
Economists who defend disaster profiteers are wrong - chwolfe
https://www.economist.com/finance-and-economics/2020/04/11/many-economists-defend-disaster-profiteers-they-are-wrong
======
alexmingoia
Increased production doesn’t occur because the economics don’t work, it
doesn’t occur because there’s just no way to physically ramp up production
that fast. That’s not really a critique of the economics. If production could
be increased that fast the manufacturers would.

An important point the article didn’t address is that high prices direct
resources to more important uses. If prices are very high then hospitals may
be the only ones who can afford them, versus people on the street.

Outlawing price gauging alone just ensures masks go to people who don’t need
them as much as doctors. Price ceilings don’t force masks to go to doctors.
That’s why governments are forcing masks to go to healthcare, regardless of
price.

~~~
SftwrSvior81
> high prices direct resources to _more important_ uses

I don't think that that is always true. High prices will redirect scarce
resources to those who have the means and desire to pay for them. That doesn't
necessarily mean that those uses are more important, regardless of how one
defines what it means for the resource usage to be important.

~~~
jimmaswell
Exactly this. Why is Scrooge McDuck buying the entire supply of something
somehow better than evenly distributing it? I can't believe people actually
think making toilet paper $20 a roll is the correct outcome instead of
rationing with price controls. Maybe it's the Ferengi mentality of people
seeing themselves as the exploiters.

~~~
hamandcheese
If toilet paper was $20/roll, people would think twice before hoarding, and
would probably also use less squares overall.

~~~
hannasanarion
Hoarding isn't the (entire) problem, a bigger issue is the sudden shift in
consumption from commercial to consumer. Nobody is pooping in office
buildings, schools, or shopping centers anymore, everyone is doing it at home.
Producers that uses to sell 50/50 consumer to commercial are now selling 90/10
in favor of consumer and they can't reconfigure their production lines fast
enough.

[https://marker.medium.com/what-everyones-getting-wrong-
about...](https://marker.medium.com/what-everyones-getting-wrong-about-the-
toilet-paper-shortage-c812e1358fe0?utm_source=pocket-newtab)

~~~
kortilla
And $20/roll would expedite the changeover pretty quickly.

~~~
asdkjh345fd
Not if the producers believe that this is temporary and will go back to 50/50
again soon. It isn't worth the cost of making big changes just to have to
change back again in a month.

~~~
lukas099
It may incentivize them to invest in the ability to quickly change the ratio.

~~~
Robin_Message
For a once every hundred years event? Probably not.

------
patmcc
It's very interesting to me that (nearly) everyone agrees that reselling
disaster supplies like masks, hand sanitizer, etc. for a large profit is
terrible, but somehow selling literal essentials like food, housing, and
healthcare for profit is just fine.

~~~
mywittyname
The economy needs to have good sold at a profit. It seems to be the best way
to ensure that people, as a group, make and sell the things that need to be
made and sold, and in appropriate quantities. It's not perfect, as there are
plenty of inefficiencies, but it's a very good model.

There are a number of problems with price gouging. First, it isn't helpful,
everyone already knows there's a shortage of critical supplies, and increasing
the price by several multiples isn't going to help make more products faster.

Second, it encourages bubbles. People will begin to purchase items that are in
short supply specifically to resell them later at a higher price. This
actively prevents critical supplies from reaching people in a timely fashion,
which can and does result in preventable deaths.

Third, it threatens social stability in stressful times. The people hording
supplies are at risk of causing violent encounters with those who need them.
And a shootout or riot is the last thing we need right now.

Overall, I think it's pretty easy to see why people oppose price gouging. I'm
honestly surprised anyone would defend such actions.

~~~
ccmcarey
> The economy needs to have good sold at a profit

Not for things that do not need to make a profit. See: essentials like
healthcare, housing, and basic food items.

~~~
Nerevarine76
Why would anyone work to acquire, sell, and as a result create a competitive
market for those items if they can't make any money off of it? Preventing
sellers from profiting off of 'essentials' and setting prices has created some
of the worst food shortages in history.

~~~
mrguyorama
Ah, I was unaware the world of open source software didn't exist

~~~
lukas099
Nobody provides healthcare, housing, or basic food items as a hobby.

------
Symmetry
Price controls might work within the US but we can't enforce them
internationally and they've already been a big problem for US firms making
purchases abroad where they're competing with others willing to bid up the
prices of masks.

[https://www.forbes.com/sites/daviddisalvo/2020/03/30/i-spent...](https://www.forbes.com/sites/daviddisalvo/2020/03/30/i-spent-
a-day-in-the-coronavirus-driven-feeding-frenzy-of-n95-mask-sellers-and-buyers-
and-this-is-what-i-learned)

~~~
emodendroket
In that care it seems like international coordination is called for

------
mbostleman
Show me a price "gouger" and I'll show you someone that is about to make their
last few sales and have no inventory for an unknown period of time. Everyone
always wants the other guy to commit to constraints to shield themselves from
risk.

~~~
loopz
Had to scroll down nearly to bottom to find this gem. The failure is systemic.

------
nonidentified
Speaking as an economist, I tend to get nervous when other economists talk
about circumstances where "morality trumps economics." As a profession, we
have a miserable track record on morality. Economists widely endorsed eugenics
in the first half of the 20th century, for example. And many modern economists
endorse a minimum wage, as eugenicists did then, but with even less regard for
the harm it causes. Personally, I find it hard to entertain an economist's
morality argument unless it goes something like, "We shouldn't do that because
it could harm people."

In this article, The Economist is telling governments to force companies to
produce "large supplies at fixed prices". Even if governments had that kind of
authority in free countries, and they probably don't, that sounds like a
policy that could easily cause harm. Companies can't just push one lever to
maximum and expect nothing else to change. But most importantly, we don't need
it. Yes, we've seen some small-time punks buy up too much hand sanitizer, but
the big manufacturers are being decent. As The Economist pointed out, "3M, one
of the world’s biggest manufacturers of high-end masks ... has stuck to its
list prices and doubled its production." So there's not very good empirical or
theoretical support for this idea. But there's hope for economists - "more
than half" of economists surveyed about this idea criticized it.

~~~
h0l0cube
> And many modern economists endorse a minimum wage, as eugenicists did then,
> but with even less regard for the harm it causes.

What are the harms of a minimum wage? Do you have any empirical sources to
back that up?

~~~
barry-cotter
People whose labor is worth less than the minimum wage become unemployable.
Being unemployed means you can’t acquire skills or experience and is bad for
your mental health and social attachment.

If you want to look at the literature you can start with Card and Krueger,
which shows minimal effects for a small minimum wage discontinuity, I believe
on the NJ/NY border. The Seattle minimum wage study showed a reduction in
hours and benefits and reduced likelihood of new entrants to the labor market.
It’s an exciting example of people looking really hard for ways to confirm
their priors on both sides.

Or you can look at Europe. Greater employment protections raise the price of
employing someone leading to greater unemployment. Minimum wages do the same
thing more explicitly. Businesses buy less of things that are more expensive.

~~~
adjkant
> It’s an exciting example of people looking really hard for ways to confirm
> their priors on both sides.

It seems like you're doing that here yourself:

> The Seattle minimum wage study showed a reduction in hours and benefits and
> reduced likelihood of new entrants to the labor market.

[https://ritholtz.com/2018/10/seattle-studys-shocking-
conclus...](https://ritholtz.com/2018/10/seattle-studys-shocking-conclusion-
minimum-wage-increases-benefits-workers/)

Minimum wage may have some complexities to be played out and examined, but to
go back to the parent, the net harm here seems to be minimal at best, if not
helpful over harmful, quite unlike how most feel about eugenics. That
comparison, while criticizing the moral compass of economists generally, is
quite something.

~~~
mikemotherwell
Is that article accurate? My understanding was that Seattle commissioned a
multi-year study, and then when the results didn't go their way, quickly
rushed a study out the door that said what they wanted. I got this from
Marginal Revolution, and I can't find the article, but here is the actual
study [https://evans.uw.edu/policy-impact/minimum-wage-
study](https://evans.uw.edu/policy-impact/minimum-wage-study) and here is an
MR article summarising the report:
[https://marginalrevolution.com/marginalrevolution/2017/06/se...](https://marginalrevolution.com/marginalrevolution/2017/06/seattle-
minimum-wage-study.html)

The first two points from MR:

> – The numbers of hours worked by low-wage workers fell by _3.5 million hours
> per quarter_. This was reflected both in thousands of job losses and
> reductions in hours worked by those who retained their jobs.

> – The losses were so dramatic that this increase “reduced income paid to
> low-wage employees of single-location Seattle businesses by roughly $120
> million on an annual basis.”

~~~
adjkant
> My understanding was that Seattle commissioned a multi-year study, and then
> when the results didn't go their way, quickly rushed a study out the door
> that said what they wanted.

Do you have any source for that? Because the same author sets are on both
studies. The article I linked to is directly criticizing the study you linked
to (and also directly links to it).

Admittedly I am not a field expert and I haven't dived into the weeds on these
studies. But my points I think aren't reliant on these details. The are
simply:

1\. There is much debate over if minimum wage laws or even specific
implementations do more good or harm, which would seem contrary to the parent
appearing to try to claim the harms as facts.

2\. All of this seems to make the claim that the harm of eugenics is equal to
minimum wage quite egregious.

I'm not trying to start a flame war over the details of viability of minimum
wage here - I don't think that will be productive for anyone. I just want to
underscore how egregious comparing minimum wage to eugenics is here.

~~~
mikemotherwell
> Do you have any source for that?

Found where I got it from: [https://www.seattleweekly.com/news/seattle-is-
getting-an-obj...](https://www.seattleweekly.com/news/seattle-is-getting-an-
object-lesson-in-weaponized-data/) I'm not American so no idea if this is
accurate or not.

~~~
adjkant
So this is discussing two competing studies done at the same time. I linked to
an article about the authors from the original study actually revising their
results a year later with new data and basically saying "our previous
conclusion was wrong".

------
barney54
Here's an alternative perspective: [https://russroberts.info/price-
gouging/](https://russroberts.info/price-gouging/)

------
osrec
Often disasters are also capitalised upon by politicians, who use the ongoing
distraction to grab more power or take away certain liberties. They truly are
master disaster profiteers.

------
im3w1l
It's complicated. On the one hand stockpiling in times of plenty and releasing
it in times of scarcity is good.

On the other hand, cornering the market for an essential good when there isn't
even an underlying production issue is bad.

And increasing production of scarce goods is a good thing.

------
quotemstr
To lots of people, so-called "price gouging" _feels_ wrong, so it must _be_
wrong. Disaster pricing can't just be morally wrong: it has to be economically
wrong too. We must make the science fit our intuition, the braying crowd says,
and not the other way around. Reality doesn't work that way.

The trouble is that when we _want_ something to be true, we find all sorts of
specious ways of demonstrating this truth, and in the process, fall afoul of
confirmation bias, sampling bias, various statistical errors, and good old-
fashioned wishful thinking. Consequently, whenever I see a paper that goes
with the grain of internet outrage activism, I apply a very high standard of
evidence. It's too easy to believe something that tells people what they want
to hear.

~~~
mywittyname
Price gouging is wrong because not helpful at all.

1) it doesn't increase the supply of goods. Everyone is very aware that
there's a shortage and they are working hard to produce more. Jacking up the
price does not achieve this goal.

2) it encourages hording of critical supplies. People don't want to sell now
in hopes of getting a better price tomorrow. They continue to do so until the
next batch of supplies come onto the market and finally drive the prices back
down

3) it makes people angry. When a group of people see someone with a bunch of
something they need to live, and they can't afford it, they might decide to
take it by force. This has the potential to cause needless bloodshed.

There's literally no benefit to price gouging, but a huge cost to life and
social stability. This is why so many people think it _feels_ wrong: when
something causes only harm with no benefit, most people would call that wrong.
In fact, one of the definitions of wrong is an action or conduct inflicting
harm without due provocation or just cause.

~~~
quotemstr
Re #1: yes it does. For example, during Katrina, high prices encouraged people
to drive long distances to bring supplies from other states.

Re #2: low prices, not high prices, encourage hoarding. Why _not_ buy 20
multi-packs of toilet paper if it's cheap? If toilet paper is expensive, you
buy what you need. The alternative to price gouging isn't everyone getting
what he needs: that's a fantasy. The actual alternative is empty shelves and
black markets.

Re #3: emotion is no basis for public policy. The state has a responsibility
to maintain law and order during an emergency.

In some situations, intuition serves us well, but economics is not prone to
these situations. It really is a good thing for prices to rise in times of
scarcity. Thousands and thousands and thousands of years of history tell us
that price controls only ever make things worse.

~~~
mywittyname
1) people were also shipping water and other supplies to Katrina for _free_. I
literally spent hours during the aftermath of Katrina filling aid packages for
people affected by the storm. These aid packages were not sold, they were
given away to people who had lost everything.

These supplies are already being produced as fast as possible. Even people
with 3d printers are making these masks to give away

#2) bubbles form with a group of people purchase goods at already inflated
prices, with the explicit attempt to drive up prices further and sell them for
a profit. "If people are willing to pay $50 for a roll of toilet paper, maybe
if I buy up all the toilet paper, I can sell it for $500!" -People causing
bubbles.

3) If the state has a responsibility to maintain order, then they have a
responsibility to combat price gouging, because failing to do so is a failure
to maintain order. It's not an emotion issue, it's a rational one.

I feel like you're the one whose intuition is off. What I'm talking about are
real, proven issues with price gouging and these are literally the reason that
it is outlawed in nearly all of the USA. It's a slam-dunk case for prosecutors
too. There's a reason why people caught price gouging are in the news the next
week for "donating" their stash.

~~~
dehrmann
> If the state has a responsibility to maintain order, then they have a
> responsibility to combat price gouging, because failing to do so is a
> failure to maintain order.

Expensive goods or shortages: pick one, but neither "maintains order."

------
gorgoiler
If TP costs $1 a roll to make and is currently selling at $10 a roll, the
store selling for $9 wins the game. Then the store selling for $8, ...$7, etc.
all the way down to the point where no one is left who is willing to
compromise their living standards by dropping their profit margin below a
certain percentage.

The rules of the game are that:

(1) If you collude to keep prices up you go to jail.

(2) Citizens must be allowed to move about freely to find the cheapest TP.

(3) It’s also cheating if you own such massive amounts of the economy that
what you lose in TP profits you gouge back in cell phone bills.

(4) A basic standard of living has to be upheld by society to stop the TP
manufacturers from only hiring 20 somethings, and contriving a social world
that venerates business, hustle and money above all else such that their
workers have to live with housemates well into their 30s in tiny apartments
without gardens which cost them 65% of their salary in rent to landlords whose
debt is owned by the TP companies financing subsidiary ok I need a cup of tea
and a back rub now.

~~~
rndmio
When demand outstrips supply by a large margin (and supply cannot be
increased) there is no need for collusion for prices to be high, and no
incentive to lower your own prices to compete because you can't sell any more
of a good you've sold out of.

------
treyfitty
Don't hospitals + drug companies price things based on need? The relative
demand for healthcare related goods are price inelastic (buyers traditionally
are willing to pay more because they have no choice). For example, something
as simple as one capsule of Tylenol can cost more than $5 at the hospital,
while you're captive to the bed. Why doesn't anyone mention this aspect of
"price gouging?"

It's the same underlying phenomenon of supply and demand, except this time
regular people are using it to their advantage rather than hospitals.

------
aww_dang
A popular domain which specializes in Austrian economics has printed
dissenting opinions on this topic. Predictably, that domain is repeatedly
flagged by HN.

Reading through the comments here, all of the objections to 'price gouging'
have been addressed in those articles. I have a hard time squaring HN's
mission statement of 'promoting intellectual curiosity' with this
contradiction.

------
neonate
[https://archive.md/Op2DB](https://archive.md/Op2DB)

~~~
SftwrSvior81
Also, your local library might have an online subscription to The Economist.
Take advantage of it :)

~~~
choward
Yeah, that's real convenient... Either information is free or it isn't. I'm
not going to look for some asinine way to access every piece of information I
am linked to.

~~~
SftwrSvior81
I wasn't suggesting you should do it just for this article. My library has a
really good selection of newspapers and magazines that they make available
online and I use it frequently. I figured some people may not know about that
but would find it useful if they knew about it.

------
1996
Anti price gouging has worked, as everyone can see with the well stocked hand
sanitizer and toilet paper aisles of most supermarkets.

We certainly don't have empty shelves reminiscent of USSR.

Joke aside, the only things anti price gouging laws have protected are
feelings: the feeling that governments control work, and the overall feeling
of moral superiority people like to have.

Personally, I'm frightened by the next wave of "feels good" legislation that
will ride on that, blind to the real world consequences of destroying free
market, in the worst times since 1929

------
bo1024
The article starts by focusing on hoarders, but this is talking past
economists focusing on actual producers.

I'd strongly agree that it's economically harmful for people to collect rents
without providing any new value, by accident of being in the right place.

Problematic, but murkier, is the case where someone happens to own a mask
factory and was previously happy to sell at $0.1, sees that supply is down and
demand up, and raises prices to $1. The factory owner is capturing a lot of
the surplus, and one could argue this is basically a rent for being in the
right business at the right time rather than any sort of economic incentive to
act efficiently. But a capitalist would argue this is reaping the rewards of
foresight to invest in mask factories, and the chance of this event helped
price and incentivize that investment in the first place. Anyway, on the other
side of the market, it's not clear that high prices are helping allocate
efficiently if places that need supplies most do not necessarily have the most
money available to bid high.

The article does get into some arguments about the most interesting case,
where actual changes to production and distribution happen because of the
crisis and prices' roles in mediating these changes. I like some of what the
article says here, but it more argues that the current system is a problem
than price-caps are a good solution -- and they have to be combined with other
more draconian measures like seizing and redirecting supplies. Maybe a better
solution is the government subsidizing all supply purchases massively, and
letting prices go wild. (This wouldn't work in isolation either though, we
still need some method for mediating between places who gets what.)

------
xapata
Monopoly pricing causes a lower supply quantity than competitive pricing. The
issue is the monopoly, not the price. The government should address the
underlying issue: Why does someone have a de-facto monopoly in some markets?

When competition exists, the prices will fall to appropriate levels to
correctly distribute the emergency goods.

~~~
dahart
> Why does someone have a de-facto monopoly in some markets?

In this case, and in the case of any disaster, that question has an answer,
and there’s no problem that a government or anyone can solve. People who
happened to make masks and sanitizers, or happened have them in stock, by
luck, suddenly became de-facto monopolies. And it will just as suddenly go
away.

> When competition exists, the prices will fall to appropriate levels to
> correctly distribute the emergency good.

In this case, and in the case of any disaster, new competition cannot appear
fast enough to meet the demand before the demand goes away. The demand is
inherently unstable. Even if competition arrives, the demand will drop, so
someone’s going out of business. This free market belief that things will
settle at the right place depends on the assumption that there’s infinite time
for the market to settle, it doesn’t really address the fact that without some
regulation you can sometimes end up in situations where both producers and
consumers lose, where there is only economic loss. If the demand changes too
quickly, price gouging costs consumers, too many people got sick from lack of
supplies due to price gouging, suppliers ramp up production only to have
demand vanish, and they suffer loss of demand at the same time they’re stuck
with warehouses of oversupply. Sometimes nobody wins if there’s nothing to
hold back reactionary behavior.

~~~
CryptoPunk
What the free market does is incentivize the correct degree of stockpiling
behaviour, by maximizing profits for those who stockpiled a correct amount of
the correct goods. Sufficient stockpiles equates to sufficient supply during
emergencies, which is exactly what society needs.

When prices for goods during a crisis are astronomical, that indicates that
the market did not work effectively in producing stockpiles, either because
there was a general lack of awareness that a particular good could see a spike
in demand, or because anti-price-gouging laws prevented profit-motivated
individuals from acting on their awareness.

A lack of laws against price-gouging incentivizes the behaviour of identifying
potential future demand spikes, and acting on that information, both of which
are socially beneficial.

~~~
dahart
The problem with this oft-used dogmatic argument is that it’s pure claim and
no evidence. It’s a specious theory, it sounds great on paper but only comes
true once in a blue moon. I happen to work for a company that got stuck with a
stockpile after a bubble, a company that actually tried not to get caught up
in oversupply, and it was not “socially beneficial”.

Your explicitly stated assumption in your argument above is that you have to
be lucky enough to have guessed _exactly_ the right amount to stockpile, which
almost never happens in reality, and is pure luck. There is no way to see the
future and know the “correct amount” for an unforeseen emergency.

There are multiple ways that stockpiling behavior can back-fire and turn into
economic loss, and in reality these actually happen routinely. One is that you
stockpile and the need never arises, which is not only economic waste, it’s
also externalized environmental waste. Another is too many people stockpiling,
and they lose money when sudden demand occurs. A third is over-stockpiling and
losing income when demand drops too quickly. And there are more.

It’s a huge and unrealistic assumption to think that we can stockpile the
“correct” amounts in advance of a crisis.

You’re also conflating money with well being. “Socially beneficial” is
exaggerating the idea of market balance, the benefit you’re talking about is
economic benefit, and fails to take into health, safety, or happiness of
actual people. This whole theory that the unrestrained market will be optimal
depends on having enough time to reach that state, it has never properly
considered global disease pandemics. Neither Adam Smith not any economist
since him has tried to claim that the free market balance happens instantly or
always, nor that it can’t cause economic loss when the conditions for free
market prosperity aren’t there.

> When prices for goods during a crisis are astronomical, that indicates that
> the market did not work effectively in producing stockpiles, either because
> there was a general lack of awareness that a particular good could see a
> spike in demand, or because anti-price-gouging laws prevented profit-
> motivated individuals from acting on their awareness.

I’m with you on the first part... it’s true _by definition_ that a crisis
brings demand for things that there was no awareness of. The second part
doesn’t make sense, you said prices are astronomical because anti-price-
gouging laws are in effect? What do you mean, why would anti-price-gouging
laws cause price gouging?

~~~
CryptoPunk
>>The problem with this oft-used dogmatic argument is that it’s pure claim and
no evidence.

The anti-money position you're espousing is the one that's dogmatic. It
ignores what a century of economic scholarship says about how prices work to
measure shortages and direct resources to alleviate them.

It belies an anti-profit cognitive bias:

[https://digest.bps.org.uk/2017/08/04/we-have-an-ingrained-
an...](https://digest.bps.org.uk/2017/08/04/we-have-an-ingrained-anti-profit-
bias-that-blinds-us-to-the-social-benefits-of-free-markets/)

>>The problem with this oft-used dogmatic argument is that it’s pure claim and
no evidence.

The theory that price controls harm the functioning of the economy is
overwhelmingly supported by the empirical evidence.

There is plenty of evidence showing the detrimental effects of price controls
on post-disaster situations (aka anti-price-gouging laws) specifically as
well, e.g.

[https://scholarworks.montana.edu/xmlui/bitstream/handle/1/90...](https://scholarworks.montana.edu/xmlui/bitstream/handle/1/9083/TarrantM0515.pdf;sequence=3)

>>It’s a huge and unrealistic assumption to think that we can stockpile the
“correct” amounts in advance of a crisis.

We can get closer to the correct amount when people are incentivized to
calculate the correct amount, and the corrective feedback loops of the market
work to reward good allocators of capital (those who are good at making
predictions on the supply excesses and shortages, and acting of them) with
more capital, and poor allocators of capital with less. Overtime, this leads
to an economy that allocates resources more effectively. Profit/loss produces
this outcome spontaneously and naturally, as a very consequence of the
behaviour that leads to profit, versus that which leads to losses.

Most knowledge is diffused widely across society, and it only comes to bear
when people are financially incentivized to act on it. Many have specialized
domains of expertise owing not from PhDs and theory, but from mundane
experience. The economy is too complex to govern using theory, which is why we
need bottom-up processes, like capital allocation through emergent phenomena
like markets, to tap this vast ocean of knowledge, in order to govern it.

Prices work. That's what evidence shows. You will not find the economic
scholarship supporting your canned anti-money/profit talking points.

>>The second part doesn’t make sense, you said prices are astronomical because
anti-price-gouging laws are in effect? What do you mean, why would anti-price-
gouging laws cause price gouging?

I meant the grey/black market price. It's astronomical due to extreme
shortages during crises, due in turn to stockpiling not sufficiently being
incentivized, owing to anti-price-gouging laws.

Price caps paradoxically lead to higher prices.

~~~
dahart
I appreciate the reply and the links. FWIW, I think trying to paint my views
as anti-money and anti-profit is a straw man that is extreme and doesn't
effectively respond to what I said. I believe that competition and profit does
do what you're saying _sometimes_. I know there's evidence that it works
_sometimes_. I may be perfectly comfortable saying it works most of the time.
But there's also historical evidence that it fails _sometimes_. You're
glossing over that by ignoring externalized health and environmental concerns,
among other things. The market might be stronger if it's left unchecked, but
that's not the same thing as slowing down the spread of a disease. Free Market
theory simply does not guarantee that we'll have the safest outcome in the
shortest time. Even if we assume it does work as advertised, the best we can
say it economic inputs and outputs balance at some local optimum some time in
the future.

> We can get closer to the correct amount when people are incentivized to
> calculate the correct amount

I think that's wishful thinking when you're talking about unforseen crises,
and history has shown this over and over.

> Price caps paradoxically lead to higher prices.

Ah yes, you're right and it's true this can happen on the black market under
price controls. In your thinking, why is that worse than unrestrained price
gouging? What is the meaningful difference in outcome? Does it matter how much
higher? Does it matter what the balance is between price-capped sales, and
black-market overpriced sales?

Bigger picture, my more fundamental question is why free-market thinking is
diametrically opposed to slowing down changes in pricing during spikes, if we
were to assume that prices will be uncapped eventually?

Even under ideal conditions, the market takes time to respond to changes in
demand. When spikes in supply are price-capped, let's assume not that it'll be
price-capped forever and all time, but that either it will be price-capped
during a time period that is too short for the market to respond to, or that
changes in pricing will be rate limited rather than value limited.

If price changes are rate limited, instead of hard-capped, then in theory
nothing changes in the limit, the market can still optimize eventually, right?
What does it matter if a market takes a little longer to balance?

~~~
xapata
You shouldn't limit price value or velocity, as evidenced by the perverse
effects of rent control laws. However, a limit on price acceleration could
provide a good balance, allowing the market to adjust on a reasonable time-
scale, such that humans can react.

That's my theory for immigration controls as well. Economic theory suggests
that unlimited flow of human capital is just as valuable as unlimited flow of
financial capital. However, we know that shock movements of financial capital
can be bad, and instinctively people dislike shock movements of people. A good
solution for both is to limit not velocity, but acceleration. The economy can
absorb a steady flow, but needs time to react to rate changes.

~~~
dahart
Interesting, an acceleration cap might be just fine, and easier to tune
correctly & get political agreement on.

I agree with you that the economy needs time to react to rate changes. The
problem with rent control is sometimes it's implemented as a value cap, and
sometimes it's a rate cap that is too low. I wouldn't rule out rate caps just
because someone somewhere set the rate too low.

I do want to counter the idea that caps are bad just because something bad
happened in some cases. That's not enough to prove that price caps are always
wrong. I know price caps can cause problems sometimes. But not having any
regulation can cause problems as well, and there's also plenty of evidence for
this.

Pollution and global warming is already starting to have massive global
economic effects, and the costs and causes of it have been externalized by
corporations for a hundred years. All of the free market "success" that has
been enjoyed by global manufacturers is starting to cost humanity, and our
children are going to need to re-evaluate whether letting the companies
operate as freely as they did with our air and land and water was a good idea.
There's a growing global consensus that it was not. The implications of that
on free market thinking are that we need to understand and acknowledge that
some freedoms come with invisible or unaccountable costs, and/or very late
costs. And sometimes these costs can outweigh all the short-term benefit.
Companies can come, make billions, last for a generation, and die before we
even know what the cost was. No amount of waxing laissez faire philosophy can
undo the actual damage we've already done.

------
dpc_pw
Why would anyone stockpile emergency stuff, if in case they are needed, they
will be called "profiteers" and taken advantage off?

People that rush buy this stuff to make a profit, are actually helpful in
promptly preserving the limited supply from running out.

------
brodouevencode
> With price gouging, morality trumps economics

Click link. Hit paywall. In other words "someone might be ripping you off but
unless you pay us we're not going to tell you how". And yes, forced sign ups
are a type of paywall.

------
lazylizard
Cant read, paywalled. I'm only curious how to set the price. Like. How to
define price gouging.

And then how to decide how to allocate the product in question. Lottery? First
come first serve? My friends and family first?

Why not make everything free and distrbute fairly?

------
hartator
Well just signed up to the Economist today for their coverage of bug
governments. Time to unsubscribe now.

~~~
EdwardDiego
Why?

------
aaron695
This article is garbage, we had hospitals wasting supplies at the start
because they assumed their price fixed PPE supply would last forever. Now they
use plastic bags.

And we have a Texas factory saying if the government will just pay for a long
contract they will ramp up supply.

[https://www.washingtonpost.com/business/2020/02/15/coronavir...](https://www.washingtonpost.com/business/2020/02/15/coronavirus-
mask-shortage-texas-manufacturing/)

So this is not about disaster profiteers.

This is about total and utter incompetence of hospitals planning ahead.

Which happens every day, just it's happening to a lot of people at once
compared to your grandmother who died last year of a preventable issue because
the bureaucrats in the hospital didn't care and doctors are to specialised to
know about the world around them.

~~~
mieses
your comment will get downvoted but this article will never get flagged.

