Thursday, November 15, 2012

Lessons from Sandy

Once again, you hear about price gouging. My answer is: So what? I cannot think of a better way to conserve scarce resources, and neither has anyone else since the dawn of time. The argument is that it is greedy to raise prices in times like that. As if the person who is making the argument is not greedy. It is always someone else, not me. (I have an idea. Why don’t these people send all their money to me and I can determine how much they need to run their affairs. Any excess I will naturally keep for myself.) The best description that I can think of was articulated by Milton Friedman in a discussion with Phil Donahue on this very subject. It is human nature. The point I wish to make here is that by allowing prices to rise during times of shortages, a natural force of human nature is unleashed that will conserve those very resources that are in demand. If prices did not rise, then those who have the resources have little to no incentive to conserve. Nobody wants to change their behavior. Generally, people will only do so unless they see a viable alternative or are forced to do so. If prices are not allowed to rise with shortages of supply, the stock of resource(s) will be exhausted much more quickly thereby adding to the shortage. This is the primary reason why the old Soviet Union experienced so many shortages. And even then, the quality of what they were able to obtain was poor. I have relatives who live in New Jersey who had a flood a few years ago because the power had failed. They had purchased a backup generator and then thought that they were protected. The problem this time was that gasoline was in short supply. They had to run the generator sparingly in order to conserve the little gas that they could obtain. Do you believe that they would have limited their use of this generator if they had been able to obtain more fuel? Why should they be cold at night because everyone else could not obtain fuel? And they should sell some of what they had at the price that they paid for it because others were unable to obtain any? Why should they do so? What if you had been farsighted enough to stock enough for your needs? You should give this up for the common good? I know that you will not be able to find many people who would. In other words, EVERYONE is subject to these forces. Calling it greed only distorts the picture to make it look like you are better than everyone else. I suppose those who argue for going after those ‘greedy’ people are of the type that would give up everything to help those who are in need. Funny, I have not been hearing or seeing any of them. Accusations can tell you a lot about the accuser. This one is little different.

1 comment:

  1. Or if not greed it is done so mass riots and violence don't ensue due to the inequity of it all. I agree the greed thing. Greed itself is not bad. Many economist agree that letting the prices rise naturally would be the most efficient way to manage the resources. Unfortunately, efficiency in not the only variable.