Stop Trying to Defend Price Gougers

Look guys, a disaster! Which means someone somewhere is going to try and profit from it. That deli selling $5 bottles of water, the hotel charging $500 a night for a room in downtown Brooklyn, or the yellow cabbie demanding $100 to take you a couple miles to the Bronx. You know them: price gougers, the assholes trying to rip people off during natural disasters. Stay classy, capitalism.

Now, I’m fine with assholes being assholes because that’s life and for better or worse, society has these karmic forces that typically sort these things out. But please don’t try to validate terrible behavior or worse, try and tell me that it’s for my own good. Because that’s exactly what’s happening this week in the wake of the worst hurricane to ever smash into New York City and the rest of the Northeast.

Bloomberg, the Wall Street Journal, CNBC, Fox News, and Slate have all published columns espousing the apparently misunderstood virtues of the price gouger, e.g. people who see Hurricane Sandy not as a tragic natural disaster but a glorious moneymaking opportunity. Their collective argument is that there is some sort of economic valor in looking to capitalize on the chaos of a crisis. In fact, the reason we’re having gas shortages in New York and New Jersey with lines of cars miles long is mainly because gas prices were stuck at “normal” levels. In other words, not enough price gouging! (NY and NJ both have strict anti-gouging laws.)

This is how Matthew Yglesias of Slate explains it:

The basic imperative to allocate goods efficiently doesn’t vanish in a storm or other crisis. If anything, it becomes more important. And price controls in an emergency have the same results as they do any other time: They lead to shortages and overconsumption. Letting merchants raise prices if they think customers will be willing to pay more isn’t a concession to greed. Rather, it creates much-needed incentives for people to think harder about what they really need and appropriately rewards vendors who manage their inventories well.

Because in economics, price is king. When you have the perfect price — when supply meets demand — everyone goes home happy. If you adjust price for (skyrocketing, crisis induced) demand, you can arguably reduce things like hoarding. When the price is right (i.e. high enough), then the goods will end up being distributed more efficiently. In other words, this is about getting necessities into the hands of people who really, really need these things. In theory at least. If a bag of ice costs $15, you’re much less likely to buy it because you like your Coca Cola cold, or just because. That way, when someone who actually needs ice comes along — say for food preservation or medical purposes — there’s still ice left to buy, even if it’s kind of expensive. (FYI: ConEd is distributing ice at six different locations.)

Economics gone wild. Yglesias took the opportunity to say, I told you so.

But believe you me, the joy of price gouging doesn’t stop there. Other stores will see this guy killing it, selling these $15 bags of ice. The next time something like Sandy comes around (since we’re awesome at predicting this kind of stuff), retailers will be much better stocked, wary now of the profit potential of frozen water when people panic. Thanks to price gouging, our supply will supposedly get smarter.

That’s why New Jersey is out of gas and people have to wait hours in line just to fill up the tank. Gas is too cheap. There’s too much demand, not enough supply. The easiest way to find equilibrium? Gouge those prices. We have a choice, writes WSJ columnist Holman W. Jenkins, Jr., “whether to confront customers with empty shelves or make it possible for everyone to find what he came for at a price.” The assumption being that, if we just let price gougers do their thing, everyone gets what they need and everyone is happy.

Except that’s not how things play out, especially during a natural disaster. I am not some nebulous blob of $20 bills looking for things to buy at their most optimal price. In reality I’m a human being. The economic argument, while logical and reasonable in a very mathematical way, only makes sense if you disregard all the human stuff. Stuff like camaraderie, cooperation, and courage — human capabilities that emerge at the height of a crisis. Plus, we’re human; whether $5 a bottle or $20, I still need water.

Not enough price gouging?

The benefits of price gouging are also being way overplayed. Natural disasters don’t affect everyone equally, this we know. Frankenstorms like Sandy will always have an outsize impact on the poor and when prices skyrocket, the poor will end up paying proportionately more of their income on necessities when they can least afford to do so. There’s also an obvious difference between need and ability to pay.

Meanwhile, the main beneficiaries are the profiteers enjoying their lucky windfall and the pretty well off, who are unaffected by minor price movements at this scale regardless — the only difference being that they won’t have to wait in line anymore. Really, a $8 gallon of gas in an emergency only discourages hoarding if you’re already poor.

Preferential treatment for the wealthy aside, natural disasters are unpredictable and short in duration. As such, many of the economic factors never actually get to play out. Everything is temporary and so the potential end benefits of this sort of predatory pricing are never fully realized. The timeframe is too short. For gougers, this is a windfall and nothing more.

Cartoon by Bryant Arnold

Beyond that, as I made clear earlier, trying to milk victims of a natural disaster in need is an asshole move. Which undermines the sense of togetherness we need during times of human tragedy. Trying to make a few extra bucks off your neighbor kills the good vibes we’re all collectively trying to harness. There are also risks to planting the seeds of ill will during a crisis. The art of price gouging is by no means scientific. A wily businessman could have great success raising prices 300 percent. Another entrepreneur in another neighborhood might incite a riot with an increase of only 30 percent. Who knows?

But then, “how do we decide which customers get the batteries, the groceries, the gasoline?” wonders CNBC’s John Carney:

We could hold a lottery. Perhaps people could receive a ticket at the grocery store. Winners would get to shop at the usual prices. Losers would just go hungry. Or, more likely, they would be forced to buy the food away from the lottery winners—at elevated prices no doubt, since no one would buy food just to sell it at the same price. So the gouging would just pass from merchant to lottery winning customer. We could have some sort of rationing program. Each person could be assigned a portion of the necessary goods according to their household need. This is something the U.S. resorted to during World War II. The problem is that rationing requires an immense amount of planning—and an impossible level of knowledge. The rationing bureaucrat would have to know precisely how much of each good was available in a given area and how many people would need it. Good luck getting that in place as a hurricane bears down on your city. We could simply sell goods on a first come, first serve basis. This is, in fact, what anti-gouging laws encourage. The result is all too familiar. People hoard goods. Store shelves are emptied. And you have to wonder, why is a first to the register race a fairer system than the alternative of market prices? Speed seems a poor proxy for justice.

Maybe Carney is right. Maybe first come first serve isn’t the fairest system, but in the end it seems like he’s missing the point. The point? That, whatever happens, we’re all in this together. “Much more important is the feeling that your neighbors are rallying together at a very hard time," writes Reuters blogger Felix Salmon. “If we all run out of gas, we’ll all run out of gas.”

Follow Alec on Twitter: @sfnuop

Look guys, a disaster! Which means someone somewhere is going to try and profit from it. That deli selling $5 bottles of water, the hotel charging $500 a night for a room in downtown Brooklyn, or the yellow cabbie demanding $100 to take you a couple miles to the Bronx. You know them: price gougers, the assholes trying to rip people off during natural disasters. Stay classy, capitalism.

Now, I’m fine with assholes being assholes because that’s life and for better or worse, society has these karmic forces that typically sort these things out. But please don’t try to validate terrible behavior or worse, try and tell me that it’s for my own good. Because that’s exactly what’s happening this week in the wake of the worst hurricane to ever smash into New York City and the rest of the Northeast.

Bloomberg, the Wall Street Journal, CNBC, Fox News, and Slate have all published columns espousing the apparently misunderstood virtues of the price gouger, e.g. people who see Hurricane Sandy not as a tragic natural disaster but a glorious moneymaking opportunity. Their collective argument is that there is some sort of economic valor in looking to capitalize on the chaos of a crisis. In fact, the reason we’re having gas shortages in New York and New Jersey with lines of cars miles long is mainly because gas prices were stuck at “normal” levels. In other words, not enough price gouging! (NY and NJ both have strict anti-gouging laws.)

This is how Matthew Yglesias of Slate explains it:

The basic imperative to allocate goods efficiently doesn’t vanish in a storm or other crisis. If anything, it becomes more important. And price controls in an emergency have the same results as they do any other time: They lead to shortages and overconsumption. Letting merchants raise prices if they think customers will be willing to pay more isn’t a concession to greed. Rather, it creates much-needed incentives for people to think harder about what they really need and appropriately rewards vendors who manage their inventories well.

Because in economics, price is king. When you have the perfect price — when supply meets demand — everyone goes home happy. If you adjust price for (skyrocketing, crisis induced) demand, you can arguably reduce things like hoarding. When the price is right (i.e. high enough), then the goods will end up being distributed more efficiently. In other words, this is about getting necessities into the hands of people who really, really need these things. In theory at least. If a bag of ice costs $15, you’re much less likely to buy it because you like your Coca Cola cold, or just because. That way, when someone who actually needs ice comes along — say for food preservation or medical purposes — there’s still ice left to buy, even if it’s kind of expensive. (FYI: ConEd is distributing ice at six different locations.)

Economics gone wild. Yglesias took the opportunity to say, I told you so.

But believe you me, the joy of price gouging doesn’t stop there. Other stores will see this guy killing it, selling these $15 bags of ice. The next time something like Sandy comes around (since we’re awesome at predicting this kind of stuff), retailers will be much better stocked, wary now of the profit potential of frozen water when people panic. Thanks to price gouging, our supply will supposedly get smarter.

That’s why New Jersey is out of gas and people have to wait hours in line just to fill up the tank. Gas is too cheap. There’s too much demand, not enough supply. The easiest way to find equilibrium? Gouge those prices. We have a choice, writes WSJ columnist Holman W. Jenkins, Jr., “whether to confront customers with empty shelves or make it possible for everyone to find what he came for at a price.” The assumption being that, if we just let price gougers do their thing, everyone gets what they need and everyone is happy.

Except that’s not how things play out, especially during a natural disaster. I am not some nebulous blob of $20 bills looking for things to buy at their most optimal price. In reality I’m a human being. The economic argument, while logical and reasonable in a very mathematical way, only makes sense if you disregard all the human stuff. Stuff like camaraderie, cooperation, and courage — human capabilities that emerge at the height of a crisis. Plus, we’re human; whether $5 a bottle or $20, I still need water.

Not enough price gouging?

The benefits of price gouging are also being way overplayed. Natural disasters don’t affect everyone equally, this we know. Frankenstorms like Sandy will always have an outsize impact on the poor and when prices skyrocket, the poor will end up paying proportionately more of their income on necessities when they can least afford to do so. There’s also an obvious difference between need and ability to pay.

Meanwhile, the main beneficiaries are the profiteers enjoying their lucky windfall and the pretty well off, who are unaffected by minor price movements at this scale regardless — the only difference being that they won’t have to wait in line anymore. Really, a $8 gallon of gas in an emergency only discourages hoarding if you’re already poor.

Preferential treatment for the wealthy aside, natural disasters are unpredictable and short in duration. As such, many of the economic factors never actually get to play out. Everything is temporary and so the potential end benefits of this sort of predatory pricing are never fully realized. The timeframe is too short. For gougers, this is a windfall and nothing more.

Cartoon by Bryant Arnold

Beyond that, as I made clear earlier, trying to milk victims of a natural disaster in need is an asshole move. Which undermines the sense of togetherness we need during times of human tragedy. Trying to make a few extra bucks off your neighbor kills the good vibes we’re all collectively trying to harness. There are also risks to planting the seeds of ill will during a crisis. The art of price gouging is by no means scientific. A wily businessman could have great success raising prices 300 percent. Another entrepreneur in another neighborhood might incite a riot with an increase of only 30 percent. Who knows?

But then, “how do we decide which customers get the batteries, the groceries, the gasoline?” wonders CNBC’s John Carney:

We could hold a lottery. Perhaps people could receive a ticket at the grocery store. Winners would get to shop at the usual prices. Losers would just go hungry. Or, more likely, they would be forced to buy the food away from the lottery winners—at elevated prices no doubt, since no one would buy food just to sell it at the same price. So the gouging would just pass from merchant to lottery winning customer. We could have some sort of rationing program. Each person could be assigned a portion of the necessary goods according to their household need. This is something the U.S. resorted to during World War II. The problem is that rationing requires an immense amount of planning—and an impossible level of knowledge. The rationing bureaucrat would have to know precisely how much of each good was available in a given area and how many people would need it. Good luck getting that in place as a hurricane bears down on your city. We could simply sell goods on a first come, first serve basis. This is, in fact, what anti-gouging laws encourage. The result is all too familiar. People hoard goods. Store shelves are emptied. And you have to wonder, why is a first to the register race a fairer system than the alternative of market prices? Speed seems a poor proxy for justice.

Maybe Carney is right. Maybe first come first serve isn’t the fairest system, but in the end it seems like he’s missing the point. The point? That, whatever happens, we’re all in this together. “Much more important is the feeling that your neighbors are rallying together at a very hard time," writes Reuters blogger Felix Salmon. “If we all run out of gas, we’ll all run out of gas.”

Follow Alec on Twitter: @sfnuop