Sometimes You Just Have to Ignore the Economists
https://www.msn.com/en-us/money/markets/sometimes-you-just-have-to-ignore-the-economists/ar-AA1peT2u
Zephyr Teachout notes:
Price-gouging bans are broadly popular—except among
economists. The reason is that, in the perfect world of simple economic models,
allowing sellers to charge whatever they want during periods of heightened
demand is actually a good thing: It signals to the rest of the market that
there’s money to be made on the product in question, which in turn leads to
more supply. Accordingly, prohibiting gouging leads to less production of
essential goods and services. Plus, letting prices rise helps ensure that the
product will be sold to the people who value it the most.
Here, regular people seem to understand a few things
that economists don’t. During an emergency, such as a natural disaster,
short-term demand cannot be met by short-term supply, setting the stage for
sellers to exploit their position by raising prices on goods already in their
inventory. The idealized law of supply and demand predicts that new investors
would rush in, but the real world doesn’t work like that. A short-term price
spike won’t always trigger the long-term investments needed to increase supply,
because everyone knows that the situation is, by definition, abnormal; they
can’t count on a continued revenue boom. During a rare blizzard, sellers might
jack up the prices of snowblowers. But investors aren’t going to set up a new
snowblower-manufacturing hub based on a blizzard, because by the time they had
any inventory to sell, the snow would long be melted. So after the disruption,
all goes back to normal—except with a big wealth transfer from the public to
the company that raised prices.
The perspective of academic economists:
Anti Price Gouging Laws Don’t Benefit Consumers
John Cochrane's Take:
On Harris’s Price-Gouging Ban, Allies and Foes May
Have the Wrong Idea
The plan does not appear to amount to government price
controls. It also might not bring down grocery bills anytime soon.
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