Supply and demand interact; that's basic economics. But let a natural disaster strike, causing demand for certain things to go up, which tends to push up the price, and they call it price gouging and bring in the attorney general's profit police.
"We recognize that the majority of businesses will not take advantage of Hoosiers affected by the winter weather storms, and this warning is for those that would put greed before their better judgment," Attorney General Steve Carter said. "The attorney general's office will investigate complaints about unconscionable pricing."
Why unconscionable? Why is it more evil to increase the price of winter coats during a cold snap than it is to increase the price of roses on Feb. 14? Because there is a greater need for the coats? Those with the greatest need are always willing to pay the highest price; that's how resources are allocated. I am more willing to pay to have my walk shoveled when it has snowed 12 inches than I am when it has snowed 2 inches. But when someone comes along and offers to shovel it for $20, I still have choices. I can pay it, try to negotiate, decline and hope someone comes along and offers to do it for $10, think about doing it myself. The person who prices his shoveling at $50 is likely to earn nothing, while the one who offers it for $5 is likely to do too much work for too little money.
In every free transaction, each party is trying to take advantage of the other. Even in a blizzard or after a hurricane, there is no evil unless there is fraud, a price that isn't what it seems to be or a good or service that isn't delivered as promised.
Comments
If each party is truly trying to take advantage of the other; how can that be a free transaction? If there is no expected/increased charge for a good or service, what type of transaction is that, since it, by your definition, can't be free?
If I help my neighbor out of his driveway; am I therefore required to charge as much as I can from him for it to be a free transaction? What if I do it and expect nothing for it? Is being a good neighbor a transaction that is free or not?
There is an answer to the question, and I'm sure it has to do with things like hardship, suffering and survival.
Those words don't seriously apply in the matter of roses on Valentine's Day or the last Elmo doll at Christmas, but they sure do when one truly needs a gallon of water or gas in an emergency.
You might even make the case that if government has any purpose at all, one of them is precisely to referee things like this.
"If each party is truly trying to take advantage of the other; how can that be a free transaction?"
By definition in a free market each party is looking out for their own best interest. "Free transaction" refers to a free market transaction, not free in price. Leo is right the allocation of resources can be performed by government (is Marxism, socialism ECT)... or by a free market. We have reams of evidence that government allocation is the most inefficient means possible and the free market is the most efficient providing the most resources to the most people.
"There is an answer to the question, and I'm sure it has to do with things like hardship, suffering and survival."
The fact that it has to do with hardship, suffering and survival, does not remove the law of supply and demand from the equation. Prior to the disaster supply and demand of snow shovels are in equilibrium, but when the blizzard hits demand increases quickly. If the price remains the same the resources will be allocated to the first people who show up to buy the shovel. If price goes up (as it naturally should, given an increase in demand and static supply) the resource will be allocated to those who need it the most (the ones that want the shovel bad enough to pay more than the original price). It may seem cold and uncaring, but the fact is it allocates resources better than any other method developed in 5000 years of human history.
>If the price remains the same
>the resources will be allocated
>to the first people who show up
>to buy the shovel. If price
>goes up (as it naturally
>should, given an increase in
>demand and static supply) the
>resource will be allocated to
>those who need it the most (the
>ones that want the shovel bad
>enough to pay more than the
>original price).
Jon -
I don't disagree with your train of logic SO FAR, but in order for me to sign on to any such ideal, we have to go the whole distance and account for all the fundamental tripping points.
I posit that the solid and compelling logic for increasing the price of the snow shovel, in a thinking society, is still incomplete. Even a thinking capitalist society.
I am convinced your scenario stops short of accounting for all the variables that have to be accounted for, the most glaring of which is the nature of humanity itself.
If we could count on every shop owner to be the fair and Solomonesque arbiter that we'd hope everyone would be, no further concern would be necessary. We could all count on things to work out for the best in a crisis.
But I'm afraid anybody reading this thread so far, whether consumers or shopowners or officials tasked with building a general framework for the public good, already senses why your view of things falls short.
Nevertheless --
Rather than lay out my own explanation of the additional limits made necessary by imperfect human nature, I'd rather let this hang in the air for a bit and see if other readers are moved to comment. Maybe we'll discover if any of the stakeholders in scenarios such as we describe are made uncomfortable by the remedies or alternatives we've championed so far.
Maybe one or two of them will post additional points of enlightenment from their practical experience. I'll probably be compelled to finish my thought before too long, though.
Leo's original definition was 'In every free transaction, each party is trying to take advantage of the other.' That is what I questioned as not being valid.
This is different from Jon's definition, '...in a free market each party is looking out for their own best interest.'
I've heard many variations of the snow shovel argument (chain saws after as ice storm; plywood just before a hurricane; shingles after a wind storm; etc.) by free market believers over the years. But, you never take it to the next logical step.
To wit--Shovels are $5 each (normal demand, normal supply) at the local store. It snows; a lot. You and I arrive at the store. I have $10 because I realize the the shop owner will probably want more. You bring $50 to make sure you get a shovel.
We're both wrong; the owner wants $25 each (increased demand, static supply). I leave (priced out of the market). You pay $25 for a $5 shovel.
Outside the store, I offer you $10 for your new shovel or a bullet in the head from my Smith & Wesson (increased demand, static supply). Looking out for your own best interest, you sell me your new shovel for $10. Now you return to the store and buy another shovel(you're still ahead of what you were willing to pay by $10).
Hmmm---cold and uncaring? yes, scare resources allocated in everyone's own best interest.
Win the shop owner? yes, he got to sell two $5 shovels for $50.
Win for me? yes, overpaid for a shovel; but what I expected.
Win for you? yes, you've still got $10 left which you would have gladly paid anyway.
Win for the free market? absolutely, no government intrusions were necessary to allocate the shovels to everyone's expected satisfaction.
Somehow, I suspect you really don't want that kind of free market system. But, that is what can/does happen.
I agree with you that the free market concept is better at allocating resources than total governmental control. But, it really doesn't have to be one or the other.
Government is really necessary to police (wish there was a better word) the aberrations in the market.
If you need further proof, look at the cell phone industry in this country (free market) versus the cell phone industry (some governmental regulations) in the rest of the world. That industry is far more advanced than our own, precisely because of governmental mandates.
Why do stocks rise and fall on a daily basis? Look at the price of corn last year at just around $2.10 a bushel. Last week it was $4.25 a bushel. This is 100% increase in just one year. Look at the price of oil. Are the countries gouging us? How about selling your home? Do you wait to sell your home when the number of homes on the market drops or when it increases? Everyone is looking at selling their stuff for the best price? If you are the buyer, you may call it gouging, to the seller it is free enterprise.
My feeling is simple. Be prepared. Think ahead.
Just a little push to the logical thread thus far -- I'd contend that Mr. Boley's point beats Mr. Larsen's.
Larsen implies there may be no such thing as gouging in most cases. That's very hard to take seriously.
Mr. Boley reminds us that consumer goods do not become day-traded commodities overnight, in our minds.
When we see sudden and dramatic price increases which are hard to explain other than as a direct profiteering response to an emergency, we as a society will react to that price tag, with few exceptions, as opportunistic and greedy.
Not surprisingly, the old saying that "No jury would convict me" rears its head at this point.
Stop and let that sink in before you continue. In this debate, I think the inevitable reaction by reasonable people -- the righteous conviction of being abused by some sellers in a time of crisis -- is going to be one of the givens.
When the perceived wrong is this severe, the consumer is easily convinced of the rightness of his own position, particularly when the health and well-being of his family depend upon that gallon of water or gas.
If the guy who goes to buy the snow shovel is poor, and only scraped together enough cash to pay the usual price, he will expect to find the shovel somewhere at that price except where it is sold out.
If he finds that the market has been cornered by "unprincipled" scalpers who bought up the whole supply in hopes of bleeding the desperate, then the needy purchaser will "influence the free market" by either raiding the horded supply at gunpoint and hanging the apparent crooks from the nearest tree as an example, or, if he can, by getting his needs met at another store with less effort. Would-be scalpers should pray that other store exists...
Ethics change quickly with the plain logic of hard conditions.
our government used to enforce free enterprize by the use of anti-monolpy laws, In the last 30? years we have been beset by mergers of large and therfore powerful companies in all areas oil insurance banks food stores automobiles every time free competition is curtialed we as customers lose our buying power;
>there is no evil unless
>there is fraud...
This sounds good, Leo, and I'm sympathetic enough to most of your views to be tempted to subscribe, except that I'm keenly aware that as far back as the Roaring 20s and Depression 30s, gangsters were hunted down and sent to prison for a crime called loan sharking. It's a fair example of the dark side of the principle.
Loan sharking is the crime of preying on people who are likely to be desperate and needy by loaning them money at harshly unfavorable terms (sort of like the credit card companies now, in fact, but never mind).
Loan sharks make their high-dollar profit by exacting exhorbitant interest from strapped borrowers and by assuring loan payments by means of strong-arm collection tactics if necessary.
My point is that American legal precedent is clear -- that people may enter contracts voluntarily and still be defined in court as crime victims, just as sellers can still be held for prosecution, if the circumstances of the deal are, in the opinion of reasonable people, abusive to some illegal degree.
The law has, for a very long time, acknowledged that there are circumstances in which innocent folk may become entangled in desperate deals to stave off a personal crisis. And that legal view holds that these voluntary participants may STILL be considered crime victims deserving of redress, and the purveyors of an abusively harsh contract subject to prosecution -- at least, in the body of cases underlying my loan sharking example.
I'm not accusing or bashing anyone by any means; I'm simply pointing out that there is no absolute free pass under law for the worst of opportunists in a real public emergency. And there are laws against certain kinds of predatory activity that prevents those activities from being rationalized as simple entrepreneurial enthusiasm and pragmatic retailing.
I don't have to tell you folks about the many stories in the news of stores being fined for gouging in disaster areas. Again, no free passes for those who lose their ethical compass.
Now this is an interesting twist, Steve wants to throw ethics (and changing ones at that) into the discussion. Ethics might put some conditions on the 'free market' as defined by Jon.
So how would this play out in my last scenario? I'd suggest most people would find it unethical for me to take Jon's shovel at gunpoint. Although I'd be justifying (changing) my personal ethics because I did give him $10 (more than it was worth) for it.
I'd suggest most people would find it unethical for Jon to pay $25 for a $5 shovel. Although he'd justify (change) his personal ethics because he really wants that shovel.
I'd further suggest most people would find it unethical for the shop owner to charge $25 for $5 shovels. Although the owner would justify (change) his personal ethics because he thinks 'I've got shovels that someone will gladly overpay for today.'
If you truly believe in the 'free market concept' then one can justify (change) his personal ethics to allow the logical conclusion that taking one shovel at gunpoint is quite justified. (follows all the rules of the supply and demand scenario).
If we throw in societal (most people) ethics on top of the 'free market concept', then one logically arrives at the concept of 'price gouging'. Gosh, that's where we started.
If we add government's role into this, certainly one of its roles would be to punish me for taking the shovel at gunpoint (not the acceptable behavior expected of the citizens). From there it is a very very short step to punishing the shop for 'price gouging' (not the acceptable behavior expected of the citizens).
One other comment, I don't think one has to be poor to feel ripped off (price gouged). It may affect them more, but it isn't a requirement.
One only has to be poor enough not to be able to afford some life-saving resource whose price has been inflated in order to feel the heat.
Life isn't fair, and ethics are probably not applied any more fairly than anything else, but all a vendor has to do is be perceived as unethical in a crisis and all bets are off regarding his customers' feelings of entitlement to needed supplies.
You can't debate ideology with an angry and potentially armed mob at your front entrance. The vendor's only refuge in a general emergency with a breakdown of law & order is people's respect for you.
If the public thinks you're being greedy in a time when they feel acutely needy and vulnerable, it won't matter who else's ethics are debatable. They'll justify everything, after the fact, with the self-righteous argument that you burned them first.
So if we have the equivalent of a Katrina around here, you can stand in your door with a bullhorn and argue the fine points, as long as you remain standing, I guess.
History shows that civilization can seem like a paper-thin veneer in some real world human crises.
Don't forget, Jean Valjean went to prison for the theft of a loaf of bread to feed hungry stomachs.
There's a reason why, for centuries now, he's been the beloved hero of the classic novel and now Tony-winning play called "Les Miserables."
If you happen to be a capitalist who can't get your mind around the logic of the above plotline, you're going to want to ask someone to explain the basics of the ethical premise to you.
Sure, Valjean was a thief in his district by technicality, but that detail is irrelevant in the overriding context of the saga of his circumstances.
It would be well to factor that perception into any strategy to overprice bread, or shovels.