A Capitalist Argument Against Price Gouging
I thought these were some very good points over at the First Things blog.
(HT: Justin Taylor)
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3 Responses to “A Capitalist Argument Against Price Gouging”
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Matt,
I am afraid that the author of the blog (and his source) are not really addressing the main “capitalist” issue. Prices are not about reputation or monopolies. Prices simply communicate the preferences of buyers and sellers at a given point in time. That prices rise when there are shortages is simply information – and it’s perfectly logical. The high prices are NOT because of monopoly.
The benefit of high prices (read: accurate market information about what is wanted and what supply exists [or does not exist] to fulfil that want) is that it communicates to suppliers to divert resources into providing what is desired. Suppliers will not do this out of charity or a sense of humanitarian aid – the tremendous profit to be had because of the sudden change in price signals an opportunity to profit.
In this manner, high prices in areas hit by disaster are a key signal to mobilise resources and capital into providing what they need most.
When laws (or even social mores) restrict this information from being communicated, then supply and capital are not adequately diverted. Shortages occur: people cannot get food, water, gas, generators, etc… much, MUCH worse than having to pay ten times the price, etc.
As Christians, I think our response should be charity. But we certainly should be wary of advocating restrictions which may do more harm to the people who need help most.
Colin,
Excellent post; I couldn’t have explained it better myself, and I’ve been teaching economics for 20 years. I will have to start reading your site since I am a Christian and a Libertarian.
“Roger” – I am currently in the middle of writing up my PhD thesis, so my blog has suffered greatly. But yea, when I can write again, hopefully you enjoy it.