Friday, January 10, 2014

Making bad situations worse

Here is a man thanking a "price-gouger" for rescuing him from the cold very late one night last week. "An Economics Lesson at the Baggage Carousel ... Government-regulated taxis weren't around in a snowstorm. Then came a man with a car and price."  But the writer is an admitted economist.

It's a very old story. Markets elicit cooperation between willing parties. But many only smell "unfairness" when the service is not offered at a loss.  The regulated taxis who would have had to take a loss had already disappeared.

The bad weather and the emergency had happened.  Accept that and do the best.  If markets clear at a higher price, that's the best of a bad situation.  Enforcing "anti-gouging" laws (or sentiments) would make a bad situation worse.

But this is what we do. The toughest U.S. price controls were put into effect in World War II.  This only made a very bad situation worse. As in the taxis-in-the-snowtorm story, it is unwise to punish those with the extra capacity to serve when it counts most. As Prof Higgs noted, during the war this only brought law-breaking and black markets.


I have often noted that many see pricing as exotic and/or sinister.  Here is the NY Times' Annie Lowrey struggling.  She sees "high-tech gouging", sees no difference in the time-of-day that the "same ride" occurs, and sees some "longing for inefficiencies they never knew they were benefiting from."