The Defense of Price Gouging Begins

A number of bloggers have caught some on the Right as they begin a full throated defense of price gouging. I am certainly not sympathetic to much of the rhetoric from the politicians about price gouging. When it comes to the petroleum market -- this is pretty efficient market and resources get distributed and conserved quite well. I am not quite sure how you define price gouging. That's the real problem. We would like to think that in most cases suppliers are sufficient to ensure that those who gouge are driven from the market. There are likely to be some exceptions where suppliers are limited in number. Hence the price jumps after 9/11 in Oklahoma of all places where prices shot up for a brief time to $6.00 and lines formed at the pump. But some of this was likely due to a jump in demand from irrational folks who thought the Taliban were about to do a land rush into the state unseen in 100 years.

Stossel: Price gouging ensures that scarce resoresources go only "to those who really need it" [Media Matters]

The deeper problem with the defense put forth by folks like Stossel and others concerns whether we want a market to be the means of distributing scarce resources in a time of disaster. Imagine you are on the Titanic. The boat sinks and you board a life boat with 30 other folks. You have only enough water for a brief time. Do you parcel it out on the basis of ability to pay? Molly Brown and the society dames get the water while the immigrant women and children die of thirst. Or do you find another means. The issue of the debate should not be about gouging in places like Texas, Colorado and California. The issue should be focused on distribution in the hard hit areas where folks have limited access to cash and supply is severely constrained. The problem with Stossel's argument is that he forgets income and the role this plays in defining need. On our lifeboat -- who really needs the water? The person with money or the person with a dying child? Markets are wonderful tools. But they are only that - tools. They are a mechanism for distributing scarce resources in ordinary times under good market conditions. But they are not the only mechanism and not always the most preferred mechanism. Free marketeers never reconcile the logic of their argument with how we deliver police services, fire services, postal services in this country. Sadly we still deliver health services on this market basis. But the limited logic and ethics of their argument need to be exposed.