Reports are all over the news of retailers being warned not to “price gouge” products in high demand due to the spread of the Coronavirus. As with so many politically motivated laws and regulations, such efforts will result in unnecessary deaths and harm to victims of a crisis. Those who support such laws simply do not understand the basics of economics and markets, typically those on the political left, whether that be democrats or republicans.
Markets react to market forces. Always, every time.
This means that if the economy is booming and the cost of labor goes up, businesses will build in incentives to garner the best workers. That could be all or a combination of higher wages, better benefits, more time off, telecommuting options, and so on. There is exactly zero reason for government to force this upon a market, it simply happens because businesses are motivated by profit, and profit only comes about when one has the smartest and hardest working employees.
Similarly, when a crisis hits, those products and services that can address the cause and symptom of the crisis spike in demand. Aside from the obvious and moral point that those who possess something or some ability have every right to do with that product or service as they wish, there is a practical issue of getting resources where they need to be for those who need it most.
“Price gouging” is a logical response to a spike in demand within a market. When demand goes up, prices must go up as well in order to normalize distribution and to fund the quickest and more effective means to supply the spike in demand. If profitability is artificially maintained at normal rates during a crises by shortsighted politicians who care more about doing what is politically expedient rather than what will save lives, the much needed increase in products to fill the shortfalls in capacity cannot be met. This makes the lack of resources continue for as long as the price gouging prohibition remains in place.
In a competitive market, prices meet demand at the optimal rate. Just as the stock market moves up and down based upon the perceived value of the companies being traded, so do products.
Automatically and organically with zero need for politicians to be involved.
When the price of GE stock goes up 100 points, it is because that is the perceived value of the company at that moment in time. Just as there should be no law preventing the value of that stock from going down, there should be no law preventing that stock from going up. The value is what it is.
Perception is reality to everyone, all the time.
When products that are in demand spike in price due to a crisis, it is because the perceived value of that product has spiked as well. When this happens, the cost of the product almost perfectly correlates to the value it brings at that time. This is what is needed in a crisis.
The reason this is the case is elementary: It is the value of the product; people are willing to pay more for it. They will go without fine dinning for the week or month, or they will buy generic brands of other products, or work a few hours extra for additional funding and so on. People will see the higher value of the needed item and see other facets of their consumption as less valuable, which is what is needed in a crisis. Clearly.
But what of those people who cannot cut something else to buy the needed item(s)?
It is an unfortunate reality that in a crisis people will suffer and some may even die. Maybe many people. This is a fact of life, and the nature of a crisis. The only question is, how many will suffer and how many will die?
The answer to this question is that it depends upon the logical distribution of needed goods and services.
When a market is invaded by political influence, the price/demand dynamic in that market is distorted to the degree in which the political influence is imposed.
For example, currently the world is being rocked by the Coronavirus. This means that the demand for hand sanitizer has spiked immensely. Retailers are being warned by politicians and busybodies to not “price gouge” hand sanitizer. In other words, sell the product for less than its current perceived value.
Think about this for a moment . . . People want it more than ever, and the price is legally forced to stay in relatively close proximity to where it was before the spike in demand. So what does EVERYONE do? Go to the store and buy ALL the hand sanitizer.
Because people care about themselves and their families far more than some stranger who may be suffering or in desperate need of the product. That is just reality.
By forcing the price to be low, why wouldn’t the first person to get to the store to buy hand sanitizer buy all of it for only $2.95? At most it would cost them $80, and them and their family have nothing to worry about, even if they used it 20 times a day for a year. In their mind, they are all set and doing the right thing for their loved ones.
But what of the next person who came into the store? He or she has no hand sanitizer to buy, putting their entire family, potentially, in immediate danger.
If “price gouging” was not prohibited, just like the stock market, the proprietor of the retail outlet may have increased the price of hand sanitizer by 10 times to meet the market demand. Now, when the first person to buy hand sanitizer sees it went from $2.95 to $20.95, they will think twice about buying all of it. Instead, they could pay the same amount, $80 for approximately four bottles of it, saving approximately 23 bottles for the next group of patrons.
THIS is the proper and equitable distribution of goods to those who need it most, and more importantly it prevents the government from using a crisis to amass more and more power.
As for those who cannot afford even an extra $17 for a bottle of hand sanitizer, they should (voluntarily) receive some level of charity. We should hep them. In some cases, they may be harmed by their lack of wealth to buy the hand sanitizer if no one is willing or can help them, and that is a shame. But that is NOTHING in comparison to the millions of people who will be harmed when a handful of people who happen to have the right timing to buy the needed items buy out all of the supply in the market because politicians demanded the price be far less than the item’s value.
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