Thursday, August 31, 2017


In response to stories coming out of the Houston area alleging that certain businesses were engaging in price gouging, John Stossel's argument is a simple one: effectively that "greed is good." If store owners can charge whatever price they want, he says, they'll charge a price that incentivizes them to "risk life and limb restocking his store." If there's loads of profits to be made, he says, then entrepreneurs will rush to bring supplies to the area, and the added supply will lower prices.

And, do a certain degree, it makes sense.

It is, however, to some degree based on that old boogeyman, the unspoken assumption. The assumption that the store owner won't just take the extra profits, and then see to his own safety when supplies run out, ignoring the incentive. The assumption that entrepreneurs won't collude to keep prices high or withhold the items until the next disaster if they can't get the prices they want. The assumption that people who truly desperately need something will always be able to get it. The assumption that people who show up selling water will be selling clean, safe, water. In short, the unspoken assumption that much of "capitalism knows best" works under - that the sellers want or need to sell things as much as buyers want or need to buy them. Because where capitalism tends to fall down is where there is an inequality to be exploited.

In a system where people were perfectly informed, and perfectly rational, genuine price gouging would be impossible. Buyers could evaluate information on where supplies were located, judge how long they would take to arrive and then determine how much they needed to have available to them to survive that long. But in disasters, people are often not particularly well informed, and one can say that if they were eminently rational, they wouldn't have been there in the first place, especially when dealing with something like a hurricane, which doesn't just appear out of nowhere one afternoon, and areas that are likely to be flooded, which don't just sink overnight. And that's not even taking into account the emotionality of the event itself.

And there's a degree to which this is what debates over price gouging are actually about - people's ability to make dubious choices and not be punished for them when they go bad. Many cities are built in areas that have, generally speaking, something seriously risky about them. Because the very things that make them attractive often come with risks.

The primary problem with people trusting that capitalism is the best way to go about things is that it requires that they trust in each other. And, generally speaking, they don't trust one another. Price gouging works people up because it plays on their suspicions that (wealthier) people will turn on them the moment they are vulnerable - and they often view their vulnerability as something that is out of their control. If a house in a low-lying floodplain is the most affordable option, and someone buys it, they don't want to then feel that someone is waiting to pounce on them and squeeze them for what little they have when the gamble doesn't pay off, and they find themselves in need.

One of the underlying assumptions of "capitalism knows best" is that trust is valuable, and not to be squandered lightly. But again, that implies a more level playing field than most people actually perceive themselves to be on. If the local corner grocer goes from charging $4 a flat for water to $40 a flat unnecessarily, it's tempting to think that they're dooming their business. But if they're the only grocery within a reasonable distance, their captive market will continue to shop there. Opening a new grocery store is a non-trivial exercise, especially when the business model is effectively hoping that the incumbent has burned enough bridges to supply a reasonable customer base.

It's easy to berate people as "stupid" for not trusting in the invisible hand of the market to distribute goods and services "fairly." But if capitalism runs on trust, then people are going to be suspicious of it when their trust in other people is low. And no amount of calling people out on that is going to make them any more trusting.

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