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.

2 responses to “In Praise of Price Gouging”

  1. Anonymous says:

    A good article and reference. It is basic Economics 101.

  2. phizone says:

    And other possibilities:

    The gas stations start increasing their prices before the disaster ever starts. And it gets to the price point that dictates only those with enough cash can flee… You end up with a disaster that kills more people because gas stations want to increase their profit on remaining supply…

    Or the water example. Your kid is dehydrated and dying…
    Store A sells water at $1 still making a profit. They sell out…

    Store B sells water at $20 bottle because they have a limited supply. You go there but you only have $18 dollars… Your kid dies or said store owner gets a pistol to the back of his head and your kid lives… Which would you choose?

    And lets not forget Store C who still has plenty of water, but is sitting on the supply since he thinks he can get $50 once people start dropping off from dehydration…

    My point is it’s not a simple case of supply and demand when people are in life or death situations and although I hope never to be in such a situation, if it comes down to it I don’t even have to think about it… I don’t mind dying, but I’ll steal, rob or kill to keep my wife and kid alive. Basic instinct overrides basic economics everytime…

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