OK, and now a blogger's prerogative: raising questions about something without actually giving any real answers (NB: on immediate reflection, this actually seems like a practice many of us - myself included - could benefit from participating in more often).
First, I find the broad strokes of the economic argument pretty compelling. Higher profit margins might give people an incentive to take goods to the place where they are needed. If, say, canned food is in high demand at the site of a disaster, I might be persuaded to head to my local supermarket, stock up, drive in and sell at a profit. We might question the purity of my motives, but at bottom, I was induced to take a good and provide it to people who need it.
But: the scenario painted in the video assumes that a functioning market sprouts up more or less immediately upon the increase of demand. Here, I think we have good reasons to think that the narrow window in which a profit might be made, the possibility of moral judgment (more on this below), and the inertia acting against those who might create a market stifle its emergence. (I think people doing nothing usually prefer to keep doing that; also, people have - you know - jobs and what not they might not want to leave to take soup to Long Island to make a quick few hundred bucks). All of which is to say that a robust competitive market in, say, ice might not actually emerge.
Law and economics literature often says "assuming no transaction costs..." which I usually choose to read as "assuming things are totally different than they are in the world around us..." Transaction costs are not only just there, but I tend to think that people themselves are walking transaction costs. Economists can treat us as rational maximizers all they want - and many fruitful models have been built on that premise - but a quick look around gives the lie to that assumption as far as I'm concerned.
But I digress, and as a friend of the blog rightly points out, allowing price gouging doesn't mean people can't go in and offer aid and generosity from the goodness of their heart. Maybe they drive down the price being charged by those there to make a profit. But I suspect the interaction between aid and a quickly emerging market is likely to be complicated. A few meandering questions. Does charitable aid prevent the emergence of a market? Does even a nascent market prematurely diminish charitable aid? Does the potential of moral stigma aid threatens profit with undercut market incentives? (Is that a bad thing?)
But wherever we land on the question of profit vs. aid, and whatever theses we advance about the relationship between the two, it seems clear to me that we do often make a judgment about those who profit off of somebody's hardship. I've been trying to think about why this is, but I can't get beyond or around a gut feeling that we think of it as an indicator of a particular kind of selfishness. We hope that when faced with victims in need, we think only of how we can help, not of how we can use it to our advantage. We want to think that it brings out the charity in us and encourages us to sacrifice, not profit.
A couple of things to complicate the picture. First, it's an open question as to whether we are likely to live up to this standard. Second, it represents a particular view of morality with which people are, of course, bound to disagree. My aim here isn't to suggest that judgment of profiteering is necessarily correct, but rather that I think it's there.
As always, I would love to hear what people think about this issue. Should it be illegal? Is it immoral? Why do we seem to judge it so harshly? And what can we do about any of it?
Great post. Here's two reasons why I think we intuitively find price-gouging to be, for lack of a better word, icky.
ReplyDelete1) I think we don't really think the market lands on the exact right price in a disaster situation. When I sell a $1 can of beans to a starving person for $20, she might pay but it's not because she's sort of rationally decided that beans are worth 2,000% of their normal price. It's because she's hungry and doesn't want to haggle over feeding herself or her family, and I know it. (Put another way, if the guy 100 yards behind me were to sell it for $10 -- half off! -- we can imagine she still wouldn't want to wait the extra minute, even though rationally she should. She won't be any hungrier a minute from now, but this decision is not being weighed the same way my decision to gouge her is.)
2) Although my price gouging doesn't PREVENT your generosity, as you rightly note, I don't think PERMITTING generosity is the standard society has set. Rather, we expect it as the "right" thing to do. As Josh prophetically explains to Donna in the West Wing, "If your neighbor's
house is on fire, you don't haggle over the price of your garden hose."
(And my point (2) above effectively distinguishes price-gouging in a horrible disaster, which is wrong -- e.g. house on fire or canned food after a catastrophic storm -- from price-gouging by the guy who sells $20 umbrellas on the street in a rain storm, which is fine. The stakes are lower, and hence we don't require the same social behavior. The umbrella salesman is a shrewd economist, while the canned food guy is a douche.