• About Us
  • Who Are We
  • Work With Us
Monday, January 18, 2021
No Result
View All Result
NEWSLETTER
The Globe Post
39 °f
New York
44 ° Fri
46 ° Sat
40 ° Sun
41 ° Mon
No Result
View All Result
The Globe Post
No Result
View All Result
Home Opinion

Why Economists Who Have No Problem With Price Gouging Are Wrong

Amitrajeet A. Batabyal by Amitrajeet A. Batabyal
05/07/20
in Opinion
A women wears a mouth mask amid the coronavirus (COVID-19) outbreak.

Prices of masks, hand sanitizer, and disinfectant wipes have skyrocketed. Photo: AFP

Share on FacebookShare on Twitter

Unfortunately, natural disasters affect humans with unappealing regularity. The most recent case, the COVID-19 pandemic, has sickened and killed too many, stretched the resources of many governments, and resulted in significant damage to the world economy.

Even though nothing about this pandemic is usual, one event that usually accompanies or follows natural disasters has been felt this time as well: the phenomenon of price gouging. The prices of hand sanitizers, disinfectant wipes, and particularly masks, have seen excessive increases.

What Is Wrong With Price Gouging?

Even though price gouging amid a natural disaster and certainly during a pandemic would appear to be wrong on many levels, puzzlingly, many economists have no problem with it and are even opposed to laws seeking to proscribe the practice.

To see why economists have no problem with price gouging, it is crucial to understand the central role that prices play in modern economies. The Nobel laureate Friedrich von Hayek lucidly argued that for an economy to function efficiently, decision-making needs to be decentralized. The numerous decentralized decisions must then be tied together and made compatible. The system of prices that arises from the equation of demand and supply performs this vital function.

In other words, economists would generally like to see market forces determine prices because such prices perform the important function of efficiently allocating goods to those who want these goods the most.

When looked at in this way, any tinkering with market-determined prices by a government can only lead to inefficiencies because governments seldom have the information they need to do as good a job as the price mechanism in getting goods to those who want them the most. In addition, economists argue, laws against price gouging are like price ceilings, and such caps cause problems like shortages.

Why We Must Act Against Price Gouging

Viewed narrowly, the above arguments make sense. If governments were concerned only or primarily about the economic efficiency of their actions, one could make a strong case for doing nothing about price gouging. But when confronted with a pandemic, the argument for doing nothing ought to be scrutinized holistically. When this is done, problems emerge.

Economists believe that high prices and high profits send the right signals to producers to supply more of a good. In the current pandemic, would this logic work for masks? The mere fact that masks are now a lot more expensive would not provide enough of an incentive to producers to dramatically ramp up production for an indeterminate time horizon. How would producers justify the upfront costs when they don’t know for how long the high prices will last?

If a vaccine or a drug is developed relatively soon, then producers may not be able to recoup the upfront costs. Since uncertainty is the enemy of investment, it is difficult to credibly claim that prices alone can provide a rationale for generating a sufficient supply of masks in an environment of uncertainty.

Big Pharma has been price gouging patients for many years, what will happen now we're facing down COVID-19?pic.twitter.com/xExAKPznWy

— Laura Packard @ ? (@lpackard) April 29, 2020

Second, even if we accept that high prices provide a sufficient signal to producers to supply more, in the face of governmental regulation, producers may not be able to supply more quickly. For instance, when faced with high prices for some goods, Chinese firms could not simply ramp up production because governmental regulations prevented them from doing so until their workers were protected with masks. In fact, to comply with these regulations, car and phone producers added mask production lines.

Third, it would be difficult to agree with the proposition that Americans only care about economic matters in their ordinary lives. Other things matter too, and when faced with the COVID-19 pandemic, the benefit to society from a functioning health system clearly exceeds any costs to mask or hand sanitizer producers who are precluded from selling their goods at much higher prices.

Finally, there are communitarian and moral dimensions of price gouging that are worth emphasizing. We live in communities where we interact with a variety of sellers. In repeated interactions, sellers who price gouge create ill will among their customers that will come back to hurt them later. The moral case against price gouging lies in recognizing that amid a pandemic, inordinately raising prices of goods like masks is equivalent to “kicking” vulnerable people such as medical workers.

In 1944, the economist Karl Polanyi argued in his justly famous tome The Great Transformation that even though markets are a valuable form of organization, they can remain valuable only when they are contained and limited by non-market considerations. Economists who have no problem with price gouging would do well to focus on the non-market part in Polanyi’s argument.

Disclaimer: The views and opinions expressed here are those of the author and do not necessarily reflect the editorial position of The Globe Post.
ShareTweet
Amitrajeet A. Batabyal

Amitrajeet A. Batabyal

Arthur J. Gosnell Professor of Economics at the Rochester Institute of Technology. Batabyal has published over 600 papers, books, book chapters, and book reviews

Related Posts

President Donald Trump in the Brady Briefing Room of the White House.
Opinion

Threatening Democracy: The Choice Between Progress and Extremism Has Never Been So Clear

by Peter Bloom
January 13, 2021
Jake Angeli speaks to a US Capitol Police officer.
Opinion

American Democracy Will Prevail

by Saad Hafiz
January 13, 2021
Pedestrians wait to cross a street in Malaysian capital Kuala Lumpur on October 7, 2020.
Democracy at Risk

Malaysia Declares Virus Emergency, Suspends Parliament

by Staff Writer
January 12, 2021
Pro-Trump protester in front of Capitol Hill.
Opinion

Riots at Capitol Hill: Darkness Before the Dawn?

by Stacy Gallin
January 8, 2021
COVID-19 has already caused over 346,000 deaths in the US.
National

New Year Arrives With US Hitting 20 Million Covid Cases

by Staff Writer
January 1, 2021
A National Basketball Association logo.
National

NBA to Require Players to Wear Covid Tracking Devices

by Staff Writer
January 1, 2021
Next Post
Venezuelan President Nicolas Maduro leaves after offering a press conference in Caracas, Venezuela, on January 25, 2019

Venezuela Arrests Two Americans for Failed 'Invasion'

Donald Trump being interviewed at the Lincoln Memorial in Washington, DC, May 3 2020

How Do Lincoln, Kennedy, Obama, and Trump Compare?

Please login to join discussion

Recommended

Russian opposition politician Alexei Navalny.

UN Rights Office Urges Navalny’s Immediate Release

January 18, 2021
The filing was submitted by Justice Department lawyers on Thursday, January 14.

US Rioters Sought to ‘Capture and Assassinate’ Lawmakers at Capitol: Prosecutors

January 15, 2021
Biden proposes raising the federal minimum wage to $15 an hour.

Biden Unveils $1.9 Tn Economic Plan as US Recovery Buckles

January 14, 2021
Senegalese soldiers from the UN peacekeeping mission in Mali, MINUSMA, July 24, 2019.

UN Peacekeeper Killed in Mali, Seven Wounded: Spokesman

January 13, 2021
President Donald Trump in the Brady Briefing Room of the White House.

Threatening Democracy: The Choice Between Progress and Extremism Has Never Been So Clear

January 13, 2021
Jake Angeli speaks to a US Capitol Police officer.

American Democracy Will Prevail

January 13, 2021

Opinion

President Donald Trump in the Brady Briefing Room of the White House.

Threatening Democracy: The Choice Between Progress and Extremism Has Never Been So Clear

January 13, 2021
Jake Angeli speaks to a US Capitol Police officer.

American Democracy Will Prevail

January 13, 2021
Pro-Trump protester in front of Capitol Hill.

Riots at Capitol Hill: Darkness Before the Dawn?

January 8, 2021
Volunteers are given the Moderna vaccine on August 5, 2020, in Detroit, Michigan.

Who’s First-in-Line for the Vaccine? A Classic Problem in Medical Ethics

December 30, 2020
A sorghum farmer inspects her small grains crop thriving in the dry conditions in March in the Mutoko rural area of Zimbabwe

The 10-Year Food Systems Revolution Must Start Now

December 22, 2020
Playing the Un-Naming Game in New York Is Harder Than It Seems

Pandenomics: The High Cost of Living While Undocumented in the United States

December 22, 2020
Facebook Twitter

Newsletter

Do you like our reporting?
SUBSCRIBE

About Us

The Globe Post

The Globe Post is part of Globe Post Media, a U.S. digital news organization that is publishing the world's best targeted news sites.

submit oped

© 2018 The Globe Post

No Result
View All Result
  • National
  • World
  • Business
  • Interviews
  • Lifestyle
  • Democracy at Risk
    • Media Freedom
  • Opinion
    • Editorials
    • Columns
    • Book Reviews
    • Stage
  • Submit Op-ed

© 2018 The Globe Post