Thoughts on Price Gouging
One of libertarians’ most controversial views is that people may engage in “price gouging”—that is, charging extremely high prices for goods and services when demand is unusually high and supply is unusually low. A standard example is charging an exorbitant price for bottles of water after a disaster wipes out local supplies. Intuitively, it seems wrong to take advantage of people’s vulnerability by charging high prices for something they really need.
But libertarians argue that price gouging is permissible and they tend to offer two kinds of arguments in defense of this claim. First, permitting price gouging has good consequences—it provides incentives to conserve the existing supply of the good and to bring about new supply. For instance, if a water bottle is $10, you’ll buy a bottle to drink but not to style your hair (thereby sparing a bottle for someone else who is thirsty). Plus, if you can buy a case of water bottles for $10 at Walmart and then drive them to a disaster site where you can sell each bottle for $10, you’re more likely to get off your couch and bring some water to those who need it than if you can only sell each bottle for 50 cents.
Another argument—which is similar to an argument I made in an earlier post about the permissibility of offering at-will employment—goes like this:
If you may offer no water, you may offer expensive water.
You may offer no water.
Thus, you may offer expensive water.
The first premise is intuitive—an offer of expensive water is no worse, and potentially better, than an offer of no water. If a prospective buyer rejects the expensive water, they’re in the same place they’d be if no water were offered. If they accept the offer of expensive water, they’re in a better place than they’d be if no water were offered.
But what about the second premise? Something to say in its favor is that it seems wrong to force someone off their couch to acquire and transport water to a disaster site. It may be morally wrong to stay on your couch, but simply because something is morally wrong doesn’t mean the state can force you to do it. (For instance, “ghosting” a lifelong friend for no reason is morally wrong, but you’re within your rights to do it.)
Plus, as I’ve noted before, “Bad Samaritan” laws which would force people to provide aid are generally unpopular. If you don’t have an enforceable duty to call 911 to summon an ambulance to a traffic accident, it’s hard to see why you’d have an enforceable duty to transport water to a disaster site.
But this argument might be too quick. I, for one, find it plausible that there is an enforceable duty to provide aid in certain circumstances (such as the 911 case). And an enforceable duty to provide water might not obligate you to get off your couch and personally deliver it to those in need. Maybe you just need to pay taxes that fund the delivery of cheap or free water to the disaster site.
Even if you’re on board with this idea, it doesn’t speak against price gouging. Suppose you’ve done your part by paying your taxes and contributing to the provision of adequate cheap water. It seems permissible to try to sell additional water at a high price. By analogy, after you call 911 to help the victims of the traffic accident and their safety has been secured, it’s permissible to offer to sell them your phone for $1,000. Moreover, if those at the disaster site have an adequate supply of free or cheap water due to the tax-funded effort, price gouging is going to be difficult. Who is going to buy a bottle of water for $10 when they can get one for free or maybe 50 cents? There is a reason why you don’t see price gougers attempt to sell a bottle of soda for $10 in front of a fully stocked vending machine.
Good peace, but I’m not so sure this is “libertarian” in nature. Of course many libertarians would agree with the premise, but it’s also very wide spread among economists—including progressive ones—and you somewhat hinted on this by way of taxes, after all prices are supply and demand at work.
Something I often embrace as someone who is a strong defender of liberalism and markets, but is vaguely center-left is preserving price signals while also looking for creative ways to socialize or subsidize costs. You have a hurricane in zip code XXXXX, the government shoots you $50 for supplies so you’re not priced out of the market. It’s really not something too difficult to implement with modern tech, we effectively do a lower-tech version of this with EBT, food stamps, housing vouchers etc.
Interesting that Richard leads with it being an IQ test. It’s easy enough to apply a libertarian or econ 101 attitude to anything. Any midwit can do it.
No morality has been proven here, the morality is rather assumed - that people are to make a profit regardless of circumstances. Once you start with that premise then everything else follows.
Richard is only correct in arguing that “gouging” is just the free market working - so from that point of view the defenders of simplistic economic theories are correct to dislike the term, leading the rest of us to dislike free market absolutism.
In a food shortage it’s probably better to ration than to allow the free market to reach its natural price level. That way everybody gets something - hopefully enough to survive - rather than 20% of people getting nothing, as others feed quite well.
(It’s not like there’s no example of this happening in history).
The argument in favour of prices reaching their natural level during a crisis seems to be that very high prices will induce more production. There are, of course, problems with that.
One is that there is often no way to produce more of the scarce product, food in a famine is an example, or that production can’t ramp up in time, or the free market has failed completely and doesn’t see any profit in supplying bottled water to a crisis driven city.
Sometimes you just have to abandon the free market - see it as a tool rather than a perfect system.