coveting...and attempts to settle the score or equalize outcome by redistributive means, which undermines markets and dissolves ambition. Self interest is a good thing, within the bounds of law...and capitalism leads to economice flourishing because the indiividual is allowed the liberty to pursue what or how he wants to live...given different choices.

    Then, it doesn't become a matter of limiting choices, but taking responsibility FOR one's chooices, whether bad decisions in investing, or not getting an education, etc.

  18. It seems like a willful denial of reality to me qb. It is the fault of the free market that earthquakes damage gas lines and can't be repaired within five minutes after the quake. It's the fault of capitalism that there are a limited number of hotel rooms that exist in any given reason and another 50,000 can't be built in an hour for those displaced by a disaster. It is the fault of the free market that rare metals cost more than common ones, that ice is more expensive when it is hard to obtain than when it is easy, that a magnitude 8 quake hurts people and breaks things.

    Like I pointed out - our problem is with God and the world of scarcity and trouble. We human beings are doing the best we can to cope, and the best we can do is to trade willingly with each other without resorting to government (violence.)

  19. And they keep going. The free market, benevolent loving entity that probably existed before creation. Just let go of our desires and let it reign and all will be well.

  20. Anonymous said...

    Let's hear YOUR solution then. An elected board of technocrats seizes all the gasoline in a region affected by disaster, right? At gunpoint of course because that is the livelihood of the station owners they're impacting. So they take this fuel and distribute it according to THEIR ideas of what is important. And I'm sure they only take a little off the top, only enough so their kids can drive their Escalades down the torn up streets and just a little more to sell on the black market, right? But all the rest I'm sure goes to medievac choppers and the EMTs. That's a much better solution, in that it entails seizing goods by force and putting them under the jurisdiction of bureaucrats who will, human nature being what it is, put themselves and theirs first.

    Life sucks doesn't it? Life is hard, isn't it? Stuff doesn't always work out. People get sick, disasters happen. There's no easy answer that will make it go away. No government solution to the hardness of life. Nobody to make it easy for us. It's hard, has been hard, will be hard.

  21. Free market scenario #1:

    Merchant: Gizmos! Get your gizmos! Only $5!
    Potential Buyer: I'll pay you $2 for your gizmo.
    Merchant: You'd have me cut my own throat!?
    Potential Buyer: $2.50 and not a penny more.
    Merchant: I couldn't sell for less than $4
    Potential Buyer: $3.50
    Merchant: Deal!
    (both go away happy)

    Free market scenario #2:

    Merchant: Gizmos! Get your gizmos! Only $5!
    Potential Buyer: I'll pay you $2 for your gizmo.
    Merchant: You'd have me cut my own throat!?
    Potential Buyer: $2.50 and not a penny more.
    Merchant: I couldn't sell for less than $4
    Potential Buyer: bu-bub-u-but I only have $2.50
    Merchant: I paid $3.50 for it myself! If I sell it to you for $2.50 my kids will go hungry tonight.
    Potential Buyer: But I really need it.
    Merchant: My kids need to eat. Have a nice day.
    (both go away somewhat dissatisfied.)

    Socialism scenario:
    Merchant: Gizmos! Get your gizmos! Only $5!
    Potential Buyer: I'll pay you $2 for your gizmo.
    Merchant: You'd have me cut my own throat!?
    Potential Buyer: $2.50 and not a penny more.
    Merchant: I couldn't sell for less than $4
    Potential Buyer: Oh yeah!?

    (Potential Buyer exits. Returns in five minutes with a large, club-wielding thug)
    Potential Buyer: Gimmie that gizmo and I'll let you live.
    Merchant: This is not how to do business!
    Thug: I'll show you business you loud mouth.
    (Thug beats Merchant half to death, takes the gizmo, and takes his money. Merchant's kids go hungry tonight.)

  22. I find it interesting that the staunchest defenders of free-market capitalism rarely provide concrete, real-world examples of how their theories evidence themselves, but rather are stuck in abstract, contrived circumstances where the theory will always work.

    When presented with a situation where the theory breaks down, the answer is predictably, in essence, "f@#%-off and die, then." Apparently, reality is a total buzzkill.

    Duly noted.

  23. Justin said...

    Of course, Socialism is a magic pixie who can make 10,000 vaccines treat 40,000 people. Socialism has the powers of Jesus!

    Yep, life is hard. That's why we turn to God for succor - because nothing else cuts it. God can comfort us in a world of scarcity and woe where things often turn out badly and people hurt, even good people. THIS is why we need God.

  24. @Dammerung,
    I didn't realize Jesus was a purveyor of economic Darwinism. Survival of the financially fittest. I learn something new every day.

    I guess I shouldn't be surprised. God seems perfectly capable of, and pleased to, let folks die from lack of necessary care.

    Maybe the atheists will help, since they have no god to fall back on...

  25. JUSTIN said...

    I'm sorry that reality doesn't meet your rigorous expectations. Jesus failed to heal everyone he met, and everyone he did heal eventually died nonetheless.

    I share your dissatisfaction. I suggest we start a Political Action Committee to attempt to pressure God into taking a more active role in the care of His numerous suffering children. I also think there are several fundamental design flaws in the universe that ought to be addressed. Shall we meet on Tuesday?

  26. @Dammerung,
    I doubt--nay, I'm pretty sure--God wouldn't listen. It'd be a waste of time. Besides, I don't think we'd have your total buy-in. Just a hunch.

    The thing is, reality doesn't have to be this way. Policies can change. Free-market capitalism does not work in all cases--consumer and supplier do not always go away happy from the transaction. So why force the square peg into the round hole? Why not in a few, if not many, situations actually try to let the last be first and the first be last?

    Or would that be going against God's "Life Sucks" plan?

  27. A free market transaction is one in which the buyer and the seller both agree to the terms in the exchange and there is no coersion placed upon them by external entities.

    ANY regulation of this exchange constitutes a resort to force. Either the supplier is leveraging force against the buyer, the buyer is against the seller, or either of them has gone to a third party (government) to use force to modify the terms of exchange.

    I believe the only moral form of exchange is one in which neither side is leveraging force against the other, and both parties agree on common terms of exchange without fraud or deception.

    THIS WILL NOT CREATE A PERFECT WORLD. But it will, and has, created a better one. More freedom encourages the production of more capital, and the more capital there is in an economic system the more it spreads and the more people benefit from it.

  28. @Dammerung: But it will, and has, created a better one.

    So, a better world is one where the poor, sick, and dying hurry up and get it over with so more capital can flow to those enough lucky enough to survive and collect the benefits?

    Where you sit is how you stand, I guess. Well, f#$%ing-off I go, to die.

    Thanks, Jesus, for making a Better World.

  29. JUSTIN said...

    A better world my friend is one where the 300 million people of the USA CAN ACTUALLY EAT. If we were reduced to medieval technology, they'd starve. An increase of capital has led to development of things like computers and advanced mathematics which makes it logistically possible to keep these people fed.

    You know why you still have all your teeth? Technology. Which comes from an investment of capital in unproven methods by "unscrupulous" capitalists looking to make a profit. Why is there electricity? Because somebody thought they could make money off'a selling it. The very people you are deriding are the ones who have provided the world to you on a platter.

    The question isn't why so many people are so poor, so hungry, so sick. That's the natural order of things. The REAL question is why so many people are RICH, WELL-FED, and HEALTHY. Cuz that is not the natural order. It is because men and women of entrepenureal spirit have looked at the world and looked for a more profitable way of providing food, medicine, and technology that we benefit from our lifestyles.

    It's got nothing to do with luck. Frankly, economic freedom is what leads to prosperity and security. North Korea has almost no economic freedom, and many people starve. Singapore has very high economic freedom, and there is much more prosperity there. You've got to work to eat - you can't just take from others without giving. That constitutes theft, whether cloaked in the language of social welfare or not. You can get rich by increasing the amount of capital available - it's not a zero sum game! Development of computers led to a HUGE INCREASE in the capital available in the American economy. Look how many got rich off of that. Look how many people got employed off of it, how many jobs computer tech has created. And all without boards of bureaucrats telling people how to allocate computer technology.

  30. One of the reasons that Sandel uses this example (price gouging) as it allows him to pose the question Aristotle did about the common good: Does a just society seek to promote the virtue of its citizens?

    Libertarians, as Sandel discusses (and as we see in the comments here), will tend to favor freedom over virtue. Thus, the only role for government is to protect basic freedoms. Liberals will tend to think that virtue, as well as freedom, is vital to the common good and that society should seek to promote virtue where it can.

    So it's not surprising that the libertarians on this blog are strong free market advocates. I, personally and as a Christian, tend to think virtue is as important (if not more important) as freedom. This means, of course, that I'd be for price gouging laws. Why? Because such laws, while infringing upon people's ability to make a buck during a natural disaster, signals the kind of people we want to be and what each of us, as fellow human beings, owe each other by way of compassion and decency. Of course, that virtue-based intervention often goes to far. Which is why we need a dialectic between virtue and freedom. Generally, as a Christian I'd tend to stick up for virtue. I follow a Savior who was "the slave of all."

  31. But where does virtue come from, Prof. Beck? Does it come from government edict? Is it created by religious doctrine? Can virtue be legislated or commanded?

    Virtue comes from individuals. Virtue depends on how we personally behave when we have the freedom of choice. Some people, when they are free, make choices that are not virtuous. If they hurt other people or defraud them then these are crimes and ought to be punished. If not, they are flaws of character that only God can address.

    The fact is that price gouging isn't. Prices go up as supply goes down. The ice cost $10 a bag because it ALSO cost more to keep cool, it cost more to transport more in, it cost more for the merchant to buy and handle. So someone has to bear the increase in costs that occurs after a disaster. Why do you think it is the merchant who should bear this cost and his kids should go hungry? Why is it moral for him to sacrifice the well-being of himself and his family?

    I think Aristotle was right about ethics. That ethical behavior is the natural result of a good character. Sometimes good people do bad things, and bad people do good things, but they are not profoundly and irreversably changed by it. It is the human character that is in need of analysis and often change. A scrupulous and honest merchant of good character will STILL RAISE PRICES as his cost goes up, as disasters will make happen. It's not the merchant's fault the disaster occurred so why should he and his bear the increase in cost?

  32. "a wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.""

    - Thomas Jefferson

  33. @Dammerung,
    A better world my friend is one where the 300 million people of the USA CAN ACTUALLY EAT.

    And the remaining 5.7 billion living on the planet can just die, because they can't seem to financially broker a deal that benefits the supplier. Works out really well for the Good Ol' USA. Lucky bastards.

    If we were reduced to medieval technology, they'd starve.

    But no one would be standing around telling them it's for their own good, lamb-shank in fist.

    An increase of capital has led to development of things like computers and advanced mathematics which makes it logistically possible to keep these people fed.

    But only if they have the coin to buy a meal.

    Capitalism didn't change a damned thing. The Haves still manipulate the market to their advantage, call it "freedom", and remind the Have-nots they are free to choose to pay or die.

    Sounds a lot like Dark Ages Europe to me, but, indeed, it's a Brave New World.

  34. >>Capitalism didn't change a damned thing. The Haves still manipulate the market to their advantage, call it "freedom", and remind the Have-nots they are free to choose to pay or die.

    winner winner chicken dinner. The problem is that the Haves are manipulating the market, using government, to their advantage. "Regulations" is just a code word Big Haves use to keep Little Wants from competing with them. Notice how the big corporations break laws all the time and never seem to be punished? But a small bank steps over the line once in some little way and gets cannibalized? Because people have bought into the illusion that the government is an effective tool for protecting them from (teen pregnancy, aliens, capitalists, communists, terrorists, marijuana, salmonella, and/or price gouging.)

    So to seek freedom from this manipulation we should seek freedom from government coersion.

  35. Dammerung, we are talking about real situations. If the merchant is making a choice between feeding his family or allowing someone else to eat then we have a real dilemma. Can you at least imagine the scenario in which this isn't the dilemma and the merchant simply wants to make the most profit off people in a bad situation.

    Of course there is a fine line between when raising the price should be considered illegal or not illegal but that's the case in many areas of life. For that reason we have an elected government which works these things out.

    I understand there is libertarian objection to all this and it is legitimate but the counterarguments are also legitimate. It is not a simple issue.

  36. "Capitalism didn't change a damned thing. The Haves still manipulate the market to their advantage, call it "freedom", and remind the Have-nots they are free to choose to pay or die."

    - Hyperbole. Capitalism has fed, clothed and sheltered more people on earth, rich and poor and everywhere in between, than any other system ever contemplated or implemented. Capitalistic countries have produced that most generous governments and people in the history of the world.

  37. If gaseline prices had not been permitted to hit $4 a gallon a year or two ago, with gas being necessary for so many people to get to their jobs each day (and many businesses providing delivery services, etc.) would so many families have had to default on their mortgages? their credit cards? their electric bills? lost their jobs? gone into bankruptcies? small business failures? Would milk have gone over $5 a gallon? The cost of transporting everything got passed on to the consumer, and eating isn't optional. This kind of price gouging affects the real, ordinary person at the tangible level (the lower his income, the more it affects him. Doesn't affect those getting WIC or welfare), and not just during natural disasters or when they're sick. There's no tax break just because more or all of your income goes to necessities because of inflated energy prices. When supplies are plentiful, and demand is low, and yet prices remain unnaturally high, the dictating "market forces" are a sham. Something needs to be done to protect the individual, his job, and the businesses he frequents.

  38. "Something needs to be done to protect the individual, his job, and the businesses he frequents."

    - And, with history as a guide, that sounds nice, but the unintended consequences aren't realized until it ends up hurting that group more than the original problem that regulation attempted to "fix".

  39. Here's a concrete reason. In a hard hit area the merchant probably has to switch to generator power. It costs way more to keep the ice cold and the store open on generator. He must raise his prices accordingly. This is, of course, just one of many reasons.

    What keeps prices under control? Competition. Merchants charge as much as they can get. If their prices are too high, people will go elsewhere, substitute, or do without. If the fear we are presented with was true, food would cost a hundred dollars a pound. You can't eat without eating, so can't merchants charge ANYTHING for food? Well, no - competition keeps prices under control. And there WILL BE competition if ice is going for $10/lb. I'd load up my trunk and sell at $9/lb (making only a limited profit, because I'd be paying more for fuel to travel in the area.)

    North Korea has a very strong, centralized government but can't feed its people. If you look at their economic antics it's no surprise why. They devalued the currency and only let people convert a certain amount, essentially robbing them of their savings and investments.

  40. @Dammerung,

    Let the record show that I have not advocated here for gov't regulation of the market (you may have assumed that, maybe not). I have simply stated, and continue to state, that free-market capitalism is not a win-win, or fair and balanced, or even free for all parties, in all situations. Policy change does not require gov't intervention, or threat of violence.

    All it requires the moral decision to do right by one another instead of to screw the other guy for my own gain. I guess it may be too much to ask for the market to self-regulate in this regard. In which case, I'm SOL.

    Your mileage may vary.

    A recognition that, for a great many of the Wants the free market is not so free and does not always bring about that common good, would go a long way.

  41. @iowa,
    Hyperbole.

    What planet do you live on? Have you ever ventured out of Iowa to see how the world operates? You don't have to go far.

  42. Capistilistic societies have never had 100 percent free markets. The libertarian ideal of free markets has never existed. I don't think our only choice is between free markets or N Korea. Fortunately, real libertarians are a small minority and will always remain so. Thanks be to God.

  43. I've just about decided that libertarians are Utopians. There is this ideal society out there, if only we had the courage to gasp it. Trouble is, it's an abstraction. Which is why these debates tend to bore me. Who cares about abstractions when, in real life, people vote for price gouging laws because of the moral outrage they feel? Libertarians can't enact their worldview because, at root, human nature and the facts on the ground will always prevent it from happening.

    It was the same problem with communism: Nice idea, clueless about human nature.

  44. And liberals, on the other hand, appeal to violence whenever people don't act the way they'd hope. All government authority is predicated on violence either implicit or explicit. "The people" pass laws about price gouging because they don't like that things get more expensive after a disaster and think that using violence can solve this for them.

    Have you read Atlas Shrugged by any chance? I'm not a Randroid, but it's a very good book if you forget all the baggage associated with it.

    You can't just club a merchant if you don't like what they're charging. It's wrong. It's STILL wrong even if you and all your neighbors vote to club him if you don't like what he's charging. Anything that is morally wrong for a man to do is wrong for a state to do.

    Liberals and conservatives BOTH need to put down the club and start interacting with human beings in a civilized fashion.

  45. Professor Beck,

    I have my doubts about the virtue-based case for anti-gouging laws. I'm unsure what it means to say that such laws "signal" what kind of people we want to be. And I'm doubtful that laws like this can do much to promote virtue. For if we follow Aristotle in thinking that virtue requires responsibility, and responsibility requires freedom, then 'virtuous' behavior obtained through legal prescription seems not really virtuous at all.

    Be that as it may, my more pressing concern is that you've seriously underestimated the costs of virtue, to the extent that they can be obtained through anti-gouging laws at all. It's not just the gougers' ability to make a buck that's being sacrificed here. It's the ability of disaster victims to acquire goods they need to survive in decent conditions. To the extent that anti-gouging laws provide a disincentive to bring new resources to disaster-struck areas, they make it so there are fewer resources to go around for people who need them quite badly. So, even if anti-gouging laws did 'signal' virtue in some sense, it seems to me that the cost of such a signal threatens to be exceedingly high.

    Economic theory gives us some good reasons to draw these conclusions, of course. But there is ample empirical evidence as well. I discuss some of these in my papers "The Ethics of Price Gouging," and "Price Gouging and Market Failure." And Michael Giberson at knowledgeproblem.com has a long history of insightful blog posts on this topic. The economist David Skarbek has a nice paper entitled "Market Failure and Natural Disasters: A Reexamination of Anti-Gouging Laws," which also provides a good treatment.

  46. @Dammerung,
    You can't just club a merchant if you don't like what they're charging. It's wrong.

    But it's jolly well and good for the merchant to club the buyer.

    Oh, wait... I forgot again... carry-on.

  47. "What planet do you live on? Have you ever ventured out of Iowa to see how the world operates? You don't have to go far."

    - Yes, which is why I know that the populism/class warfare stuff is often just hyperbole and rationalization designed to (a) help people mask over their own failures and then (b) forcefully take from others that which is not theirs and which they did not earn.

  48. JUSTIN said...

    No, it isn't. If the merchant clubs the buyer that's assault, a crime.

    Oh, you mean a metaphorical clubbing. You want to prevent the metaphorical clubbing of price increases with the literal clubbing that government power rests upon. You think it's appropriate to use force to decide what a merchant should charge for his goods or services, under the assumption it's as-if the merchant is using force to demand a purchaser buy from him?

    This is the false equivocation hidden in your post.

    Blame God for hurricanes. Don't blame merchants for raising prices for scarce goods.

  49. As for calling libertarianism Utopian, Prof. Beck, what could possibly be more utopian than saying that immediately after a disaster everyone should still be able to buy ice, fuel, and food cheaply and easily as if nothing ever happened?

  50. @iowa
    a) Your belief that people's failures are what sets their market motives belies a certain classism all its own.

    b) The only force I hope to exert over the merchant is that of his own conscience.

    Alas, witness the slow death of the Golden Rule at the altar of the free market.

  51. @Dammerung
    I don't want the gov't involved at all to force anything. I want the merchant to mitigate his profit motive. And to admit that in some cases, the buyer is forcedinto the transaction... the trade is not free.

  52. "Is price gouging immoral? Or is it amoral, a simple consequence of the markets?"

    - Going back to the original post, I'd argue to Mr. Sandel that this is a classic false choice. In my view, it's both. It is both immoral and a simple consequence of markets.

  53. There was a great discussion about this subject recently on EconTalk. After a recent hurricane in North Carolina, people were buying trucks, loading ice bags, and taking them to people whose power was off. Of course, they were selling them for 20.00 per bag, but people were buying every single unit.

    The state stepped in and stopped the routes to "protect" the consumer from "gouging"; the guys stopped taking ice to the area, and nobody was willing to take ice to the neighborhoods to sell at the regular price. Result? Nobody had any ice; food, medicine, and baby formula spoiled; and people who were formerly lining up to "overpay" for ice were not served by the market.

    "Price gouging" is a term liberals use, usually to gain votes from those who feel cheated, to criticize a price spike in the free market. Difficult or varying conditions do not mean the market is no longer free. I can buy ice or not.

  54. "The state stepped in and stopped the routes to "protect" the consumer from "gouging"; the guys stopped taking ice to the area, and nobody was willing to take ice to the neighborhoods to sell at the regular price. Result? Nobody had any ice; food, medicine, and baby formula spoiled; and people who were formerly lining up to "overpay" for ice were not served by the market."

    - This is the law of unintended economic consequences that liberals never consider. It's a never ending cycle with them. In this particular example, the next standard liberal rung in the ladder is to deal with the unintended consequence of their own making by passing more legislation to force people to do something. Then, when there are the all too predictable unintended consequences from that action, they pass more legislation to fix the last one. Round and round we go. They continually hurt the people they're trying to help, mainly in the name of making themselves feel good. Thus, "Self Congratulation as a Basis for Social Policy".

    For me, it's sad to watch it occur over and over, decade after decade.

  55. I'm quite confident that plenty of non-liberals, that would be conservatives, are fans of anti-price gouging laws in such situations. This isn't a liberal vs conservative issue, unless you equate libertarianism to conservatism which is just being annoying.

    I'm also quite confident that such laws in some cases caused people not to receive aid and in others resulted in people being able to get what they needed.

  56. @ Cole

    To get back to the original question of the morality of price gouging, I think your example is kind of misleading. This issue, as I see it, isn't what people in emergency situations are willing to do but what they are forced to do. To put it another way, just because people willing to buy a $20 bag of ice to save basic necessities like meds. and food make the issue of gouging right.

    We all would do everything in our power to protect our families from harm. It's a natural reaction to agree to things in an emergency situation that we would not agree to in normal life. The reason we do this is a matter of priorities. Who of us will stop to ponder the future economic impact of our personal finances when our son's medication is spoiling? If we need ice to save the meds. and our son desperatly needs those meds and I have a twenty in my pocket, then hell yes, I'm going to buy it. It's the knowledge that we will have this natural reaction that people are using to inflate the price. This is taking advantage of someone for a profit and yes, I believe it to be morally wrong.

    Jayson

  57. "I'm quite confident that plenty of non-liberals, that would be conservatives, are fans of anti-price gouging laws in such situations."

    - I agree, but that doesn't mean it isn't primarily derived from a liberal mindset. Lots of Republicans - including, namely, GWB - supported Medicare Part D - but that doesn't mean it was derived from conservatism.

  58. "- And, with history as a guide, that sounds nice, but the unintended consequences aren't realized until it ends up hurting that group more than the original problem that regulation attempted to "fix"."

    I think you're mistaken. If gaseline prices were governed by actual supply and actual demand, that is, the "real" market, we'd see a return to sanity.

    As it is, oil investors buy and sell large quantities of oil to make a quick, easy profit, and they do it rabidly. The price goes up with each flip and consumers take the hit. As oil prices rise, more and more speculators flood the markets, and you get the 2008 economic meltdown. Jobs lost, families hurt, the whole economy in crisis, while the oil companies record "record profits" with each quarter.

    A government agency called the Commodities Futures Trading Commission (CFTC) has proposed a new rule to prevent big banks from dominating the oil markets. By law, this agency must consider public comments before implementing a new rule. But the deadline is April 26.

  59. Professor Beck:

    People may in fact vote for price gouging laws to express their moral outrage. I'll concede that. But both the empirical evidence and the thought experiments (you call them "abstractions" when you disagree with them, but "thought experiments" when they come from your fecund mind, I've noticed) cited in this thread show precisely that their "moral outrage" is terribly misdirected, misinformed, and misbegotten.

    And you haven't answered the challenge posed to your self-appropriated "preference for virtue." Virtue under coercion is not virtue, but something else entirely.

    qb

    qb

  60. Also: if other-directed love is the highest of your virtues, is it not rational to look at the ACTUAL EFFECTS of ethical/moral/political decisions rather than just the way those decisions make you feel fuzzy and warm and self-satisfied in your inner parts?

    Ample evidence is available that if you want to bring utilitarian dimensions into the larger rubric of "love" - ensuring, that is, that the thirsty person actually HAS water in his critical time of need - then capitalism has within it the structural capacity to deliver the end product, to more people, more efficiently, than the statist alternatives.

    The "utopian libertarian" myth is an hilarious straw man. Libertarians and conservatives are not anarchists; on the spectrum of gov't coercion, they are utilitarian minimalists, perhaps, but not the anarchists that liberals love to paint them as.

    qb

  61. Western Liberal society has always had a tension between the free market and market intrusion. The communists think this system is bad and the libertarian thinks this system hasn't gone far enough (need to be completely free markets). This tension moves back and forth.

    Most of us, liberal and conservative alike, are down with this system and think that it is this combination that has helped bring about many good parts of Western society.

  62. Anonymous said...

    Others of us look at endemic poverty in the inner cities and Appalacia, look at the wars your culture wages around the world on the thinnest pretexts, look at the legalized fraud of the banking industry, look at the total lack of access to health care that insurance industries have created, and the huge numbers of Americans currently incarcerated, disproportionately blacks and Latinos...

    and conclude that your civilization is fundamentally depraved and headed straight off a cliff.

  63. The other major reason I can't by into libertarianism and free market ideology is things like the Wall Street financial meltdown. Free markets breed greed and that greed can damage the common good. I know people don't trust the government but I trust the government more than I trust the markets. I can vote for my congressman every two years. I have little pull with Goldman Sachs. I think the government is better at sticking up for the little guy than Wall Street.

    But that's just me.

  64. @Dammerung,
    Others of us look... and conclude that your civilization is fundamentally depraved and headed straight off a cliff.

    Let me guess... it's because "true" capitalism isn't practiced? Close?

    Well, I agree. America hasn't been a capitalist economy since... well... since ever. But "true" capitalism is not a panacea. I stick by my "hyperbole" in saying capitalism, like communism, didn't change a thing, and won't. Like Dr. Beck said, good idea but is clueless about human nature.

  65. Richard Beck said...

    Congress is just the entertainment division of the omnipresent welfare-warfare state. Both parties are owned by the same campaign contributors, Goldman Sachs factoring high among them. Somehow, I have trouble believing that the Congress which supports an illegal, undeclared war of aggression against a nation which never attacked us has your best interests at heart.

    JUSTIN said...

    You sound like someone who has no idea what capitalism is, and believes the so-called "invisible hand" is just a slogan favoring a particular political view.

    Free markets are what they sound like - a dis-organization of people who come together to buy and sell goods and services. This isn't a slogan. It's the pre-condition for prosperity. People are naturally industrious and peaceful - they don't need to be controlled.

    I think the only legitimate purpose of government is to enforce contracts and to try and punish accused criminals.

  66. @Dammerung,
    People are naturally industrious and peaceful - they don't need to be controlled.

    Exhibit A in cluelessness about human nature.

    Again, what planet do you live on?

  67. "I think the only legitimate purpose of government is to enforce contracts and to try and punish accused criminals".

    You want to punish the accused? Yeah, why bother with a trial.

    Seems like I've read that the role of gov't is also to provide for the common defense.

  68. Anonymous: Seems like I've read that the role of gov't is also to provide for the common defense.

    Heh. I just might have heard something about "establish[ing] Justice" and "promot[ing] the general Welfare" somewhere too...

  69. "Heh. I just might have heard something about "establish[ing] Justice" and "promot[ing] the general Welfare" somewhere too..."

    - A common argument by liberals. Unfortunately, they occasionally run into someone who has actually read how the drafters of that language felt it should be interpreted.

    “With respect to the two words ‘general welfare,’ I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators.” - James Madison

  70. And more...

    "“If Congress can do whatever in their discretion can be done by money, and will promote the General Welfare, the Government is no longer a limited one, possessing enumerated powers, but an indefinite one, subject to particular exceptions.”
    - James Madison

  71. and more...

    "“Congress has not unlimited powers to provide for the general welfare, but only those specifically enumerated.”

    - Thomas Jefferson

  72. JUSTIN said...

    As for people who believe that it's others who need to be controlled -

    "It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his
    cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their consciences" CS Lewis

    You want to punish the accused? Yeah, why bother with a trial.

    Anonymous is intentionally being difficult. Oh my, a misspeaking on the internet!

  73. Sorry Dammerung; I know you didn't mean it that way. I meant to add one of those "winky" faces at the end.

  74. @Dammerung,

    Since we're burning up Wikipedia this evening looking for quotes:

    ... love, joy, peace, patience, kindness, goodness, faithfulness, gentleness and self-control. Against such things there is no law. --Saul of Tarsus

    If only...

  75. Richard, my very good friend, wrote:

    "The other major reason I can't by into libertarianism and free market ideology is things like the Wall Street financial meltdown."

    I must respond to this, albeit briefly, but if you want more, there is plenty written, especially by Thomas Sowell, who has published a recent book about it.

    We MUST NOT forget that it was the Clinton administration who THREATENED the banks in the 90s with financial penalties unless they made loans to people otherwise unqualified to buy homes. The banks then agreed to lend at sub-prime rates, knowing many of them would later default. Grouping them together in volatile securities and selling them to investors was NOT illegal, but misrepresenting them at times was fraud.

    My point is that normal free market activity was not the culprit; government interference and false advertising, which are ALREADY known to upset markets, were the culprits.

    There is a big, big difference between profit motive and greed, and many Christians lump them together. I do not agree with such fusing.

  76. Cole,
    My friend, I'm just gobsmacked by your comment.

    Are you really arguing that over the last 8 years while the derivatives market and leverage got out of control, through sheer corporate greed, that all this time, people like Lehman's, and AIG and Goldman Sachs were really just scared of Bill Clinton?

    I have no doubt that the government was implicated in the housing bubble, but to blame the 2008 financial crisis on Bill Clinton (!), out of office since 2001, and to give the banks and financial speculators a free pass just leaves me speechless.

    I don't mind Sowell, but the epistemic closure of libertarians ("Read Sowell, he has the truth.") is troubling.

  77. Gobsmacked? GREAT word!

    My post was very brief, and Sowell's "Housing Boom and Bust" makes the argument so carefully that I don't wish to rehash it all.

    But, I will elaborate a bit: I am saying that people want to buy houses; some qualify and some don't due to income, debt-to-asset ratios, etc. Banks make loans based on whether or not they feel they will be repaid.

    In the 90s, Bill Clinton wanted more minorities in houses. So, his administration threatened banks who did not lend to higher-risk clients in the name of this act, about which you can read more here: (http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_drive.html ).

    When large banks and securities firms bundled together high-risk loans and sold them as investments, the only time they broke the law was when they LIED about what they were selling, which I completely concede. But "lying about what you're selling" was already illegal; sure, it's greedy and bad and wrong, and they should not have done it; and, they should have been punished, not bailed out by Obama.

    But selling investments to buyers under full disclosure is NOT wrong, as others did--even risky investments. They should not have bought them if the risk was too high.

    Moreover, when people bought houses that they could not afford, through high-interest loan structures, suddenly available because Clinton had threatened the banks, the homebuyers were being greedy, too. Then, when they defaulted and asked for taxpayer bailouts, they were being greedy again.

    In summary, the 2008 financial crises began with Clinton's butting into the banking markets for leftist reasons, and ended when the investments were too carelessly purchased, or purchased under false pretenses. I blame both Clinton and investment brokers who lied for the downfall; I Obama for the run-on effects of TARP legislation.

    For what it's worth, I blame Bush for bailing out GM, as well. People who err in the marketplace should fail. Period.

  78. Until taxpayers understand what Cole has laid out - and I'd only adjust his post to say "...whether or not they have solid evidence to suggest they will be repaid" rather than leaning on the fuzzier, postmodern basis of the banks ostensible "feelings" - our American nation cannot long sustain the Founders' bracing, liberty-steeped, wealth-generating vision. Sowell's argument ought to be required study for every person who wishes to vote, but alas, we'd have to amend the Constitution to achieve that.

  79. "I have no doubt that the government was implicated in the housing bubble, but to blame the 2008 financial crisis on Bill Clinton (!), out of office since 2001, and to give the banks and financial speculators a free pass just leaves me speechless. "

    - PBS's Frontline leans pretty hard to the left and they very much implicated the Clinton policies as contributing significantly.

  80. Plus, there's this: unless it has a sunset provision, legislation persists well beyond the term-limited extent of the president who advocated it, pushed for it, arm-twisted to get it, and then signed it. The fact that Clinton had been out of office for 7.5 years is UTTERLY IRRELEVANT. He was responsible for it to a great extent, no matter when the shoe finally fell. (Same is true of the legislators who voted for it; they are not absolved.)

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