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> It's called Scalping, but is it wrong.
Christopher
post May 22 2006, 08:27 PM
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Cabbage Patch dolls going for 100+ dollars just before christmas when they are sold out of stores.
A man takes a truckload of generators down to the Katrina area and sells them to the highest bidders--and gets arrested.
Big concert--the Gotta Go event of the year. World Series, Super Bowl etc. Tickets are 1000% higher than original.
Gas prices RISING! C'mon how many threads on AD alone?

but I got it all,
you want what I got

but someone else has my asking price, as exhorbitant as it may seem to you.
Sorry Bub mellow.gif

Its the Free Market neighbor. The free exchange of goods for an agreed upon rate.
Should I be held responsible because you live in a disaster area known to have regularly occurring events -- hurricanes, tornados,ice storms -- and you are still not smart enough to prepare for such events by getting extra storable food, water and perhaps a power source, to survive such an event?
Why am I being restrained because you are an idiot with a criminal disregard for your own well being and that of your family's?

I bought whatever the merchandise is. It is now MY property--why should I not sell it to who i wish if they can meet my asking price -- after all if I ask too much no one will buy it and I will have to lower my prices, right?

Call me a meany or whatever 4letter mixture you prefer, take me off you christmas/jesus day card list. Whatever fits your desire.

You live in a world where it is known gas prices are extremely volatile. You bought the truck, SUV. You bought the home in the suburbs 50 miles from work. You haven't prepared for events you KNOW can and even more importantly WILL happen.

I planned ahead.
I have a valuable commodity in gas that can easily be paid for by many people, so if there is a shortage and the demand skyrockets--why should I not raise the price?

Why am I penalized for your shortsightedness?

I bought fifty tickets for the agreed upon price and now am trying to sell them to others who want them bad enough to pay 10X what they are worth originally.

Scalping? Gouging?

I think not.


Should Scalping or the popular Gouging be considered illegal or even unfair, after all you could invest in products you know will someday be in demand and sell them yourself?

Is it not a free exchange between those who have and those who can afford what they want?

Should government be allowed to penalize people for selling their products/property for whatever they wish even in situations like gas crunches or disasters?

In such situations, you are aware of the possibilities and the dangers, so why should others be penalized for your mistake in failing to plan ahead?
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Reepicheep
post May 30 2006, 10:29 PM
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QUOTE
This is what happens when the law is outgunned, as it is in a disaster area. It's mob rules, not "free economic rules" and gouging until the crisis clears further incites that violence.


I would agree with you in as much as you state that people in desperate situations are more prone to theft and violence. I would also agree that the high prices caused by limited supply in disaster conditions place more people in desperate situations, thereby inciting more violence.

I do not believe, however, that price gouging causes higher market prices for goods, and, therefore, it also would not play a role in inciting violence. Market prices are set by the confluence of supply and demand. Setting an artificial price cap on a certain good does not affect the true market price for that good, and it certainly does not affect the value of that good in the eyes of potential consumers. If the market price for bottled water in the disaster area is $50 a bottle, it may be that people would be nice enough not to mug the guy who is charitably selling it for $2. But once the vendor sells out of his product, which is bound to happen very quickly at prices so far below the market price of the good, certainly those who received the windfall gift of a $2 water bottle are targets in the eyes of those who missed the distribution. It doesn't matter that some guy was nice enough to sell the bottle for $2; the people who weren't able to buy any water are just as thirsty as they were before and may be very willing to steal the water from its new owners. Those water bottles are still worth $50 to a thirsty person regardless of how much the original vendor sold them for, and people are still going to fight over them as if they were worth $50.

If violence is linked to the desperation caused by high prices, then the best way to alleviate the high prices is to encourage as much supply into the disaster area as possible. High prices are an excellent encouragement to retailers to do just that. As more sellers enter the market with goods to sell, the market prices will naturally drop and so will the violence. Setting artificial price caps on goods by punishing price-gouging only discourages people from selling goods in the area, prolonging the period of high market prices and also prolonging any violence that may be caused by the desperation the high prices bring.
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Mrs. Pigpen
post May 30 2006, 10:39 PM
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QUOTE(Reepicheep @ May 30 2006, 06:29 PM)
If violence is linked to the desperation caused by high prices, then the best way to alleviate the high prices is to encourage as much supply into the disaster area as possible.  High prices are an excellent encouragement to retailers to do just that.  As more sellers enter the market with goods to sell, the market prices will naturally drop and so will the violence.  Setting artificial price caps on goods by punishing price-gouging only discourages people from selling goods in the area, prolonging the period of high market prices and also prolonging any violence that may be caused by the desperation the high prices bring.
*



Well, yes I agree supply is the problem. Roads are blocked, power wires down, flooding and biohazards...it's a disaster area and supplies are scarce. huh.gif Retail sellers don't have access to these areas for quite a while, unless I'm missing something.
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Reepicheep
post May 30 2006, 10:50 PM
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QUOTE(Mrs. Pigpen @ May 30 2006, 02:49 PM)

Gouging discourages private charity as well, I think I should add. Care to hand out free or cheap water door to door when bandits can steal it and sell it for a mint? It's in everyone's interest to support measures that ameliorate that sort of chaos. It's a classic prisoner's dilemma situation.


I'm not sure what bandits stealing water has to do with the discussion. Stealing is already illegal. Price gouging laws don't change that any, and I'm not sure why thieves would be concerned about observing any price-gouging laws. On the contrary, what little police coverage there may be in a disaster area should certainly not be wasted in pursuing people making voluntary exchanges with others.

Or maybe the primary concern is that we don't want to distribute water to people free of charge and then have them turn around and make an enormous profit on our generosity. I would claim, however, that if people take the water you give them for free and sell it to someone else for $50 a bottle, that is the ideal situation. Obviously, someone who was thirsty enough to pay $50 for a bottle of water missed your charitable distribution and would have gone without had the original beneficiary not located the needy person and sold the water to them. Certainly in our charitiable giving we are interested in saving lives. If someone sells his water that we gave him for free, it means we obviously gave him more than he needed. That extra water is now quenching the thirst of someone who would have otherwise gone thirsty. Now, that doesn't sound too bad; does it?
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Ringwraith
post May 30 2006, 10:51 PM
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QUOTE
If violence is linked to the desperation caused by high prices, then the best way to alleviate the high prices is to encourage as much supply into the disaster area as possible. High prices are an excellent encouragement to retailers to do just that. As more sellers enter the market with goods to sell, the market prices will naturally drop and so will the violence. Setting artificial price caps on goods by punishing price-gouging only discourages people from selling goods in the area, prolonging the period of high market prices and also prolonging any violence that may be caused by the desperation the high prices bring.


I would agree that this is a viable argument in most cases... but not in every single case. Witness last fall's evacuation from Houston brought about by Hurricane Rita.

With the Hurricane approaching there was not enough time to bring in extra fuel. Stations ran out of fuel and were unable to receive more in time before the storm would have hit. Taking your example to the next step, had the storm hit, and had the gas been selling at $50.00 a gallon, I (and many like me) would have been stuck in a storm with the power to potentially kill every one of us simply because a few sellers wanted to make more money. I think Hobbes summed it up best:

QUOTE
In emergency situations, the government should do what it is there for...to promote the common good. In non-emergency situations, I think the common good is to allow the free market to work.


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Reepicheep
post May 30 2006, 11:07 PM
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QUOTE(Mrs. Pigpen @ May 30 2006, 05:39 PM)

Well, yes I agree supply is the problem. Roads are blocked, power wires down, flooding and biohazards...it's a disaster area and supplies are scarce. huh.gif Retail sellers don't have access to these areas for quite a while, unless I'm missing something.


Certainly discount retailers are not able to drive right in with their 18-wheelers and unload their wares. In that case there would be no supply problem. But there is always some access to a disaster area; perhaps by boat or SUV or helicopter. Of course, the only way anyone could possibly make any money by distributing goods in this way is by charging very high prices. Unfortunately, that's illegal. So, people often just have to do without.

Even if big retailers can reach a major city in the disaster area, it would still be difficult for quite some time to move the goods to rural areas that haven't been cleared yet. The free market is excellent at resolving this problem by rewarding those who make the difficult journey to take goods to sell to hard to reach places. Notice that no government officials are needed to coordinate this distribution effort. It all happens naturally when people are allowed to sell their goods at market prices, free from government intervention.

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Christopher
post May 30 2006, 11:09 PM
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QUOTE
In emergency situations, the government should do what it is there for...to promote the common good. In non-emergency situations, I think the common good is to allow the free market to work.


QUOTE
Well, yes I agree supply is the problem. Roads are blocked, power wires down, flooding and biohazards...it's a disaster area and supplies are scarce. huh.gif Retail sellers don't have access to these areas for quite a while, unless I'm missing something.


When does it end though? Just when is the disaster over? Many governmental agencies are still in action and control long after what i would consider a reasonable amount of time. The handwringing over Katrina went on for a long time.
When would private sellers be allowed to again practice free trade in a government controlled zone?
What is considered the "proper" moment for free trade to again be practiced without fear of the business end of a government gun barrel? There are always going to be those who never bothered to prepare for anything and need to be handheld forever and a day because they lack any real skills at managing their lives. How long should I be restricted in relation to these people who clutch and scream for others to take care of them for free? All because of the Greater Good notion?

What is the proper timeline and milestone that should be observed?
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Mrs. Pigpen
post May 30 2006, 11:54 PM
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QUOTE(Reepicheep @ May 30 2006, 06:50 PM)
QUOTE(Mrs. Pigpen @ May 30 2006, 02:49 PM)

Gouging discourages private charity as well, I think I should add. Care to hand out free or cheap water door to door when bandits can steal it and sell it for a mint? It's in everyone's interest to support measures that ameliorate that sort of chaos. It's a classic prisoner's dilemma situation.


I'm not sure what bandits stealing water has to do with the discussion. Stealing is already illegal. Price gouging laws don't change that any, and I'm not sure why thieves would be concerned about observing any price-gouging laws. On the contrary, what little police coverage there may be in a disaster area should certainly not be wasted in pursuing people making voluntary exchanges with others.
*



It has everything to do with this discussion. Didn't you just mention that the only recourse for many under these circumstances is stealing or death? We have a situation which is extremely volitile as it is, with overtaxed and undermanned security people trying to prevent complete chaos. People will be stealing to live...Enter into the equation a lucrative incentive to steal for extremes of profit as well. It's virtually a foregone conclusion that this would increase crime.

Edited to add, to answer Christopher: I'd say when the roads are relatively clear, and people aren't in mortal danger, let the free market work. While the situation is in crisis, no.

This post has been edited by Mrs. Pigpen: May 31 2006, 12:05 AM
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psyclist
post May 31 2006, 02:26 AM
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QUOTE(Reepicheep @ May 30 2006, 06:29 PM)

Market prices are set by the confluence of supply and demand. 


As I said earlier, this is the neoclassical economist's view of price. While it's certainly the most popular theory for how the price of a good is determined, it simply cannot be boiled down to something so simple as "price is set by supply and demand."

While I too will have to simplify the theory down, I think we have to at least address some of the basic assumptions for neoclassical economics and see how they pertain to our crisis situation.

There are three main assumptions of neoclassical economics:

QUOTE

1. People have rational preferences among outcomes that can be identified and    associated with a value.
2. Individuals maximize utility and firms maximize profits.
3. People act independently on the basis of full and relevant information.


In our crisis situation, I believe only assumption #2 holds true. That people want to maximize utility (the happiness or satisfaction gained from buying say, a bottle of water) and that firms or the sellers want to maximize profits.

However, in a crisis situation, the idea of rational preferences breaks down. The idea of a person having rational preferences assumes

QUOTE

1.  An individual has precise information about exactly what will occur under any choice made. (Alternatively, an individual has a reliable probability distribution describing what will happen under any choice made.)
2. An individual has time and ability to weigh every choice against every other choice.
3. An individual is fully aware of all possible choices.


I think it's pretty obvious that assumption #2 and #3 do not hold true in a crisis situation. Thus, the first assumption that people have rational preferences is no longer true.

It's easy to dismiss the third assumption of neoclassical economics as well. If a natural disaster just hit my town chances are I don't have any information, let alone full and relevant information. Would I pay $10 for a bottle of water if I knew Red Cross was going to show up in 2 hours? Heck no. Would I pay $10 if I knew FEMA was going to drop the ball on me and it was going to be a week or so? I'll take two please!

So we've just eliminated two out of the three most fundamental assumptions of how markets work with this crisis situation. But we're not done yet. Neoclassical economics also assumes that there is perfect competition. Perfect competition is an economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices. In order to operate under the assumption of perfect competition you must assume (you know what they say about assuming right? laugh.gif ) five things:

QUOTE

1.) Atomicity
    There are a large number of small producers and consumers on a given market, each so small that its actions have no significant impact on others. Firms are price takers, meaning that the market sets the price that they must choose.
2.) Homogeneity
    Goods and services are perfect substitutes; that is, there is no product differentiation.
3.) Perfect and complete information
    All firms and consumers know the prices set by all firms (see perfect information and complete information).
4.) Equal access
    All firms have access to production technologies, and resources (including information) are perfectly mobile.
5.) Free entry
    Any firm may enter or exit the market as it wishes (see barriers to entry).


Now look at this from our crisis situation.
Atomicity- Are there a large number of producers and consumers in a given market? No. There are probably very few people selling water at this point and I as a consumer probably don't know the next time I'm going to run into a guy selling water, so I might buy the water just to be on the safe side.

Homogeneity- This I think is safe to assume. In a crisis, no one is going to care whether you're selling Dasani or Ozarka spring water.

Perfect and complete information - Again, no.

Equal Access - N/A

Free entry - This one is debateable but I would say no. Only the people who stocked up on water prior to the crisis will be able to "enter the market." However, over time, the hypothetical people who decide to drive down with cases of water will be able to enter the market. However, those sellers still probably wouldn't number enough to fulfill the Atomicity assumption.

Perfect competition doesn't really exist in non-crisis situations in the real world and so it's no stretch of the imagination to assume it wont exist after a crisis situation. What's more likely to exist (as I told Leder) is an oligopoly.

QUOTE

Oligopoly: A market structure characterized by a small number of large firms that dominate the market, selling either identical or differentiated products, with significant barriers to entry into the industry. 


Sounds a lot like our crisis situation to me. Now, here are the five common behaviors of an oligopoly:

QUOTE

1.) Interdependence: Each oligopolistic firm keeps a close eye on the activities of other firms in the industry. Decisions made by one firm invariably affect others and are invariably affected by others.

2.) Rigid Prices: Many oligopolistic industries (not all, but many) tend to keep prices relatively constant, preferring to compete in ways that do not involve changing the price.

3.) Nonprice Competition: N/A

4.) Mergers: N/A

5.) Collusion: Another common method of cooperation is through collusion--two or more firms that secretly agree to control prices, production, or other aspects of the market. When done right, collusion means that the firms behave as if they are one firm, a monopoly.


Now, I hate to think this, but what if there's say only 3 guys that you know of selling water. Now what if those three guys are brothers? Or best friends? Or those three guys found out about each other and agreed to charge $10 for a bottle of water? Are the low down dirty rotten people? Yep. But, money is the great motivator right? (And source of all evil too...huh.gif)

So, as I said in a previous post, neoclassical economics is a good theory but it's just that, a theory. I would say that in a long enough time scale, the markets would become self correcting and eventually we'd slide back into pseudo free market neoclassical view of supply and demand and prices would work themselves out. However, in the short run, and especially in a crisis situation, the assumptions of neoclassical economics breakdown throwing the idea of "price is dictated by supply and demand" out the window. That is why, regulation is needed (as it is needed and used in non-crisis situations) to ensure that no one takes advantage of others when the system breaks down.

cite
cite
cite
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This post has been edited by psyclist: May 31 2006, 02:30 AM
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Reepicheep
post May 31 2006, 03:48 AM
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QUOTE(Ringwraith @ May 30 2006, 05:51 PM)
Witness last fall's evacuation from Houston brought about by Hurricane Rita. 

With the Hurricane approaching there was not enough time to bring in extra fuel.  Stations ran out of fuel and were unable to receive more in time before the storm would have hit.  Taking your example to the next step, had the storm hit, and had the gas been selling at $50.00 a gallon, I (and many like me) would have been stuck in a storm with the power to potentially kill every one of us simply because a few sellers wanted to make more money. 


This is a very good example of why there should be no laws against price-gouging. This is not just a hypothetical situation; thousands of motorists were actually stranded on the side of the highway during the evacuation of Houston because of gasoline shortages. So, were the stranded motorists sitting there in the blistering, Texas-summer heat cursing the price-gouging gas stations for ripping them off? No, they were cursing the gas stations for running out of gasoline to sell them. Surely, many of them would have gladly paid $50 a gallon for just enough gasoline to get them a little further down the road where the shortages were not as severe, but they could not buy gasoline at any price because many of the stations had no gas to sell them.

If the gas stations had been less afraid of an eminent price-gouging crackdown by the state and had raised their prices substantially during the evacuation, perhaps people would have thought twice before filling up their tanks with more gas than they absolutely needed until they reached an area where supply was not as tight. They might also have thought twice before evacuating with more than one vehicle as many families did.

Although setting gas prices artificially low during the evacuation caused quite a few people to be stranded due to the resulting gasoline shortages, it is unlikely that very high gas prices would have stranded anyone. Even if the gas stations had the enormous market power to set the price to whatever they wanted (which they don't, due to competition with other stations), it would be masochistic for them to set the prices so high that they could not sell almost all of their product before getting re-supplied. They would just be leaving money on the table.

So, even supposing that there were only x number of gallons of gasoline along the evacuation route and the stations could not re-supplied for quite some time, and supposing the gas station owners had ultimate power to set their prices to whatever they wanted, the owners would still make sure they set their prices at a level that would allow them to sell all x gallons. Notice that all x gallons of gasoline will be sold to the evacuating motorists regardless of whether or not the stations concerned themselves with price gouging, so no one would be stranded in Houston solely due to the fact that gas station owners were being too greedy. However, by setting the prices too low, the first evacuees were not properly motivated to conserve gasoline and to buy only as much as they really needed which left some of the later motorists stranded on the highway with no fuel.

The free market really does do the right thing. Not only does the free market system not fail in disaster situations; it actually shines. In the midst of turmoil and chaos, no person or governing body can possibly be smart enough or well-informed enough to make the correct decisions about something as dynamic and intractable as what the "correct" prices for commodities should be. Fortunately, the free market is very good at this. Millions of individual preferences are very quickly translated into prices that serve to encourage just the right amount of production by producers and just the right amount of conservation by consumers to equalize supply and demand and minimize shortages and surpluses. Price-gouging laws only serve to interfere with the working of the free market and unnecessarily exacerbate the difficult problems inherent in natural disasters like Hurricane Rita.
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Syfir
post May 31 2006, 08:40 AM
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QUOTE(Hobbes @ May 28 2006, 03:33 AM)
QUOTE(Syfir @ May 27 2006, 03:05 AM)

But what is to stop a person from simply running through your line 15 times to buy 30 bottles of water which they can then turn around and sell for $5 down the street to people who couldn't get the water from you because now you're out.


Hmmmm...the Police?


How are the police going to do this? They have too much else on their plates to spare any police to monitor every retailer that is selling water in the whole city. They couldn't do their regular jobs in N.O. apparently. Not to say they didn't try but they sure didn't have any people to spare.
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Mrs. Pigpen
post May 31 2006, 02:24 PM
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QUOTE(Syfir @ May 31 2006, 04:40 AM)
How are the police going to do this? They have too much else on their plates to spare any police to monitor every retailer that is selling water in the whole city. They couldn't do their regular jobs in N.O. apparently. Not to say they didn't try but they sure didn't have any people to spare.
*



This is a false dichotomy. Police do not have to monitor each and every private exchange between people. Anti-gouging laws can suffice by creating some barrier of accountability towards a large monopoly on those exchanges, it's simply a preventative measure. It isn't hard to spot the group of thugs who stole 500 bottles of water to sell at the price of 20 dollars a bottle.

Here are two scenarios:

One, thugs steal 500 bottles of water for large profits and gouging is illegal. Police spot them and fine them.

Two, thugs steal 500 bottles of water for large profits and gouging is legal. Police spot them and say, "Hey! You must have stolen that water!" Thugs say, "Nope. This is an honest exchange between private parties where is your proof we stole the stuff?"

Which of the above scenarios would be more likely to dissuade people from stealing 500 bottles of water?

Some of the arguments on this thread remind me of the Titanic. "Steerage passengers go last..." and you really don't think that this would add to chaos and crime in a disaster area?

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Amlord
post May 31 2006, 03:29 PM
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Good arguments on both sides of this issue.

To be honest, when Christopher first started this thread, I had guessed that the majority would be against a gouging law--either on libertarian, limited government grounds or liberal free will grounds. How wrong I was...


If we take a look at what actually happened during Katrina, we can see first hand what happens during a crisis: hoarding and limited supplies.

As my signature indicates, the Continental Congress tried to put price caps on all sorts of essential supplies during the Revolutionary war and they found out that economic laws are not theories but are in fact laws. If you limit the price of a good you will have shortages as people capitalize on the below-market-value price. On the supply side, suppliers are unwilling to supply goods for below market value prices and supply declines. So you have increased demand (due to lower than market value prices) combined with limited supply (because the profit motive has been suppressed)--the end result is predictably shortages. This is especially true during a crisis, where hoarding becomes commonplace. Now you have a limited number of people buying up essential supplies at prices that are below what they are willing to pay.

Suppliers are unwilling to brave the hazards of venturing into the danger area to obtain the same prices they could get in Souix City, Iowa. Let's not kid ourselves--suppliers clearly could get into the city. Walmart delivered truck loads of supplies to the area and often got there before the Feds: link.

The government is not the best vehicle for delivering goods, the market is. But the market only works when it is unfettered by artificial price controls. Higher prices limit demand. Only those who truly need the commodity will buy it at an inflated price. Without this check on demand, consumption is higher than it should be.

If we look at the Katrina situation, the government was more of a barrier than it should have been in allowing supplies to get through via channels other than itself. It turned away Walmart, it turned away the Coast Guard, it prevented people from leaving the area on foot.

How the Market Might Have Handled Katrina
QUOTE
But how does this work in the case of disaster relief? Is the laissez-faire economist really advocating the Dickensian caricature of companies selling bottles of water and first aid kits to the highest bidder?

No they are not, and this is a point often overlooked even by pro-market writers. Despite the clichés to the contrary, the market does not allocate goods to those who are willing to pay the most for them. On the contrary, in a free market goods are "allocated" to whatever use the owners decide.

In many cases, the owners will indeed not care for the identity of the prospective buyer or the uses to which they will put the goods in question, and will truly sell to whichever party offers the most. However, there are many cases where this rule doesn't hold. When parents maintain a college-bound child's room for Thanksgiving visits etc., they are not maximizing revenue. They are deciding to forego renting the room to a much higher bidder, and instead are giving it for free to their child.


See this account of how the government prevented the free market from working:
Katrina and the Never-Ending Scandal of State Management original source
QUOTE
We decided we had to save ourselves. So we pooled our money and came up with $25,000 to have ten buses come and take us out of the City. Those who did not have the requisite $45.00 for a ticket were subsidized by those who did have extra money. We waited for 48 hours for the buses, spending the last 12 hours standing outside, sharing the limited water, food, and clothes we had. We created a priority boarding area for the sick, elderly and new born babies. We waited late into the night for the "imminent" arrival of the buses. The buses never arrived. We later learned that the minute the arrived to the City limits, they were commandeered by the military.

By day 4 our hotels had run out of fuel and water. Sanitation was dangerously abysmal. As the desperation and despair increased, street crime as well as water levels began to rise. The hotels turned us out and locked their doors, telling us that the "officials" told us to report to the convention center to wait for more buses. As we entered the center of the City, we finally encountered the National Guard. The Guards told us we would not be allowed into the Superdome as the City's primary shelter had descended into a humanitarian and health hellhole. The guards further told us that the City's only other shelter, the Convention Center, was also descending into chaos and squalor and that the police were not allowing anyone else in. Quite naturally, we asked, "If we can't go to the only 2 shelters in the City, what was our alternative?" The guards told us that that was our problem, and no they did not have extra water to give to us. This would be the start of our numerous encounters with callous and hostile "law enforcement".


I truly feel sorry for those that think the government is going to save them. The government first function is to establish order and then, if it's convenient, to help people. Call me cynical but when the government establishes these price controls and commandeers supplies, it helps no one.
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Reepicheep
post May 31 2006, 03:58 PM
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psyclist,

I agree with a lot of your post. That is a pretty good description of the elements that are necessary in a market to make it as efficient as possible, as well as a good description of what is necessary for perfect competition. I particularly disagree with the last paragraph, though:

QUOTE(psyclist @ May 30 2006, 09:26 PM)
So, as I said in a previous post, neoclassical economics is a good theory but it's just that, a theory.  I would say that in a long enough time scale, the markets would become self correcting and eventually we'd slide back into pseudo free market neoclassical view of supply and demand and prices would work themselves out.  However, in the short run, and especially in a crisis situation, the assumptions of neoclassical economics breakdown throwing the idea of "price is dictated by supply and demand" out the window.  That is why, regulation is needed (as it is needed and used in non-crisis situations) to ensure that no one takes advantage of others when the system breaks down.


For starters, I think it is incorrect to say that “in a crisis situation, the assumptions of neoclassical economics breakdown throwing the idea of ‘price is dictated by supply and demand’ out the window.” The “assumptions of neoclassical economics” you refer to are not necessary preconditions for a free market, they are simply preconditions for a perfectly efficient market. I’m pretty sure that such perfectly efficient markets never exist at any time and at any place, especially in a disaster area. For instance, I don’t think individuals ever have “precise information about exactly what will occur under any choice made”, and for the vast majority of transactions they don’t even have “a reliable probability distribution describing what will happen under any choice made”, and are certainly very rarely “fully aware of all possible choices”.

I do believe, though, that individuals are more informed about their *own* preferences in any given situation than anyone else could possibly be, particularly some regulatory government body removed in time and space from the present needs of that individual. Let’s consider an example from your post:

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Would I pay $10 for a bottle of water if I knew Red Cross was going to show up in 2 hours?  Heck no.  Would I pay $10 if I knew FEMA was going to drop the ball on me and it was going to be a week or so?  I'll take two please!


The point you are making here is that you don’t have perfect knowledge to inform your decision about whether or not to buy the bottled water, but surely you have more knowledge about the situation than some government agency who established an arbitrary price-gouging rule years ago. In the example quoted above, you make the claim that you might be willing to pay $10 a piece for two bottles of water in the case that FEMA was not going to rescue you anytime soon. If you are willing to buy them for $10 and he is willing to sell them for $10, then $10 is the real market price of those bottles of water at that time and place. The absence of competition is irrelevant. The market price of the water at other times and places is also irrelevant. All that matters is that the two of you have come to an agreement about the price of these bottles right now.

Unfortunately, such a purchase would be illegal. That would be price-gouging. The correct choice in this situation, as mandated by the omniscient government, is for you and your family to go thirsty. I know that you might have been willing to give up $20 for the two bottles of water, but the government disagrees with this value judgment. Due to price-gouging rules, the government has decided that, in this case, it is more important to keep you from getting ripped off than to make sure you have sufficient drinking water.

Of course, the ideal situation would be for the person who has the extra bottles of water to sell them to you at a “reasonable” price, but he is under no legal obligation to do so. He may very well decide to keep all the water for himself and his family if all he can legally get is $2 a bottle, whereas for $10 he might be willing to sell to you and ration his remaining water a little more.

The point, though, is that none of these individual preferences matter any. The government has already decided the situation in advance, and the decision is for you to go thirsty. But, hey, look on the bright side: at least you’re not going to get “gouged”.

I don’t think it is logically justifiable to conclude that just because markets are less efficient during times of disaster and fail the tests for perfect competition that they should be ignored in favor of government regulation. The market is still going to perform better than government regulation and price caps, even when consumers have incomplete information. The government price-gouging regulations are entirely concerned with making sure people don’t get “gouged” (according to whatever definition they happen to invent for that). Price-gouging regulations make absolutely no attempt to ensure the availability of supplies. If I was in a disaster situation, I think I would be more concerned with the availability of supplies than with getting gouged. Too bad I’m not allowed to make that decision for myself, though.
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lordhelmet
post May 31 2006, 05:32 PM
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QUOTE(christopher @ May 22 2006, 04:27 PM)


Should Scalping or the popular Gouging be considered illegal or even unfair, after all you could invest in products you know will someday be in demand and sell them yourself?

Is it not a free exchange between those who have and those who can afford what they want?

Should government be allowed to penalize people for selling their products/property for whatever they wish even in situations like gas crunches or disasters?

In such situations, you are aware of the possibilities and the dangers, so why should others be penalized for your mistake in failing to plan ahead?

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I agree with your outlook. Supply and demand is a basic driver in our economic system. State set prices and market caps are historically a bad idea. But that doesn't mean that they won't be the reality.

Should the government penalize people for selling goods and services at what the market will bear? Of course not. But they WILL because a large percentage of our people ARE stupid, unprepared, and unwilling to take accountibility for their own actions or lack of them.

This is inherent in our form of government since the unprepared and the stupid still get the same vote as a prepared genius who's considered all contingencies.

But, I think that fair is fair and that economic hardship should work both ways. For every "big oil" company profit that gets confiscated, we should tax some left leaning actor, movie producer, or college professor for their "windfall" profits at the box office or on the speaking circuit.

That would be American. That would be fair. mrsparkle.gif us.gif
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