Price gouging for dummies

Next time you see someone from the ACCC, tell them to keep their filthy socialist mitts off our free markets.

The Mises institute has a funny-because-its-true summary of what happens when these ambiguous "price gouging laws" are used to prosecute traders. You fill in the blanks:

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Price controls and price-gouging laws make matters worse rather than better.

Consider the case of (hapless merchant) , who was fined $___ and sentenced to ___(months/years) in jail for increasing the price of (goods) by ___%.

The bitter irony is that (merchant) 's (goods) were confiscated and taken to a secure location, where they (rotted/melted/remain to this day) .

The citizens of (town) are still without (goods) , and the very person who tried to provide them with (goods) faces prosecution.

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This is indeed the way things work. Are price gouging laws really moral and ethical ?

Firstly, no matter how you spin it, the law has one primary function - to prosecute people who try to sell something.

Of course, they set their own prices in this process, but they do not attempt to use coercion or violence to force any buyer to engage in the transaction.

And yes, it becomes a very sensitive and emotional issue in the wake of a disaster. Even the act of engaging in voluntary trade becomes something that people cast strong judgements about, because the trade involves highly desirable goods that relate to people's survival - i.e bread, fuel, water, candles.

Secondly, from an ethical and moral viewpoint, what is the best way for a trader to allocate and distribute these highly desirable goods in an emergency ?

1. Keep prices the same causing massive lines and shortages. ?
2. Push prices down, or even make these desirable goods completely free ?
3. The free market solution - Adjust prices upwards sufficiently so that supply meets demand, and people do not queue up for these goods and no shortage emerges ?

Well, I'll now try to show why #3 is always the most ethical and moral solution to allocating scarce goods to customers.

This analysis applies strictly to these essential goods that cause so much emotional attachment during an emergency.

In this scenario, the demand curve has gone up by a huge amount, which means that the price each customer is willing to pay, and thus the value attached to that good or service has increased by a large amount.


The supply curve has not moved one bit. During the very initial stages, supply can not be expanded. You can not wave a wand and have extra fuel, food or bread on the spot. Up till now, nothing I have said is very controversial. Its just pure reality. This is what happens for the market for essential goods and services during emergencies.

Its how we proceed from here, that is so hotly disputed.

The demand curve represents the people in the market, and the aggregate of what each individual is willing to pay. When you sum them up, you get a curve which shows how much or how many units of a particular good will be purchased at a particular price.

If prices are held constant, or even worse, if they are lowered, a shortage will and must occur.


Options #1 and #2 always involve massive queues, mobs and even stampeding crowds. Shortages mean that the shelves run empty. Shortages mean that the first in ( or those who push most aggressively and trample over others to be the first in) are the ones who get rewarded.

Free markets would allow prices to adjust upwards to the point where supply meets demand.
But government regulations and price gouging laws do not. So I shall call any price, below this intersection, the government price.

At the government price, there will be people who were willing to pay the going price for the goods but did not manage to secure it. This is exactly what is meant by a shortage.

Whats more, those who were first in (the fittest, the most patient and prepared) are not necessarily the people who valued the goods the most highly. Take the example of medication - imagine a queue forming and the shelves of a chemist being emptied within hours.

If somebody was willing to trade their house for medication to survive, then they may be forced to do just that to buy the medication off somebody who managed to beat the queue and secure it. This all happens because traders were not allowed to adjust their prices upwards by even 10% or else they could be prosecuted by the gov't.

A whole new speculative market emerges where people rush to secure these essential goods because they know that you cannot deny the forces of the free market. They know that these essential goods can be re-sold to those most desperate for a quick and easy profit. Perhaps this form of profiteering is deeply offensive and upsetting to people, but in the end, it is a form of voluntary trade and it is better to allow the essential goods to find their way to those who place the greatest value on it.

In times of emergency, if option #1 or #2 is implemented, then a speculative market builds overnight. People queue up for groceries and petrol because they can see that a shortage will emerge at the artificially low prices. These individuals are not necessarily the ones who value these scarce goods the most highly, but those who are quick and can calculate that there are other people who will place a value on those items that is much higher than the going price.

By regulating the prices that shops and traders can charge for goods and services, you are trying to plug your finger in a hole when the boat is leaking. The market forces will emerge through a different hole. It is better to allow the free market to adjust prices in the first place so that people can visit the stores and pay more for the goods they so desperately need, and so that people who do not need the goods at the higher prices will not buy them.

We are led to the obvious conclusion - Option #3 does the least harm. It is the most moral and ethical. And what of the benefits ?

Well Option #3 allows prices to adjust upwards. Everybody should be aware that prices are a big big signal, a red flag to other producers. It sends out a HUGE incentive to other producers to very quickly expand their supply. Fuel will be trucked in overnight, bread, medicine and other essential goods simply because people see the profit opportunity.

Not because they want to feel good about themselves or because they are trying to appear moral and ethical. But in the end, their actions are the most moral and ethical.

Not only does it send out a price signal to other producers, it provides a very nice reward to those who had the foresight and entrepreneurial skill to provide and supply goods before the emergency strikes. It means that the free market is the best way to prepare for emergencies. Businesses now have a huge profit incentive to rapidly move essential goods to disaster zones before the disaster even strikes. They have a huge profit incentive to analyse and predict natural disasters, and to prepare for them !

And lastly, Option #3 helps avoid stampedes and massive queues.

Obama made fun of it in a recent speech, but it is actually the best thing to "leave it to the free market" and not Washington.

Vote Greens!

These are the kind of freaks who vote for The Greens. I wonder if they react similarly towards the loss of human life ?

Haloscan destroyed comments - apologies

I "upgraded" this blog to Haloscan so that I could take advantage of trackbacks. This has replaced the comments system and all existing comments are no longer visible.

Apologies.

Michael Costa for PM

I've only read one article on this fellow, but he was just sacked from his position as treasurer of the NSW Labor Party, simply because he had common sense.

• Fiscally responsible - Check
• Makes a mockery of climate change alarmism - Check
• In favor of privatisation - Check.

He would make a terrific PM. Read on..

Mr Costa had made clear to Mr Iemma and other colleagues his view that NSW would require strong economic medicine to retain its AAA credit rating in the aftermath of the collapse last week of the Government's planned sale of $10 billion worth of state-owned electricity assets.

In recent years, Mr Costa has become a key hate figure for the Left, not just in NSW but nationally.

He is an unapologetic climate change sceptic, who believes the current phase of global warming is the result of natural rather than human forces. Last year, he embarrassed Mr Iemma by calling environmental scientist Tim Flannery an "idiot" only months after Mr Flannery launched a climate change forum set up by Mr Iemma.

Mr Costa has been the driving force behind the privatisation program, with many believing his confrontational style was the key obstacle to a resolution of the divisions opened up by the issue between Labor's parliamentary wing and the party and union machine.

The tensions boiled spectacularly to the surface at Labor's state conference in May, where Mr Costa and Unions NSW chief John Robertson had a heated exchange of views before the sell-off was voted down by 702 votes to 105.

....

...

In an interview with The Weekend Australian last Friday that further enraged his colleagues, Mr Costa threatened to resign unless he was given a free hand to initiate radical reforms in a mini-budget due to be delivered in early November.

Those reforms include the outsourcing of rail maintenance, the partial privatisation of Sydney's ferries and a round of public service job cuts.

Good luck in the future, Mr Costa.

Needs Needs Needs !

Other than protecting the floors when I'm painting the house, and the TV guide, thats what The Age is good for these days - reading about the needs of people.

Socialist elite Kenneth Davidson presents his opinion as informed comment when he wrote this miserable pretentious piece of garbage on "education needs". He says Kevin Rudd's education revolution doesn't go far enough, and the sub-heading says it all:

Disadvantaged schools have desperate needs that aren't being met.

It seems that all you need to do to be a champion representative of "progressive", "modern" government, and to talk about "social justice" is to give a great deal of attention and to incur panic and hysteria that the needs of others are not being met.

Why, needs are so important to the left, that they have to butcher the English language and be redefined as rights. For decades, the progressive agenda of big government and rewarding needs has won over millions of pundits and is in place in every Western social democracy.

The right to a "minimum wage" (even though this prices unskilled people out of work). The right to "university", and the right to "public schools" (even though this imposes thousands of dollars of a tax burden on each tax payer and coercively steals their income. The right "not to be offended by hateful speech". The right to a minimum standard of living and welfare.

Here are some recent ones that have been added to the existing list:

• The right to good health,
  
• The right to free dental checkups
  
• The right to new computers in schools
  
• The right to child care rebates for parents
  
• The right to have new highways
  
• The right to access high speed broadband,
  
• The right to access telecommunications infrastructure in the bush.
• The right to a climate that doesn't change
  

These all sound wonderful and cheery, but they are each an abomination of the English language and are deliberately presented this way to avoid any balanced and rational discussion of an issue.

An ideology that rewards needs will have to redistribute wealth and pass laws restricting freedoms. A government cannot reward or assist anybody with their needs unless they suddenly become charity workers who toil day and night to feed the homeless and to build schools. But governments instead opt to collect hundreds of millions in taxes for every single need they plan to address.

The socialists have shifted the discussion so far from any balanced perspective, that any debate will not possibly be about WHETHER governments should be rewarding needs, but simply how they will reward needs. Kenneth Davidson suggests Kevin Rudd is not rewarding the right kind of needs in schools:

THE Rudd Government's policy promising every school a computer for every two pupils is a cruel joke. In terms of improving the quality of education it is a second or third-order priority. The billion dollars allocated for computers would be better spent on things disadvantaged schools are likely to need: decent lavatories, on-site caretakers and teachers' aides, for a start.

None of these are cheap. Its funny that an advocate of central planner like Davidson thinks that his system of rules can handle priorities though.

Surely a better policy would be to spend a much smaller amount

Yes it would be !! Please continue...

to raise public schools that increasingly draw students from disadvantaged households and neighbourhoods to the level expected by the middle class.

Sigh.. Here we go, more social engineering from our central planners.

Although Davidson continues to plead for more money and more resources to socialised education, at least he highlights some interesting facts:

According to a sober analysis of school funding ..... total government per capita expenditure on students in 2006 was $11,303 for non-government schools and $9252 for government schools.

Damn thats a lot of moolah. Don't you think parents would be better off with $9000 vouchers to spend on any school they like ? Why is money shovelled by the truckload, in ever increasing amounts, to socialised education when the free market always managed to provide an abundance of goods and services that people want, in a competitive manner ?

I agree with Davidson on some points. Education is very expensive, and that new computers for all the schools might not do that much to lift standards.

I disagree with Davidson on every other point. I contend that:

• Schools are best equipped to spend the money to raise education standards, so long as they receive money from parents and not from bureaucrats.
• Parents, not politicians, are best informed to select a school that meets their criteria
• If you are going to use public funds for education, then at least vouchers allow parents to direct the money towards schools that meet their requirements.
• Central planning ends in disaster. The more regulation, the more corruption and laziness.
  

But in the end, it is nothing less than theft at gunpoint to force the population to fund a system.

What of those who carefully manage their own finances and choose not to have children because of the expense ?

What happens to the idea that families are in the best place to decide on how to manage their lives and raise children and any effort to interfere or subsidise those costs of living is taking away responsibility and consequences for their actions ?

What of the moral hazard caused by free education, which results in some thoughtless single mothers having many children they could not possibly raise with their finances ?

What of the injustice to those who cannot have children, or those who do have children and pay for the entire costs of their education and upbringing ? Why should they be forced to provide for others ?

One thing is becoming increasingly clear. It should not be the role of government to reward needs. Individuals should address their own needs. Families should address their own *actual* needs. At least in these situations, they are well aware of what those needs are, whether they be food, clothing, education or health.

Private charity is another method to reward the *actual* primary needs of strangers. But government is the wrong approach. It tries to guarantee that the *presented and verbalised* needs of every single stranger will be met, cost be damned. And let me assure you, just as surely as Centrelink spends over $100bil per year, COSTS WILL BE DAMNED !

You see if government rewards everybody's needs, then everybody has an incentive to show that they have needs that are not being met. And we've seen the explosion of Centrelink and many new forms of middle class welfare so that 1/3 of Australia now receive welfare !

There are hazards with rewarding needs through the state. Many more hazards than with rewarding no needs through the state.

In Atlas Shrugged, the wisdom of the main character, John Galt, is summarised with one
quote:

"I swear -- by my life and my love of it -- that I will never live for the sake of another man, nor ask another man to live for mine."

A victory for freedom - luxury car tax defeated.

I'd never thought I'd sing the praises of Family First, but Senator Steve Fielding has struck a blow for liberty and for commerce

THE Federal Government's luxury car tax increase has been defeated in the Senate.

Family First Senator Steve Fielding sided with the Coalition to vote down Government bills at the second reading, 34 votes to 33.

The bills were set to be defeated last night but coalition senator Sue Boyce failed to show up to cast her vote.

The Opposition moved to have the vote recommitted when the Senate reconvened this morning.

Now if the Senate can defeat the alcopop tax and most importantly, any carbon trading scheme, this will be a terrific year where the people finally tell the tyrants in the ALP that we will not tolerate any new taxes, new regulations and a bigger government.

The first hobbit in the white house ?

John McCain has announced Alaska governor Sarah Palin will be his running mate in the presidential campaign, and thus quite possibly the next vice-president.

Most of the online chatter so far has been about her youth, her looks and overwhelmingly about her children - Todd, Piper, Willow, Bristol and Trig. Initially the discussion was about her courageous decision to have her baby, even after it was diagnosed with Down's syndrome. Now the chatter has shifted to her 17 year old daughter, Bristol, who is 5 months pregnant and single.

These discussions are idiotic.

I think it far more interesting that the Palin family all have freaky hobbit and halfling names !

There was a famous adventure movie called Willow about halflings, and whats the deal with Piper and Bristol ? Todd and Trig also have quite a middle-earth ring to them.

Perhaps they are related to Frodo and Samwise and Bilbo ? Even the surname, Palin, sounds like Baggins (maybe they even changed it from Pallins)

I think its time to get some hobbits into the White House. They can handle the burden of being the ring-bearers, and their experience in governing the hobbit shire will prove they are ready for the job.

Then again, perhaps Barrack o-Baggins has what it takes ?

Andrew Sullivan - all politics, no principles

Andrew Sullivan is generating his own news, with yet another link to some polling data that paints McCain and Palin in a bad light.

Its been such a long time since Andrew discussed any substantive ideas about conservatism, and he has been veering towards the likes of Daily Kos, with his endless political shilling for Obama.

He doesn't even bother trying to build a principled defence of Obama. No discussion of energy, economics, environment, health or education.

He doesn't set any criterion at all. He just talks about campaigning strategies, PR, polling success and popularity.

The only true conservative candidate, that supports limited government is Bob Barr from the Libertarian Party. Yet I can't recall a single mention of Bob Barr's name on Andrew's blog.

New blog features - trackbacks enabled

I had to register with Haloscan to enable trackbacks, but unfortunately, it also took over my comments, so I've lost all existing blogger comments.