Wednesday, September 13, 2017

Price Gouging Technocratic Cranks

In The New York Times, Andrew Ross Sorkin provides a pretty decent explanation for why economists cheer
on "price gouging" during disasters:
[S]everal respected economists from the Milton Friedman school of free-market theory take it seriously. They contend that anti-gouging measures, by effectively enacting price controls during emergencies, remove the incentive for consumers to conserve essential supplies. They also say that the incentive for suppliers to bring goods to dangerous areas — or keep extra stock on-hand before disasters — becomes distorted in ways that hurt people...

“Price caps discourage extraordinary supply efforts that would help bring goods in high demand into the affected area,” Michael Giberson, an instructor with the Center for Energy Commerce in the Rawls College of Business at Texas Tech University, wrote in an opinion piece from several years ago that was widely circulated around parts of Wall Street this weekend. Meanwhile, he suggested, “You discourage conservation of needed goods at exactly the time they are in high demand.”

He added, “In a classic case of unintended consequences, the law harms the very people whom lawmakers intend to help.
Of course, the thinking goes well beyond the "Milton Friedman school of free-market theory," but that is another story.

Sorkin, though, near the end of his report informs:
[T]he fact remains that there is a gaping hole in the price-gouging-is-good argument: how to make resources “available to poor individuals and families, many of whom may barely be able to afford normal prices,” said Joe Carter, a senior editor at the Acton Institute, a right-wing think tank.

One idea that has gained currency in this camp would be to create surge-pricing vouchers backed by the government.

“Prior to a natural disaster,” Mr. Carter wrote in a blog post last week, “individuals and families could apply to receive government-provided vouchers that would cover the cost difference between the normal price and the emergency surge price for a specific basket of essential goods and services.”

Businesses would be reimbursed the difference in price by the government by submitting the voucher.
Carter is proposing a way here for government to get involved---which always causes distortions.

The Acton Institute promotes itself as supporting liberty but this proposal is not about promoting liberty, it is about using the state in convoluted fashion to distort free market actions and grow the technocratic state.

Consider the many things that would be part of such a proposal/

First, when businesses go to cash-in these vouchers, the money is taken, in one fashion or another, from the rest of us---some of us who may have consciously made a decision to avoid living in certain danger zones. That is, the more responsible in the Carter program will be, in some cases, coerced through government to finance the irresponsible decisions of others,

Second, such vouchers will create moral hazard, whereby individuals may act in a more reckless fashion, say live in a known flood zone, since they know the government will protect them with vouchers during emergencies.

Finally, when the government gets involved with "help" what results are even higher prices. See: The healthcare sector and education sector.
Carter, with this proposal, should be considered an agent of the state. It is a proposal to grow the state that would result in very bad distortions. These type of proposals are at the heart of government growth--always wrapped in helping the downtrodden but in reality growing the crony state.

There are plenty of emergency organizations around to help people in dire straits with no need for technocrats who want to create more ways for the coercive state to grow.


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