Comment by tablespoon | Hacker News Reader

Comment by tablespoon | Hacker News Reader

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> You also need the ability to raise prices when there are shortages in order to encourage buffering.

No, but I can see how someone would some to that conclusion by thinking narrowly in terms of pop free market dogma.

> Unfortunately, the people who like anti-price gouging laws appear to prefer shortages and misallocation of goods.

Price gouging is actually a worse misallocation of goods. It's still a shortage, but it just doesn't hit rich people as hard. If you have food stockpiles to barely feed everyone through winter, it's not a proper allocation to let the market price food so richer people can feast and some poor people starve to death.

Price gouging introduces a lot of (especially short term) inefficiencies as greedy parasites make profit-seeking decisions based on their greed and not social need.

Markets work very well in some contexts, but it's a mistake to think they work best in all contexts. Crisis shortages are not one of the contexts where they work well.

> It's still a shortage, but it just doesn't hit rich people as hard.

It sounds like you're assuming that increases in price don't increase quantity supplied. While this may be true in some contexts (e.g. completely unexpected global crisis), there are many cases in which it does:

- In a local crisis, an increase in price encourages shipping in goods from areas not in crisis. Why would someone take the risk of shipping for the same price they can get elsewhere?

- As the GP mentioned, the ability to raise prices provides an incentive for stockpiling goods. Why would someone incur the expense of maintaining a stockpile in exchange for no benefit in a case where the stockpile is needed?

I'd also argue that it's very unlikely for price increases to render all basic necessities impossible to afford, even for poor people. Consider water - even for someone living in poverty what percent of their budget would you guess is allocated to water? Maybe 5%? So even a doubling of the price of water (for context, price gouging laws typically restrict price increases to around 10%) would only increase that to 10%, leaving plenty of room for them to reallocate not-as-essential parts of their budget. For food perhaps the original percent is higher, but there's much more opportunity to substitute cheaper foods in a crisis situation.

> - In a local crisis, an increase in price encourages shipping in goods from areas not in crisis. Why would someone take the risk of shipping for the same price they can get elsewhere?

One reason is that people don't operate exclusively in the market paradigm, but free market economics makes the (false) simplifying assumption that they do.

> - As the GP mentioned, the ability to raise prices provides an incentive for stockpiling goods. Why would someone incur the expense of maintaining a stockpile in exchange for no benefit in a case where the stockpile is needed?

If you think about that actual scenario, that makes no sense as a business decision. People aren't going to pay the costs of stockpiling something in the off chance they can benefit from price gouging during an unpredictable crisis.

What really happens is parasites try to drain the supply chain so they can flip the goods at a price-gouging markup. You saw this during the pandemic: dudes driving around buying all the hand sanitizers and masks they could, then keeping them in their garage away from where they were needed, hoping to make a big personal profit. All they did was exacerbate the shortages.

You're arguing both that people respond to price signals and that they don't. Regardless of your dismissals, it is perfectly obvious that higher prices provide an incentive to supply more.

Anyway, what better way are you proposing to distribute goods?

> You're arguing both that people respond to price signals and that they don't.

Actually, I'm arguing that classical free market economics doesn't lead to the best (or even good) results over all scales. IMHO, advocacy for price gouging is sort of like insisting on using classical mechanics to model quantum-scale phenomena. Price gouging is properly understood as a market failure, in that some people respond to the price signals by doing socially counterproductive stuff (and the supposed socially productive stuff is mostly a chimera in that context).

> Anyway, what better way are you proposing to distribute goods?

Your question assumes I'd give one answer, when my point is it depends on context. In some cases that's dogmatic free market economics, in other cases it's literal central planning, but in most cases it's something in between. One thing is clear, though: crisis shortages are not the place for dogmatic free market economics.

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