Walter Williams is a professor of economics at George Mason University. He has an excellent article on the principles of economics in tough situations.
But let's agree that COVID-19 is a disaster and ask what the appropriate steps are to deal with it. One of the first observations about any disaster is that the quantity demanded of many goods greatly exceeds the supply. There is a shortage. The natural market response when there is a shortage is for prices to rise. Rising prices produce several beneficial effects. They reduce the incentive for people to hoard while suppliers, motivated by the prospect of higher profits, are incentivized to produce more of the good in short supply.
But what about hoarding? Often hoarding creates the shortage. In uncertain times, people may purchase three dozen eggs instead of one dozen. They may want to maintain stockpiles of canned goods and buy up large quantities of cleaners, paper towels and toilet paper. This kind of behavior has left some with overflowing freezers, shelves of sanitizers and garages full of toilet paper while their neighbors are left either wanting for the same items or paying what some call "excessive and unjustified" prices.
While it's difficult to get beyond emotions, the fact is that consumers are not forced to buy products for the higher (gouged) price. If they pay, it is likely because they see themselves as being better off acquiring the good than the alternative - keeping their money in their pocket. Higher prices charged have a couple of unappreciated benefits. First, they get people to economize on the use of the good whose price has risen. That is higher prices reduce demand and encourage conservation. That helps with the disaster.
Some people might reluctantly agree that allowing prices to rise during a disaster helps allocate resources. But they'll complain that's not the intention of greedy sellers who are out to profit. I say, so what? It's not sellers' intentions that count but what their actions accomplish that's important -- namely, getting people to conserve more and suppliers to produce more.
Many of the problems associated with a disaster would be eliminated if people's buying behavior were the same as it was before the disaster. To get people to behave nicely and consider their neighbors is the ultimate challenge. I think rising prices are the best and most dependable way to get people to be considerate of their fellow man.
https://townhall.com/columnists/walterewilliams/2020/04/01/managing-a-disaster-n2565998
If you really want to learn more search for more of his work and that of Thomas Sowell, they taught me I was wrong back during 9/11/01 when I was very hard on anyone I perceived as gouging. Many of those of us sheepdog types feel that way. We really care deeply for those that we believe are being gouged, even if we are not the ones directly affected. But I have come to understand through research and study that I was wrong then.
Many that despise so called gouging zealous guard their personal stores but those that failed to get what they needed when plentiful need this market response to have at least the minimum they need to serve their families.
I use a product regularly that I thought today I should bolster my stocks of, I checked today and my $5 per pack was $25 now. I wasn't upset, and did not buy extra as I will manage my stock to get through this. To those that didn't stock up that may be the difference to them. That market change changed my behavior, I told the family that we needed to conserve our stocks. That is exactly what needed to happen. It was the best for all!
This is is not to excuse bad behavior like stealing masks from hospitals, buying all the sanitizer a week before expecting to profit greatly. This is about the raising the price of properly held inventory in response to increased demand
So please rethink this, look at the evidence and look at how folks are affected and not just at the price but by unavailability. Those we look down our nose because they didn't heed our warnings to prepare need the stuff badly, bad enough to pay those that have it a big premium because they failed to prepare.
We we sheepdogs need to understand how this works so we can guide those that did not prepare as we advised. One last story I got a call from my brother, I love dearly, 2 weeks ago wanting me to sell some of my stores. I said no. I was able to help him get what he needed, albeit at today's market value, not my pre planning prices. He has what he needs and feels better about his situation but hopefully learned a lesson to prepare better in the future and what the cost is of not doing so. It is a tough lesson for both of us, but like a parent giving dicipline if I bailed him out now what would be gained. I obviously would have helped him if absolutely necessary but it was not. He knows now.
I hope we all can learn from this situation...
But let's agree that COVID-19 is a disaster and ask what the appropriate steps are to deal with it. One of the first observations about any disaster is that the quantity demanded of many goods greatly exceeds the supply. There is a shortage. The natural market response when there is a shortage is for prices to rise. Rising prices produce several beneficial effects. They reduce the incentive for people to hoard while suppliers, motivated by the prospect of higher profits, are incentivized to produce more of the good in short supply.
But what about hoarding? Often hoarding creates the shortage. In uncertain times, people may purchase three dozen eggs instead of one dozen. They may want to maintain stockpiles of canned goods and buy up large quantities of cleaners, paper towels and toilet paper. This kind of behavior has left some with overflowing freezers, shelves of sanitizers and garages full of toilet paper while their neighbors are left either wanting for the same items or paying what some call "excessive and unjustified" prices.
While it's difficult to get beyond emotions, the fact is that consumers are not forced to buy products for the higher (gouged) price. If they pay, it is likely because they see themselves as being better off acquiring the good than the alternative - keeping their money in their pocket. Higher prices charged have a couple of unappreciated benefits. First, they get people to economize on the use of the good whose price has risen. That is higher prices reduce demand and encourage conservation. That helps with the disaster.
Some people might reluctantly agree that allowing prices to rise during a disaster helps allocate resources. But they'll complain that's not the intention of greedy sellers who are out to profit. I say, so what? It's not sellers' intentions that count but what their actions accomplish that's important -- namely, getting people to conserve more and suppliers to produce more.
Many of the problems associated with a disaster would be eliminated if people's buying behavior were the same as it was before the disaster. To get people to behave nicely and consider their neighbors is the ultimate challenge. I think rising prices are the best and most dependable way to get people to be considerate of their fellow man.
https://townhall.com/columnists/walterewilliams/2020/04/01/managing-a-disaster-n2565998
If you really want to learn more search for more of his work and that of Thomas Sowell, they taught me I was wrong back during 9/11/01 when I was very hard on anyone I perceived as gouging. Many of those of us sheepdog types feel that way. We really care deeply for those that we believe are being gouged, even if we are not the ones directly affected. But I have come to understand through research and study that I was wrong then.
Many that despise so called gouging zealous guard their personal stores but those that failed to get what they needed when plentiful need this market response to have at least the minimum they need to serve their families.
I use a product regularly that I thought today I should bolster my stocks of, I checked today and my $5 per pack was $25 now. I wasn't upset, and did not buy extra as I will manage my stock to get through this. To those that didn't stock up that may be the difference to them. That market change changed my behavior, I told the family that we needed to conserve our stocks. That is exactly what needed to happen. It was the best for all!
This is is not to excuse bad behavior like stealing masks from hospitals, buying all the sanitizer a week before expecting to profit greatly. This is about the raising the price of properly held inventory in response to increased demand
So please rethink this, look at the evidence and look at how folks are affected and not just at the price but by unavailability. Those we look down our nose because they didn't heed our warnings to prepare need the stuff badly, bad enough to pay those that have it a big premium because they failed to prepare.
We we sheepdogs need to understand how this works so we can guide those that did not prepare as we advised. One last story I got a call from my brother, I love dearly, 2 weeks ago wanting me to sell some of my stores. I said no. I was able to help him get what he needed, albeit at today's market value, not my pre planning prices. He has what he needs and feels better about his situation but hopefully learned a lesson to prepare better in the future and what the cost is of not doing so. It is a tough lesson for both of us, but like a parent giving dicipline if I bailed him out now what would be gained. I obviously would have helped him if absolutely necessary but it was not. He knows now.
I hope we all can learn from this situation...
