When Economics and Politics Collide

This makes me angry.  Aside from the inherent logical fallacies behind price gouging, there are a number of legal and political questions that need to be asked.

First among them is this: How does one decide whether a business is “unfairly capitalizing” on the situation?  Is it when price hits $x/gal?  Or maybe when profit hits $XXXX.  Or maybe when a profit margin hits X%.  None of these make any legal (or economic) sense.

Secondly, how will the government then decide what is a fair price?

Finally, there is the little gem of “an unconscionably high price during a market emergency.”  Again, the same questions are asked above.

It seems to me that there is a fundamental misunderstanding of how prices work in the political world.  Apparently, politicians think that prices are set by companies and that consumers will pay any price asked.  Also, apparently, consumption will not change due to prices.  Both of which are just…illogical.

Let’s play a little game.  Two companies in town sell gas.  Station A sells it for $1/gal.  Station B sells it for $4/gal.  A is always sold out of gas.  B always has enough in stock.  I ask you this: who is doing a better job serving his community?  The man who cannot supply the good or the man who can?  Does the price make A a saint and B an opportunist?

Prices are the mechanism used to convey information throughout the economy.  Prices adjust to make sure those who value a good the most are able to use it.  Prices ration goods better than anything else.  At the current prices, my consumption of gasoline has dropped.  By being more choosy with how I drive, there is now more gas to go to where it can be better used.  If we set prices (such as NYC rent control) and we disrupt the ability of prices to convey vital information throughout the economy, then it will only make things worse.  After all, no one knows how to make a pencil.

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