In looking for some harder facts to use in discussing North Carolina's anti-gouging laws with Kenny, I came across this editorial.
This paragraph expresses why I think the legislation is in place, and why I think it is ill-considered:
"It’s obvious that lawmakers were responding to concerns and frustrations expressed by North Carolinians during previous disasters in our own state as well as some of the horror stories last year coming out of Louisiana and the Gulf Coast when Hurricane Katrina demolished a wide area interrupting supplies. But as is so often the case, codifying emotional responses in reaction to price increases in the aftermath of such emergencies rarely make good law."
I also found this site, on the other side of the issue. It includes a link to the actual law in question. To the extent that the law is what is says it is, it bills itself wholly as a customer-protection measure "AN ACT TO PROTECT CONSUMERS FROM EXTREME PRICING PRACTICES."
The act references mainly not what prices are reasonable at the time of the "triggering event," but the prices in the 2 months prior, plus additional costs of providing the good or service. This, for reference, is wholly insufficient to calculate what the going price would be in the market at the time, because is utterly ignores the increased demand for the good or service in a crisis. That is why the price this law calls "fair" is not the price that would come about in a fair market in the crisis, and why the law (in my mind) fails.
Wednesday, January 17, 2007
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2 comments:
Would you accept a price control law that set some kind of ceiling, but that did account for the necessary factors?
Is the concept of "unreasonable price" intelligible in economics?
So, if $7.50 per bag of ice would bring all the ice to Raleigh necessary - but because of the disaster climate or any other factor, sellers were able to charge $10, would you allow for a law limiting the price to $7.50.
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I disagree that law or laywers have limits. Just kidding.
In fact, I honestly think law is an extremely clumsy, ineffectual tool for guiding sinful man to right behavior. I think this is true of all tools, or disciplines, in the hands of sinful men.
If "reasonable" means "one everyone will like," then no, I don't think it does. By definition, at just about any price, some people will be happy and others won't. That's why some people choose to buy and some do not.
I might be happier if gas, DVD's, HDTV's, food, bottled water, etc were cheaper. But because I want something cheaper does not mean it should be so.
There are rational prices, and I would argue that these are the outcome of the imaginary perfect market. But markets can be looked at to determine if they are more or less perfect, and the price can be considered more or less rational.
The problem with price ceilings and floors is that they aren't determined in advance. Guesses can be made about the direction and magnitude of changes in certain conditions, but that's about it.
So $7.50 might be reasonable in a mid-level emergency, but what if ice production is destroyed throughout the East Coast? Then there would need to be a much larger incentive to draw potential suppliers.
For $10 a bag I might take the day off and drive some ice to Sacramento in a crisis. For $50 a bag, I might rent a truck, buy a pile of coolers, and drive it to Seattle.
Practically, I think an appropriately flexible law would be unworkable. A high price ceiling might act as an implied floor, where sellers assumed that was the "acceptable" rate (and which they would act together to achieve - with the law creating the cartel it hoped to destroy). A too-low price short-circuits the market (though at least one knows if one is within the bounds of the law or not). A too vague law (as it currently is) discourages people from trying at all, for fear of prosecution.
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