Dorian teaches a lesson in economics

Florida Residents Stocking Up On Supplies Ahead Of Hurricane Dorian’s Arrival

And that is why anti-gouging laws and bad press for gouging are a bad idea.

My favorite living economist explains

https://www.creators.com/read/walter-williams/10/18/price-gouging-during-a-natural-disaster

If prices were allowed to rise to reflect increased demand, those shelves would not be empty and those who really needed bread and milk(and gasoline, hotel rooms, flashlights, candles and so on) would be able to get it.

41 thoughts on “Dorian teaches a lesson in economics

  1. Williams’ example of gas is weak. Do you think $1.50 more will prevent a run on gas? Of course not.

    If the price went to $10/gallon it might work. But then the well off can still get the gas and the poor have no chance.

    And with residents facing catastrophe, I suspect the station owner would have some serious confrontations. And most certainly would lose his customers when the crisis is over.

    I think the goodwill of helping everyone get supplies through limits per customer at affordable prices will help a business a lot more in the long run rather than a few days of profiteering.

    I think Williams is stuck in a mathematical economic model without regard to human behavior.

    Which is what gave rise to behavioral economics. People are not always logical computers.

    Liked by 3 people

    1. This is behavioral economics. The point is that if the market is unrestrained, the suppliers will raise the price until it does control the demand.

      If you watched the videos, you will see that people aren’t just filling their cars, they are lining up brand new gas cans to fill for their generators. And now the gas is gone and some people who were further down in line won’t have gas to evacuate.

      And it’s not just gas, its candles and flashlights and food and hotel rooms.

      The point being that anti-gouging laws facilitate hoarding.

      The goodwill problem isn’t the limit you think. The price increases will largely be at the distributor level and the public has no say in that.

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      1. Walter Williams? I’ll leave that alone so I don’t get scolded.

        Anti-gouging laws only “facilitate hoarding” by those financial able to hoard.

        The “control of demand” as you put it will happen when there is no longer any supply.

        Liked by 3 people

        1. So, you’re Ok with the retired guy like me filling all my cars and every gas can I can get for my generators(actually, ours run on propane) while the guy who has to work till 5 finds an empty pump and no way to evacuate his family?

          Price can prevent absolute shortage.

          Also, the guy who wipes Walmart out on flashlights at $2 might well be selling them on the side of the road for $30 each next week.

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          1. I’m not rich, I’m comfortable, and I didn’t get that way by reckless spending.4

            Of course $10 gas would make a difference to me, and to thousands of others who are contemplating stocking up with more than they need “just in case.”

            But tell me what YOUR solution to panic over-buying in emergencies is that leaves enough supplies for what people really need.

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          2. That’s a fair question, although $10 a gallon would probably not stop either of us if we deemed it necessary.

            To your question; I’ll not pretend to know THE answer, but I truly believe that intervention (as much as I personally disdain it by the flawed governmental entities) is a better call than “free market” in this circumstance.

            As anathema as you find that option, if you think that human nature would result in a different outcome, I’d just have to disagree.

            Liked by 2 people

          3. OK then. What government intervention?

            You’ve got 3 days to set it up and implement your plan.

            We already know the anti-gouging laws will result in shortages of critical supplies. because it’s happening right now.

            And everyone affected has lawyers lined up at the courthouse for emergency injunctions.

            Go.

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      2. What makes you think that the people filling gas cans are going to stop at $4, 5, 6 or even $10/gallon.

        And if it does stop at even $15/gallon, how is the poor person even get gas for his car?

        Liked by 1 person

        1. So what’s your alternative?

          Does the President issue an executive order that there will be enough gas and magically it happens?

          When the region’s supply of salable gasoline moves in a day from underground tanks to cars and cans in people’s garages, the supply chain cannot replace it any faster than normal, they don’t have thousands of trucks sitting idle just in case.

          Either you let the market work, or some people do without, or you invoke rationing at the first sign of a threat, which brings it’s own problems.

          And then there’s water, hotels, flashlights, batteries, bread and milk.

          Then you have a bureaucrat shortage.

          So, what’s the workable alternative that gets everyone to safety, and provides their needs?

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  2. RE: “If prices were allowed to rise to reflect increased demand, those shelves would not be empty and those who really needed [the goods] would be able to get [them].”

    Makes sense to me, although I would tweak out the demand reference to say, simply, “If sellers are allowed to raise prices, shortages are less likely.” That way it won’t seem that demand causes prices to go up.

    William’s himself points out that the pursuit of exaggerated profits on the supply side is one origin of price hikes in a natural disaster. Those exaggerated profits can derive from greater sales volume, as well as inflated prices, or other factors.

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  3. “If prices were allowed to rise to reflect increased demand, those shelves would not be empty and those who really needed bread and milk(and gasoline, hotel rooms, flashlights, candles and so on) would be able to get it.”

    Say what?

    Oh, oh, I see… they could just whip out the ol’ platinum ‘Mericanspress card and pay for it.

    Liked by 2 people

    1. OK, now you’re just trying to be difficult.

      $10 gal gas would prevent me from filling every gas can I can buy but it wouldn’t stop anyone from buying 20 gallons to get their family to safety.

      But $2.50 gas might well leave that family stuck in place unable to get gas at any price.

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      1. “$10 gal gas would prevent me from filling every gas can I can buy”

        Would it? Would it really? My boat holds 100 gallons of diesel. Dropping $300, $400 bucks to fill it never stopped me and I know you are not that much poorer than me.

        If keeping my genset running for a week will take 100 gallons and I could store 100 gallons, $1000 won’t give me pause. Seven days at a hotel that I might not actually get to will cost me 5x that since the hotels are gouging too.

        In 2001, a friend underwent 5-bypass just before Isabel. He evacuated to Charlottesville. The Holiday Inn put him on the 5th floor. They lost power for 5 days. He spent those days on the 5th floor hugging his heart pillow.

        Liked by 1 person

      2. Uh yep. It only looks like I’m being difficult because you are being simple. You have 2 curves, supply and demand, but there is also monetary supply, geography, uncertainty, time, death, etc., etc., to model.

        Here’s our situation. A town in Nevada, 100s of miles from nowhere, a terrible storm and the phone and power lines may be down for weeks.
        10 residents; a lawyer with $100, a dentist with $50, a pharmacist with $20, and 7 cowboys with $10 each.
        A stranger stumbles into town with a high fever, bleeding from every orifice and dies.
        The pharmacist has 100 tetracycline pills that he sells normally for $1/pill for a 10-day regimen.
        The bad news, if someone takes less than a 10-day supply, our contagion becomes resistant and reinfection is possible.

        Figure it out, Doc. There is an optimal solution with your two curves.

        Liked by 1 person

        1. Bunch of solutions:
          The Republican or Nixon Price and Wage Freeze solution: The price stays at $1/pill, the pharmacist makes his usual profit and everyone survives with just 70% of people losing their life savings.

          The Democrat or Obamacare solution: Everyone is taxed 50% of their money, receives a life-saving regimen, the pharmacist is reimbursed at cost plus fixed fee, and with the remainder of the money the town buys a VHF radio for next time.

          The Libertarian or Katrina solution: The pharmacist jacks the price to $5/pill, he gets half of the lawyer’s money, all of the dentist’s money, doctors his books to avoid FDA problems for his pills, and gets $70 from the cowboys for 14 pills. He convinces the cowboys to go back to the bunkhouse and the dentist, as the only doctor, to care for them until they lose consciousness. That night the lawyer sets the bunkhouse on fire, using his AR-15 to shoot anyone trying to escape, while the pharmacist loots the dentist’s minimart.

          Liked by 1 person

        2. Assuming in your example the dose is one pill per day, there are exactly enough pills to do the job. No shortage, but there are no reserves.

          So, the pharmacist sells his pills are regular price but announces that he will pay anyone coming to town with a supply of pills twice the usual wholesale price.

          If the epidemic continues, profit will draw resupply.

          But really, how does a town with only 7 unsuccessful cowboys support a lawyer and a dentist?

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  4. Just as with your failed logic about the “free market solution” for health care costs this a priori vision of a “free market” in emergency supplies only works with extreme penalties for those unable to pay. For example, at some point there would not be potable water that the poor could afford. Their very lives could be put at risk. That is not acceptable to most people though it obviously is to you.

    Liked by 2 people

    1. In most of these emergencies, people are left with more bread and milk than they can use before it spoils and batteries that will corrode before they are used.

      Letting prices rise as they will prevents that overreaction.

      Again watch that video, and note the guy filling the back of the car with more bottled water than he will ever need. Somebody else didn’t get any.

      Liked by 1 person

      1. People taking more than they need of vital commodities in an emergency should be controlled by government action and not by price signals from a distorted market situation. This is pretty obvious to anyone not stuck in some doctrinaire dead end.

        Liked by 3 people

      2. Speaking of bottled water.

        While there is the hysteria over plastic straws and small bottle toiletries in hotels, any idea how much plastic waste is being generated by all those pallets and cases of bottled water being taken home?

        Virtually every news conference you see on TV has the speaker(s) clutching the ubiquitous plastic bottle of water.

        Plastic straws and small toiletries … BAD!

        Plastic bottles of water … meh.

        Just sayin’.

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    2. RE: “Letting prices rise as they will prevents that overreaction.”

      I think you could say, after all the empirical work economists have done over the last century or so, it is an established law, or at least a known principle, that price controls cause shortages. Your example of the guy hoarding bottled water in his car just shows how it can happen.

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        1. True, but your interpretation is slanted to what you seem to believe will happen, not what does.

          Money (monied people) will take what’s available regardless.

          And THAT”S the problem you appear to not want to address.

          Liked by 3 people

          1. Really?

            The people who are really that wealthy are not out there gassing up the Bently or snatching up bottled water at WalMart. They’re taking a jet to Aspen to wait it out. Even if they were, there aren’t enough to cause a shortage.

            The shortage is caused by middle class guys reacting emotionally to a perceived crisis. And price does matter for them.

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  5. FYI, the European ECMWF model has it locked on the Gulf Stream through next week. Really long range so FWIW, shows 950 mB off us by 100 miles or so.

    You might want to trim the trees by Tuesday or at least lower the patio table umbrella.

    Liked by 2 people

  6. Dr. Tabor, your critics are so energized by the notion that price gouging is immoral that they prevent themselves from thinking like economists. It might help to point out that there’s another basic principle at work in the storm scenario you and Walter Williams describe.

    That principle holds that true “necessaries” for human survival tend to be both abundant and cheap. Adam Smith himself noticed this, and was astonished by it.

    That the necessaries (i.e., food, clothing and shelter) tend to be abundant is a both a fact of the natural world and an unaccountable miracle. That they tend to be comparatively cheap as market commodities owes to a singular characteristic they all share: consuming them instantly satisfies the immediate demand for them.

    When you drink some water, you are no longer thirsty; when you eat some food, you are no longer hungry; when you put on some clothes, you are no longer cold; and so on. Once your physical demand is met, your psychological willingness to pay a high price for more of the same collapses.

    As if by an unseen hand, markets account for the inevitable diminishment of satiable demand by adjusting initial pricing downward. This explains, for example, why water, which is necessary for life, is persistently cheaper than diamonds, which are not. (That in fact was the observation which puzzled Adam Smith.)

    Now we know that price controls cause shortages which are particularly undesirable during a crisis, and we know that necessaries are inherently abundant and cheap. Putting the two together suggests an economic approach to dealing with survival in a natural disaster.

    Because it is predictable that price gouging will be short lived, it is best, simply, to ignore it in favor of its benefit of preserving the supply and distribution of goods. But because necessary goods are both abundant and cheap, government and private organizations can stockpile them for use in an emergency. Under extreme conditions, government can also impose rationing.

    All these are economically legitimate responses to the economics of natural disaster. They are also consistent with government’s fundamental responsibility to protect and preserve free exchange where it can.

    Liked by 1 person

    1. “… the necessaries (i.e., food, clothing and shelter) tend to be abundant is a both a fact of the natural world and an unaccountable miracle.”

      Until they aren’t. Ethiopia comes to mind. I’m sure there are others.

      Liked by 2 people

    2. RE: “Until they aren’t. Ethiopia comes to mind. I’m sure there are others.”

      No doubt, but the only valid response to that is, So what?

      That bad things sometimes happen to good people may be true, it may even be concerning, but knowing it doesn’t councel action one way or the other.

      That bad things happen to good people is not a good excuse for government price controls, for example.

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  7. The usual suspects all call for government intervention, but no one says what form that intervention will take.

    So, here are the rules. It has to work with 3 days notice. It has to work whether the emergency calls for plywood and water or snow shovels and sidewalk salt. It can’t take a police state to enforce. It has to cost less than letting the market work.

    So, lets hear your plan that is always ready, works no matter what the emergency is, and doesn’t require the government to know how much gasoline and bottle water I already have on hand.

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    1. First of all, this is an issue for local and state authorities not the federal government. The mechanics are not complicated. Issue an emergency order restricting the sale of the vital commodity or commodities to amounts required to meet the emergency. Since most of us are law-abiding citizens and decent human beings, few of us would go to great lengths to circumvent reasonable limits and so, such government leadership would have the desired effect of optimizing the distribution of available supplies.

      Liked by 1 person

      1. If people would voluntarily limit their purchases to their needs, there would be gas and bottled water in Florida right now.

        When people don’t know how long the power will be off, or if there will be clean water next week, they hoard unless they are priced out. Every time.

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        1. Your “knowledge” of what people would do reflects very badly on you since all you know is what YOU would do. Many of us – call us liberals – would be inclined to consider the common good and only try to get what we reasonably needed for the emergency.

          Leaving that aside, the emergency government instructions that would “restrict the sale” would be directed at sellers of the vital commodities and since they could expect to sell everything they have there would be little motive to cater to the hoarders such as yourself. Sure, some people would scurry around trying to get more but such restrictions on sales would make their selfish efforts quite a bit more difficult.

          Liked by 1 person

    1. I think you are misreading something. I am challenging those who support anti-gouging laws to support them and to show how shortages during an emergency can be managed as well by government as by letting the market work.

      All I have seen is a bit of flailing about and magical thinking.

      Liked by 1 person

      1. Magical thinking? Uh, no. What we have here are different value systems. There is no disputing that without government intervention in a crisis situation prices would rise to balance supply and demand. What is in dispute whether it is acceptable to allow those with money to hoard needed supplies at the expense of the lives of those without means. As a social Darwinist, I’ve-got-mine sort of a guy you think that it is okay for the strong to trample the weak. Others don’t.

        Liked by 1 person

      2. RE: “What is in dispute whether it is acceptable to allow those with money to hoard needed supplies at the expense of the lives of those without means.”

        Not really. That may be your concern, but it is not the concern that the storm scenario illustrates.

        The point of the storm scenario is to show that price controls via enforcement of anti-gouging laws are a bad public policy response to emergency conditions because the controls create shortages in their own right. Especially unpredictable shortages that would not occur without the controls.

        If caring for the poor and distressed is one’s concern, price controls in an emergency are the wrong approach.

        Like

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