Would the Rich Corner the Market Without Gouging Laws?
Last week, I pointed out that I couldn't find any defenders of the anti-gouging laws that contributed to the post-Sandy gas crisis. (Read more: How to Fix the Gas Shortage: Let 'em Gouge)
At the time this bugged me because I don't like one-sided arguments. When everyone appears to agree, I always suspect we're all overlooking something. Consensus is an indicator of error.
So I'm glad to see that Mark Thoma has ventured forth with an argument in defense of the anti-gouging laws.
Thoma's piece is quite an interesting read. He uses the discussion of gouging as an opening into a much larger case against inequality. But let's start with his argument about gouging.
"If people have to go without because of an act of god [sic], then everyone should share in the pain. The wealthy should not be able to corner the available supplies of goods and services that are in high demand because of the disaster," Thoma writes.
The problem with this line of reasoning is that it is divorced from reality. The supply of gasoline in New Jersey was not going to be cornered by the wealthy. Neither were batteries, flashlights, or bottles of water. We know this simply because the wealthy just don't have the means to acquire or hold all the gasoline, batteries, flashlights or batteries available for sale in the state.
What Thoma really means is not that the wealthy would actually acquire all the gasoline but that the price would rise to levels unaffordable to any but the wealthy. But this isn't really true, either.
Prices would have gone up without the anti-gouging laws and this would have triggered both demand reduction (people would buy less, waiting to purchase more when prices fell back down) and supply growth (the higher prices would attract profiteering shipping). The effect would be to temper the price increase.
What's more, even an extremely drastic price increase would be unlikely to put necessities literally out of reach of the non-wealthy. To use Thoma's phrase, the wealthy cannot "corner the market" in gasoline the same way they can, say, corner the market in mansions.
No matter how badly I want to live in the apartment at the top of the Pierre, I cannot afford the $45 million or so it costs to buy it. Even if I sold all my assets, borrowed every dollar available to me, and had massive aid from friends and family, that place is beyond my reach. The same is not true for a gallon of gasoline that sells for, say, $40.
Even a household of very modest means would be able to buy five gallons of gasoline at that price. They might have to sacrifice other spending. They might feel pinched. But pretty much anyone who owns a car can come up with $40. Over the long term, prices at that level might make operating an automobile impractical—but we aren't talking about the long term. We're talking about a short-term shock.
In any case, it's not at all clear to me why having people with lots of spare time "corner the market" for gasoline is any better than having the wealthy do so. It strikes me as far worse.
Long lines at the pumps are extremely costly: people are forced to sacrifice their time and economic productivity. The very wealthy suffer the least, in part because they can hire others to stand in line for them (or hire a taxi to take them to where they need to go, which amounts to the same thing). Lost time is a much more serious matter for the working poor.
Thoma's broader egalitarian argument suffers from the same flaw.
This relationship between the acceptance of the price allocation system in the wake of natural disasters and how fair the system is perceived to be has lessons that extend beyond times of crisis. If income inequality is very low and monopoly power is largely absent, then most people can consume most goods and services if they are willing to sacrifice enough. In this case, people are tolerant of allowing prices to dictate who gets what.
But as inequality grows and people are priced out of markets, when there are more and more things that a large fraction of society cannot obtain no matter how much they are willing to give up, and as more and more people feel they are being taken advantage of by a system beholden to economic or political power, the support for the price allocation mechanism — the heart of capitalism — begins to erode.
But this just isn't something we observe in developed market-based economies. People are not priced out of the market for most goods and services. There are not "more and more things that a large fraction of society cannot obtain" because the prices on them have risen.
There are, surely, some things that only the very wealthy can afford. No matter what I am willing to give up I cannot obtain a private jet or that apartment in the Pierre. But is the exclusive availability of very expensive things to the very wealthy an indication that I am "being taken advantage of by a system beholden to economic or political power?" Of course not.
If the case for anti-gouging laws—or egalitarian policies—turns on this type of argument-from-fantasy, then we're obviously better off without them.
- by CNBC Senior Editor John Carney
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