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The Price Is Right (Even When It Isn’t Agreeable)

Tuesday, October 25, 2016 15:30
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(Before It's News)

(Don Boudreaux)

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Here’s a letter to the Los Angeles Times:

Michael Hiltzik ridicules economist Greg Mankiw for defending market prices driven high whenever the supplies of products fall relative to the demands for those products (“Dear Harvard prof: Your $2,500 ticket for ‘Hamilton’ doesn’t mean price-gouging is a good thing,” Oct. 25).  Arguing for government prohibitions on significant hikes in the prices of goods and services following natural disasters, Hiltzik acknowledges that such prohibitions cause shortages of staple goods and services and, thus, result in queueing.  But Hiltzik is willing to live with this consequence because, in his view, while poor people can’t outbid rich people for higher-priced goods, they at least have as good a chance of getting near the front of the queues as do rich people.

Overlook (as Hiltzik does) the fact that the higher and faster prices rise, the greater are the quantities of goods rushed to devastated areas by suppliers seeking handsome profits, and the faster do suppliers make these deliveries – and, hence, the greater the number of people provisioned with needed supplies in a timely fashion.  Overlook also the fact that the rich – having larger homes and more disposable income than the poor – are better able to store provisions in anticipation of natural disasters and, thus, are less likely than are the poor to desperately need to purchase staple goods in the aftermath of disasters.  Instead ask how likely are poor people to be the ones who actually secure goods and services that are in short supply.  Unlike rich people, poor people cannot afford to pay others to rush to stores and then wait in line for them.  And also unlike rich people, poor people have few political, business, and social connections that they can exploit to convince store owners to hold precious supplies aside for them.

One of the great benefits of allocation by price is that it is blind to social status and personal affinities.  By preventing prices from rising to reflect the short supplies of goods and services in the wake of natural disasters, the “anti-price-gouging” statutes that Hiltzik lauds turn political, business, and social connections into the currency of choice – and of this currency the poor are especially deprived.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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