Thursday, September 7, 2017

Price Gougers are Heroes



The following is my most recent Op-Ed in the September 7th Orlando Sentinel
 
On March 9, 1776 Adam Smith published the most important book on economics ever written.  In The Wealth of Nations Smith wrote, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.  We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

241 years later, Hurricane Irma churns towards the United States and Florida politicians – by ignoring Adam Smith – are making our lives miserable.

It is, of course, illegal for businesses to “profiteer” by raising the price of water, gasoline, generators, batteries and any number of essential items during a natural disaster.  Lawmakers – often among the most economically illiterate humans you will ever meet – tell us that we can call a special hotline if we spot anyone responding to 150 mph winds by raising prices on all of the things that are selling out because we can’t raise prices.

The folks in Tallahassee tell us price gougers are greedy.  We nod in agreement as we pile water, batteries and toilet paper 20 feet high in our shopping carts with no regard to our fellow citizens staring at empty shelves.

I suppose we are supposed to walk into the grocery stores, see nothing on the shelves, and say, “Gee, I am so grateful that my government did not allow water prices to rise.  Now I can face dehydration knowing they are looking out for my best interests.”

Or….

What if busy-body politicians simply let the free market work the way Smith intended?

Here is what would happen.

First, the category 5 storm heading for our peninsula would cause everyone to scurry like greedy rats out into the market place to stock up on enough supplies to last five years.

Second, upon arriving at the store they would see signs reading:  HURRICANE IRMA SPECIAL:  WATER - $30 (or more) PER CASE.

Then, consumers who care about no one when prices are low are all of a sudden forced to care about everyone because the higher price serves a critical rationing function.  Now the water will be rationed based on our actual demand (and ability to pay), not some panic-induced buying binge that harms other people.    The higher price stems demand and makes sure more people can find water.  They might have to cut back on their cable bill, restaurant spending or phone plan to buy water but so be it. 

Higher prices also signal entrepreneurs to rush supplies to areas impacted by such storms.

Think about it.  If generator prices were allowed to rise you would quickly see people in Georgia, Tennessee, Alabama and surrounding states buying up generators and hauling them to Florida.  Since none of the generator profiteers can possibly know who else is thinking the same way, we would see a relatively large increase in the supply of generators pouring into the state.

Adam Smith’s “invisible hand” would then guarantee that the extra supplies and greater competition would force prices to fall back towards a lower market equilibrium. 

Without the chance to cash in and earn large profits there isn’t the same motivation to bring in live-saving generators or roofing supplies. 

Remember the hurricanes from 2004?  Blue tarps stayed on homes for years because the government of Florida did not allow prices to rise or out of state roofers to make money in our state.

It is also important to note that price gougers (so called) are simply selling their private property at a price they and others agree to.  Private property rights make up the core of what our country is founded on.  If I own something I should have the right to part with it at the price other people are willing to pay.  Voluntary, free exchange is not allowed in places like Venezuela.  It was not allowed in the former Soviet Union.  Instead, governments set prices at “fair” levels and people could not find anything due to the shortages that were created.

So, the next time you see someone on the side of the road selling water or plywood for the new “hurricane price”, stop and say thank you. After all, they are  - whether you know it or not – performing a valuable public service.
 

1 comment:

  1. People really are going overboard on the bottled water. I went to Aldi to pick up a few and they ended up limiting the packs you could get to 3. People just ended up going more than once. I remember thinking they should jack up the prices, especially considering it would just be cheaper to fill up a few of those 5 gallon jugs at a gas station. Seems like a huge waste of water bottles.

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