Gouging vs. Charity
- I've long felt John Stossel, an ABC anchor and reporter, is nothing more than a hack trying to pass off as a legitimate journalist. This isn't to say that some of his reporting isn't valid, but that typically what he does is pepper said legitimate reporting with a handful of either extremely biased opinions or faulty positions.
His opinion today does little to assuage any concerns I have over both him and his reporting. Because in today's column, Stossel argues that it's appropriate, even proper to price gouge the poor and needy during times of crisis.
It's a ridiculous notion, and the fact that Stossel trumped out three Nobel Prize winners does nothing to make me think his suggestion is the proper course of action.
Plus, Stossel attempts to tie his tale from Hurricane Katrina to the current concern over high gas prices, when I don't necessarily think either are comparable. Katrina was an immediate need with thousands of people - most of them poor - without any material resources. Those people needed direct assistance and making a profit off them is wholly wrong.
However, considering I don't believe gas companies are price gouging us, and, despite how inconvenient and cost-crunching higher prices are, it's weird for anyone to label this as a 'crisis.' Paying more at the pump is a result of a variety of complex economic factors, with good old-fashioned supply-and-demand being one of them.
Now there may be the argument that 'well, the poor are always in need so the oil companies are consistently hurting them ... how can you argue, then, what John Sheperson was wrong.' True, but we also have a litany of agencies and programs designed to assist them in which charitable spirit rightly reigns.
Stossel, however, argues (through implication) that charity is counterproductive and the ideal way to assist those in need - desperate need as those affected by Hurricane Katrina were - is by making a profit off them.
But the best way is to give the items to those who are willing to pay higher prices. It's best because it directs supplies to those who need them most ...
This is very wrongheaded, and it suggests that those most in need will possess the resources necessary to acquire their supplies. However extreme want does not equal possessing the appropriate financial resources - quite the opposite actually. Extreme want demonstrates a lack of the necessary financial resources to acquire those supplies.
In turn, who is going to come out with the purchasing power to buy these marked-up supplies? Those with the ability to spend that kind of money, and that typically isn't many people who have just seen their entire lives completely washed away.
Charity is a wonderful, wonderful thing and our nation needs more of it.
And if John Stossel thinks it's better to take advantage of people affected by a national disaster, particularly the poor ... well, then he can go to hell.
His opinion today does little to assuage any concerns I have over both him and his reporting. Because in today's column, Stossel argues that it's appropriate, even proper to price gouge the poor and needy during times of crisis.
It's a ridiculous notion, and the fact that Stossel trumped out three Nobel Prize winners does nothing to make me think his suggestion is the proper course of action.
Plus, Stossel attempts to tie his tale from Hurricane Katrina to the current concern over high gas prices, when I don't necessarily think either are comparable. Katrina was an immediate need with thousands of people - most of them poor - without any material resources. Those people needed direct assistance and making a profit off them is wholly wrong.
However, considering I don't believe gas companies are price gouging us, and, despite how inconvenient and cost-crunching higher prices are, it's weird for anyone to label this as a 'crisis.' Paying more at the pump is a result of a variety of complex economic factors, with good old-fashioned supply-and-demand being one of them.
Now there may be the argument that 'well, the poor are always in need so the oil companies are consistently hurting them ... how can you argue, then, what John Sheperson was wrong.' True, but we also have a litany of agencies and programs designed to assist them in which charitable spirit rightly reigns.
Stossel, however, argues (through implication) that charity is counterproductive and the ideal way to assist those in need - desperate need as those affected by Hurricane Katrina were - is by making a profit off them.
But the best way is to give the items to those who are willing to pay higher prices. It's best because it directs supplies to those who need them most ...
This is very wrongheaded, and it suggests that those most in need will possess the resources necessary to acquire their supplies. However extreme want does not equal possessing the appropriate financial resources - quite the opposite actually. Extreme want demonstrates a lack of the necessary financial resources to acquire those supplies.
In turn, who is going to come out with the purchasing power to buy these marked-up supplies? Those with the ability to spend that kind of money, and that typically isn't many people who have just seen their entire lives completely washed away.
Charity is a wonderful, wonderful thing and our nation needs more of it.
And if John Stossel thinks it's better to take advantage of people affected by a national disaster, particularly the poor ... well, then he can go to hell.
posted by Jmac at 7:11 AM
12 Comments:
Stossel argues that it's appropriate, even proper to price gouge the poor and needy during times of crisis.
I cannot even begin to comprehend how anyone would think that makes sense at all - oh, and not to mention the fact that it's morally bankrupt.
I watched the TV program that this article was based on, or which it was inspired by, and the article does not do a very good job of relating the info in any detail. It's a summary, but it leads to some misunderstandings.
Stossel didn't even come close to saying anything like this:
Stossel, however, argues (through implication) that charity is counterproductive and the ideal way to assist those in need - desperate need as those affected by Hurricane Katrina were - is by making a profit off them.
Charity is a matter that wasn't talked about by Stossel unless you count the aid to Africa segment. The Katrina segment was about how when retailers are forced to keep prices the same during times of crisis then the supplies disappear quickly and only a very few lucky (fast-acting) individuals get the supplies. The shelves of water, batteries, and other goods were empty due to people buying way more than they needed "just in case." If the prices had been raised to match the demand, then people would have been more likely to buy only what they needed without over-buying. Remember last year in Athens when gas was rumored to dry-up? Long lines and no gas for a few days because people freaked and filled can after can up with gas. If the stations had immediately raised their prices, then maybe most people would have filled their tanks and left the extra containers at home.
For example, let's say there are 100 people in a town struck by a hurricane. The town store has 200 gallons of water. The town store, by law, cannot raise prices due to "anti-gouging laws." So, the first 20 people each fill their carts with 10 gallons of water and the other 80 people are screwed. If the prices had been raised, then more people would have each bought fewer gallons and more people over all would have water. That's the principle that Stossel and the Nobel Prize winning economists adhere to.
Stossel at least backed up the position with evidence and expert (the best experts recognized by world-wide competition -- not some random economist who just happens to agree with him) thought. I'm sure Stossel would be fine with people being charitable in the Katrina situation, but to disallow others from selling generators or goods in accordance with demand only makes a very small percentage get those goods instead of many people affording less but enough of said goods. Who do you think that percentage is? The richer folks who can afford to stock up and get to the stores quickly.
I think that article is somewhat misleading in its simplicity. But, even if "Charity = bad" was Stossels position, you could do more to back up the "charity = good" position other than writing that Stossel can go to hell :)
One thing I left out: The generator example was a guy who realized that no one was getting generators at all -- not from charity, not from the gov't, not from stores -- so he drove a bunch down there to sell. People wanted to buy them, but he got thrown in jail. No one got those or any other generators. If he hadn't spent money to get down there, no one would have gotten generators. If many people had done the same as he did, then the price would go down slightly. But no one has that chance because of the laws.
If charity was a perfect solution, then these laws would be fine, but charity can't provide everything that everyone needs. And profit is the only motivator in some cases.
While we give JMac time to respond to Russ's fine defense of Stossel's comments, I'll add a couple of things.
1. The turn of phrase "those who need it most" is a bit of a turn-off, and it tends to tick people off who aren't used to hearing it used this way, but when you understand the whole "language game" that economists are playing it makes more sense and doesn't sound nearly as "morally bankrupt." Russ already expressed this with his explanation, but I want to make it more explicit.
Higher prices force people to economize, i.e., to be more careful/selective about how much they buy. This leaves more for the next guy who comes along. This is what economists usually mean when they talk about higher prices making sure that goods go to "those who need them most." If you and I both go to the gas station, me to fill up my lawnmower and you to fill up your family's only car, and we find that gas prices have jumped to 6 dollars a gallon for some reason or another, it is more likely that you are going to begrudgingly pay the 6 dollars while I am going to go home and wait for the price to come down before I fill up my lawnmower.
You will be upset about the higher price, but look what just happened. The guy who "needed" the gas more (you) got the gas (or the gas was put to its "more valuable use").
Of course, some people might be so poor that they cannot afford the more expensive gas, period. This is what you are understandably concerned about. But even here these people aren't just S.O.L. They and their neighbors might pool their resources and buy one tank of gas and carpool for a few days. Or they might decide to ride the bus, or a bike. The point is that, the end result of the prices going up is that the gas gets "rationed" to those uses where it does the most good. This happens "naturally" as a result of the ebb and flow of supply and demand, and no government official has to "fix" anything.
This is not a perfect process. Some really rich guy might decide to fill up his lawnmower anyway, even at 6 dollars a gallon. But as a general trend, more people will be more careful about how much gas they buy. They will start finding ways to make the gas they have last longer (by carpooling, etc.). And this will leave more gas for everybody, and the gas will be used only for those things that people think it is most necessary for. Which is exactly what is needed in a time of crisis, right?
2. It was this kind of argument, applied to hotels raising their prices when a bunch of refugees come into town after a hurricane, that got me fascinated with economics. It was a total "Wow" moment for me, when I realized that the world works in a more complex and beautiful way than I had realized before, and my earlier opinion of things (like Amber, I once thought this made "no sense at all") wasn't quite getting at what was really going on. This sort of argument is economics at its very best. For what it's worth.
3. Charity is completely unrelated to this. "Charity" is money that a person gives away to causes they believe in, without any expectation of an economic return. But charity only happens after you've first made some money of your own, which you then have to give away if you want. The store owner who raises prices for water after a hurricane isn't doing charity at that moment, but this doesn't make him a bad guy. If he has a good week and makes extra profits, he might decide to give a good bit of those profits to charity. But charity doesn't enter into the picture until after he's made those extra profits.
Let's be clear that my criticism against Stossel was directed toward the 'summary' that ran in the ABH, and I have not seen the complete video package Russ has mentioned. It's quite possible Stossel did a much better job in explaining his positions in that segment than he did in this particular piece.
Of course, it's going to be hard to assuage me on this because I have a deep professional disdain for Stossel, on par with my lack of journalistic respect for Geraldo Riveria. Stossel is more of a pitch man for his particular philosophies than an actual investigative reporter. And that's fine, but it's time we drop the charade. He does an excellent job of cherry-picking statistics, editing his video segments to convey his views and distort the opposition, and do freelance work for a variety of anti-regulatory organizations to help them express their opinions (such as American Crops Institute).
Again, that's fine and dandy. But let's call it what it is - public relations, and not journalism.
Regarding charity, I argued that Stossel was downplaying charity by implication because he claimed 'the best way is to give those items to those willing to pay the highest price.' I think this is very wrongheaded.
Individuals affected by a national disaster, where much of their town or community is wiped out, need massive support in the immediate days after the event. This support, arguably, should come in the form of charity. It's imperative that a network of support can be quickly put in place after the disaster for the orderly and controlled distribution of necessary supplies, and that a pipeline of said supplies are permitted to flow in.
This is why I think your rationale that the wealthy are the ones who benefit the most from the anti-gouging laws is wrong. Well, not necessarily wrong because I understand your point. But, it also operates this way:
If prices are rapidly raised to meet demand - say a gallon of water soars from $1.25 a gallon to $10 a gallon - then who will be able to purchase the most? The wealthy or the poor? Regardless of how high the prices go, those with adequate financial resources will still purchase large quantities to serve their needs and the poor, who you argue benefit from gouging, now see such necessary supplies out of their financial reach.
What I'd argue for instead is a strong plan to quickly establish a network of support for relief agencies - public sector and charitable organizations - as well as possible, temporary instances of rationing. If you don't want people to purchase 100 gallons of water, then restrict them to three per day for a limited amount of time until adequate infrastructure is repaired. This would ensure all people could have the opportunity to get the needed supplies, rather than those who merely have the most financial resources.
Let me also add this caveat:
Regarding the comment that no charity was supplying generators or other supplies during Katrina, that's wrong. The problem of what happened to the guy with the generators is exactly what happened to charitable organizations which had these goods as well.
The local, state and federal government's response to the disaster was dismal and anyone who tried to help was stopped.
There are numerous instances of different religious organizations loading up trucks with supplies and vans full of volunteers the day after the flooding began (our church, working through the Cooperative Baptist Fellowship was one of these groups) and drove out to the Gulf region only to be stopped by law enforcement and turned around.
While the gentleman who tried to sell generators was stopped as well for different reasons, it's misleading to suggest that it's the fault of charitable organizations for failing to respond to the mission. There was plenty of assistance being offered, it was just being turned down.
Come to think of it, that's a fairly important piece of information that is being left out of this discussion. It wasn't as if the government agencies were solely stalking out folks trying to make a buck, they were also suffocating relief efforts as well. No one could get out there to help these people for quite a while - whether they were coming to sell them something or give them something.
I agree that this is one of the worst libertarian arguments ever made. The first problem is that it implicitly assumes that everyone has the same buying power. However, they obviously don't. While tripling the price of water may dissuade one person from stockpiling it, there's no reason to assume that it will do the same for the next, given that the price difference may mean nothing to him in the context of how much money he's willing to spend. So what you potentially end up with is one guy with more money stockpiling anyway, everyone else still getting screwed, and the store owner making a killing.
The other problem is that it ignores another obvious method of ensuring that no one buys too much; rationing. This can be done through the government, by coupling the price ceiling act with another setting a quantity ceiling. But the government isn't even needed; store owners are presumably in control of their inventory, so they can take it upon themselves to ration the goods to make sure no one is left out. Stores ration things all the time (big sale -- limit two) so there is little excuse for falling back on some price gouging defense.
I like Stossel, but this argument sucks, and is only going to turn people off to libertarian thinking.
"If prices are rapidly raised to meet demand - say a gallon of water soars from $1.25 a gallon to $10 a gallon - then who will be able to purchase the most? The wealthy or the poor? Regardless of how high the prices go, those with adequate financial resources will still purchase large quantities to serve their needs and the poor, who you argue benefit from gouging, now see such necessary supplies out of their financial reach."
The wealthy are always the ones able to purchase "the most" of something, by definition. But wealthy people don't generally like throwing their money away any more than poor people do. Which is why when prices jump up most rich people are going to say, "Hold on, I don't need to get as much of this as I thought I did." Like I acknowledged last night in my comment, not every rich person will think this way, but many of them will, and the overall trend will be that the water gets "rationed" naturally through the price mechanism.
Remember that we are talking about a crisis situation of some kind, so people's demand for the product is already high. People, rich and poor, want more of this stuff than they usually do. But the rich have more money than the poor; what will keep them from taking fulfilling their greater desire for the product and not leaving very much for the poor? Higher prices, that's what!
Poor people cannot spend 10 dollars for a gallon of water for long (though this is a really high jump in price, too), but remember that after Katrina only the most important things are what matters. Even the poor are able to economize their resources and forgo certain things they would usually get. Water and food, any food, is what you need at this time. If I was poor, I would spend all of my money on food and water, and trust the rest to take care of itself in time. So even most poor people will be able to buy 10 dollar water. Those who can't can pool their resources with others, or can go seek help from someone who is giving it away to those in dire need. (Assuming the government lets such people do this.)
And, Matt, this isn't a "libertarian" argument so much as an "economic" argument. Lots of economists who aren't libertarians argue this way about price gouging. You say that libertarians need to drop this argument to make their views more respectable, but if they did they would be dropping one of the few things that makes their philosophy so appealing--they are wise about how economics works. Giving up one of the most profound and provocative economic arguments, just because it pisses a lot of people off, would be exactly the wrong move for movement libertarians to make.
And it is a profound argument, your counter-argument about rationing notwithstanding. First of all, for the rationing to really work, you have to know how much people "normally" use when gas (or whatever) is 2.50 a gallon, and then mandate that they buy only that amount. But this amount is different for every person! If you say "I'm keeping gas at 2.50 a gallon, but nobody can buy more than 20 gallons", then some people who would normally only buy 10 gallons (to fill up their Nissan Sentra) will still double their purchase (because they're panicing or looking to horde during a time of emergency, etc.) and fill up cans and lawnmowers and boats. Any arbitrary rationing amount you set will not be the "natural" or "normal" amount, and so you will still be making the distribution process of gas less efficient.
People respond to 2.50 a gallon gas one way under "normal" conditions, and another way during a crisis. If you keep it at 2.50 during a crisis, but then tell people how much they are allowed to buy, you are affecting people's preferences and interfering with the market process. And nobody (or at least far less people) is going to be pumping extra gas into your market, either.
Prices aren't just about how the stuff currently on the shelves gets distributed, but also about how quickly and how much more stuff gets put into those same shelves. (This is why stores self-ration when they are cutting merchandise that is not going to be replaced...like soon-to-expire Pepsi or some clothing line that is going out of style...they've been forced to reduce the price by the fact that they overproduced the product in the first place, and now they have to get rid of it at any price or lose their enitre investment. But, since they have to reduce the price anyway, they might as well limit the hording among their customers while they're at it. But no store would do this with a product that was actually popular and was going to be restocked on the shelves as the current stock ran out...) Higher prices for bananas in Athens, GA will make bananas start flowing into Athens, GA. Rationing subverts this process and leaves distributors with no clue as to exactly how much product they should send into a stricken area, and also contributes to inefficiencies in the way the already-there product is distributed to people (some people will still horde, if you set the ration too high for them, which you will because you're not omniscient and cannot know what the "perfect" ration amount should be for each person).
they've been forced to reduce the price by the fact that they overproduced the product in the first place, and now they have to get rid of it at any price or lose their enitre investment. But, since they have to reduce the price anyway, they might as well limit the hording among their customers while they're at it.
This is exactly how I buy dress pants for such inexpensive prices at Kohl's. I just got two pairs of pants (total = 80$) for five bucks because it was either sell the remaining "out of season" pants for that low or claim them as damaged and list them as losses.
High gas prices are not an emergency situation, so there isn't much point to rationing or price controls. However, in a real emergency situation, you don't need to know anything about what people normally use, all that's needed is a judgement about what they need for the time being. And you can make an educated guess about such things. And if a store doesn't want to voluntarily do this kind of thing, then they can expect to get stomped by the government boot.
"However, in a real emergency situation, you don't need to know anything about what people normally use, all that's needed is a judgement about what they need for the time being. And you can make an educated guess about such things."
No, this sort of guessing will have similar results to all other price-manipulating interferences--it will create inefficiencies, and send wrong signals to producers and suppliers (as summarized in my previous comment, this latter problem being the worse of the two).
If an emergency situation is a good time to say "screw market forces," then why not say that ALL the time? Why do we ever let the market have its say? If it is so workable to just tell everyone how many batteries or shirts or bottles of water they are allowed to have, then why not just do this all the time? Why is this only the way to go in emergencies?
Put differently, do you grant that interfering with market forces will lead to greater inefficiency in how resources are distributed? If so, then even if these interferences are slight, when will they have the most negative impact? Obviously, it is during an emergency. Emergencies are when we can least afford to reduce the efficiency of resource distribution.
Why should those who could have afforded the generators at the inflated price be forced to do without them simply because other people couldn't afford them? That's almost like saying the people who could afford to flee the area shouldn't have been allowed to do so because there were people who couldn't afford to flee, i.e., everyone should experience the misery equally. What a load of crap!
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