In Praise of Price Gouging
John Stossel has a wonderful piece on so-called price gouging and its positive effects.
Sure it’s easy to be upset about high fuel prices and instinctively react by wanting the government to step in and do something, but remember that whether in a time of calm or crisis only a free-market works. The CATO Institute also has an article entitled “Gouge On” that reminds us,
“In a free market, scarce goods are typically rationed by price. People who value gasoline most are willing to pay higher prices than those who value it less. The former get the gasoline — the latter to some extent go without. Allocating resources to those who value them most is one
very important reason why our economy outperforms economies where resources are allocated by political action. …”
“Lower prices result in more demand for fuel than do higher prices. That’s why the first thing we notice about price controls is that they lead to shortages. Price to the left of the intersection of the supply-and-demand curve and you are guaranteed to vaporize whatever you are attempting to keep inexpensive.”
Excerpts from Stossel:
“If you want to score points cracking down on mean, greedy profiteers,
pushing anti-“gouging” rules is a very good thing.
But if you’re one of the people the law “protects” from “price gouging,”
you won’t fare as well…”
“Force prices down, and you keep suppliers out. Let the market work,
suppliers come — and competition brings prices as low as the challenges
of the disaster allow. Goods that were in short supply become available,
even to the poor.
It’s the price “gougers” who bring the water, ship the gasoline, fix the
roof, and rebuild the cities. The price “gougers” save lives.”
Both are a must read. Free Market Capitalism is always the right answer.