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Economists who defend disaster profiteers are wrong

economist.com

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Re: Economists who defend disaster profiteers are wrong

#51

Post by chillacy »

perl4ever wrote: post #16
alexmingoia wrote: post #4

Increased production doesn’t occur because the economics don’t work, it doesn’t occur because there’s just no way to physically ramp up production that fast. That’s not really a critique of the economics. If production could be increased that fast the manufacturers would. An important point the article didn’t address is that high prices direct resources to more important uses. If prices are very high then hospitals m…

I was able to get kleenex and paper towels saturday because the grocery store is now limiting people to one purchase per day. I am sure there are people who need more than that, and any system of rationing should allow for exceptions. But when people insist that a "free" market is inherently correct, it's no different from insisting that your OS scheduler is perfect even though some processes never get to run https:/…

Makes sense, in the short term if you have a fixed quantity of a good and demand which exceeds supply then the solution markets will find is to allocate to those with the most resources. At that point the markets are not a particularly fair allocator.

In the medium to long term though high prices slowly incentivize people to produce more of that good. So it would be like if your hardware gained more and more CPU threads to dish out over time, until we reach some equilibrium again.

Re: Economists who defend disaster profiteers are wrong

#52

Post by chillacy »

mywittyname wrote: post #48
patmcc wrote: post #15

It's very interesting to me that (nearly) everyone agrees that reselling disaster supplies like masks, hand sanitizer, etc. for a large profit is terrible, but somehow selling literal essentials like food, housing, and healthcare for profit is just fine.

The economy needs to have good sold at a profit. It seems to be the best way to ensure that people, as a group, make and sell the things that need to be made and sold, and in appropriate quantities. It's not perfect, as there are plenty of inefficiencies, but it's a very good model. There are a number of problems with price gouging. First, it isn't helpful, everyone already knows there's a shortage of critical suppli…

The tie to bubbles is important. Nobody who pumps and dumps a stock actually believes in the long term prospects of the business, and so we've labeled that kind of trading illegal in the stock market. This is pretty similar to pumping and dumping a stock.

Re: Economists who defend disaster profiteers are wrong

#54

Post by megous »

SftwrSvior81 wrote: post #11
alexmingoia wrote: post #4

Increased production doesn’t occur because the economics don’t work, it doesn’t occur because there’s just no way to physically ramp up production that fast. That’s not really a critique of the economics. If production could be increased that fast the manufacturers would. An important point the article didn’t address is that high prices direct resources to more important uses. If prices are very high then hospitals m…

> high prices direct resources to more important uses I don't think that that is always true. High prices will redirect scarce resources to those who have the means and desire to pay for them. That doesn't necessarily mean that those uses are more important, regardless of how one defines what it means for the resource usage to be important.

While true, that doesn't really matter. Higher price attracts new producers to setup manfuacture for the now scarce and expensive product more quickly. These more wealthy buyers just end up paying for a quick rampup in manufacture.

There's 0 financial reason to ramp up supply if the price is the same, and you're now suddenly in a heavily controlled market.

It's risky by itself to ramp up production, because you may end up hiring 100 people and having to fire them 3 months later, which is not exactly pleasant for anyone.

Re: Economists who defend disaster profiteers are wrong

#55

Post by opo »

alexmingoia wrote: post #4

Increased production doesn’t occur because the economics don’t work, it doesn’t occur because there’s just no way to physically ramp up production that fast. That’s not really a critique of the economics. If production could be increased that fast the manufacturers would. An important point the article didn’t address is that high prices direct resources to more important uses. If prices are very high then hospitals m…

>...An important point the article didn’t address is that high prices direct resources to more important uses.

That is a good point. Another point is (as Paul Romer mentioned in an interview), high profits during a shortage mean that suppliers in general will be incentivized to keep a larger stockpile of things that have a good shelf-life since they know they will be able to make good money the next time there is a shortage. If you are going to literally make it illegal to try this, then you better have a government be willing to spend its tax dollars on creating a stockpile rather than on things that are more likely to get votes. (We've now seen that all the talk of the national stockpile was greatly exaggerated.)

A majority of economists are opposed to 'price gouging' laws. For example see http://www.igmchicago.org/surveys/price-gouging/

Re: Economists who defend disaster profiteers are wrong

#56

Post by kaitai »

alexmingoia wrote: post #44
jimmaswell wrote: post #18

Earlier quoted context omitted.

Exactly this. Why is Scrooge McDuck buying the entire supply of something somehow better than evenly distributing it? I can't believe people actually think making toilet paper $20 a roll is the correct outcome instead of rationing with price controls. Maybe it's the Ferengi mentality of people seeing themselves as the exploiters.

The more you have to exchange for something, the more you're foregoing other forms of consumption. If toilet paper cost you your entire budget, you wouldn't buy toilet paper at all. You'd buy food instead. In that way, prices redirect your consumption to higher priority things. That's what is meant by "more important."

Only if you have to think about money. What you point to is that poor and maybe middle-class people have to 'redirect' their consumption to 'higher priority things', which in some cases is equivalent to just going without.

Insulin, rent, or food? Ah, just prioritize, honey!

Re: Economists who defend disaster profiteers are wrong

#57

Post by mywittyname »

quotemstr wrote: post #19

To lots of people, so-called "price gouging" feels wrong, so it must be wrong. Disaster pricing can't just be morally wrong: it has to be economically wrong too. We must make the science fit our intuition, the braying crowd says, and not the other way around. Reality doesn't work that way. The trouble is that when we want something to be true, we find all sorts of specious ways of demonstrating this truth, and in the…

Price gouging is wrong because not helpful at all.

1) it doesn't increase the supply of goods. Everyone is very aware that there's a shortage and they are working hard to produce more. Jacking up the price does not achieve this goal.

2) it encourages hording of critical supplies. People don't want to sell now in hopes of getting a better price tomorrow. They continue to do so until the next batch of supplies come onto the market and finally drive the prices back down

3) it makes people angry. When a group of people see someone with a bunch of something they need to live, and they can't afford it, they might decide to take it by force. This has the potential to cause needless bloodshed.

There's literally no benefit to price gouging, but a huge cost to life and social stability. This is why so many people think it feels wrong: when something causes only harm with no benefit, most people would call that wrong. In fact, one of the definitions of wrong is an action or conduct inflicting harm without due provocation or just cause.

Re: Economists who defend disaster profiteers are wrong

#59

Post by adventured »

duxup wrote: post #29
patmcc wrote: post #15

It's very interesting to me that (nearly) everyone agrees that reselling disaster supplies like masks, hand sanitizer, etc. for a large profit is terrible, but somehow selling literal essentials like food, housing, and healthcare for profit is just fine.

Is the bar "large profit" or is there more too it? I think there is more than "large profit" at work here when people talk about disaster profiteers.

> I think there is more than "large profit" at work here when people talk about disaster profiteers.

There is a critical other element: some reasonable equality of distribution of supplies in emergencies. The persons selling at a large profit are distributing gear to those who can pay the most, which inherently leaves those to drown that can't compete on price.

In an emergency like this, ideally per capita NYC should get the same supplies as Buffalo NY (or Detroit, or Baltimore), assuming they are hit similarly per capita by the virus, despite NYC being far wealthier and able to outbid on gear. Properly in an emergency like this, a life in Detroit should have the same value as one in NYC.

Rich vs poor distribution is questionable in a game like Major League Baseball, big market teams vs small market teams, and it's morally horrendous to observe when it's poorer people (and healthcare systems) in Buffalo competing versus richer people in NYC for medical gear (not meant to represent an actual scenario playing out now).

That's of course very hard to level as a playing field, unless it's the Federal Government stepping in and doing the leveling to ensure some equality of supplies.

Re: Economists who defend disaster profiteers are wrong

#60

Post by SftwrSvior81 »

alexmingoia wrote: post #44
jimmaswell wrote: post #18

Earlier quoted context omitted.

Exactly this. Why is Scrooge McDuck buying the entire supply of something somehow better than evenly distributing it? I can't believe people actually think making toilet paper $20 a roll is the correct outcome instead of rationing with price controls. Maybe it's the Ferengi mentality of people seeing themselves as the exploiters.

The more you have to exchange for something, the more you're foregoing other forms of consumption. If toilet paper cost you your entire budget, you wouldn't buy toilet paper at all. You'd buy food instead. In that way, prices redirect your consumption to higher priority things. That's what is meant by "more important."

Defining "more important" this way seems limited to one actor. In your original post, you talk about multiple actors, namely hospitals and individual people. Different actors are going to have different budgets and preferences. Suppose you consider toilet paper to be an absolute necessity but at $20/roll, it is not affordable to you. I, on the other hand, don't value toilet paper as much but my budget is much bigger than yours so I can afford and am willing to pay $20/roll. When looking across both actors, could we still say that the "more important" need was met?
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