Monday, February 28, 2005

Inhumane Process Indeed

I could understand why lawmakers have the knee-jerk reaction to control prices when businesses seem to gouge consumers out of every penny. Our parents taught us to be fair in our relationships with our neighbors, not be too greedy and to share. But does a person have the right to be stingy with what is her or his own property?

The answer for most lawmakers is, “No.” According to Senator Lolo M. Moliga, “It is unethical for (local businesses) to exceed standard profit margins recognizing the fact that (Hurricane Olaf) was an emergency and this is an island with very limited options." For most of us, it is hard to disagree with the senator.

It is easy for all of us to create opinions about what other people should do with their own private property. The senate would love to enact legislation giving the ASG powers to dictate what prices hardware goods should cost in a state of an emergency. However, people’s mentality changes quickly when it comes to passing laws that regulate prices for their own property.

I wonder how Senator Moliga will feel if the people could vote on a limit on how much he could sell his house, his car, his crops, his livestock, or anything else he wishes to put on the market. I know I wouldn’t like it, because it’s my property and I’ll cry if I want to. You would cry too if it happened to you.

Price gouging doesn’t last long in a free market. A business makes more money than its competitors by selling more units than the others can. Local businesses would naturally gravitate to this strategy if only they had quick access to more supplies. So it’s a limited supply and not greed that drives up prices in most situations. Economics 101.

But price gouging does exist unfortunately. Yet we have to consider this a necessary evil of freedom and liberty. If we allowed the federal government to outlaw racist Nazi speech, for example, then we’ve only opened the Pandora’s Box for state regulation of our right to free speech. We must also not give the ASG the power to regulate our right to sell our property for whatever price we see fit.

In the event Senator Lolo Moliga has his way, the people of American Samoa can expect a black market when hurricanes come through again. We can also expect favoritism in what will be a first-come-first-serve rationing of limited supplies. The first people to be served in such conditions are usually the ones who passed legislation to control market prices in the first place. And that ladies and gentlemen is an inhumane process.

3 Comments:

At 8:54 AM , Blogger Stuart K. Hayashi said...

Very good blog post, Tali.

I have some comments.

I do not believe that freedom and free speech are a necessary evil. I believe that they are a necessary good, and any negative side effects that may occur as a result of their existence does not detract from their goodness.

For example, one might say that baseball is a good game. But a baseball bat can be misused. A person can take a bat and hit an innocent person over the head with it. I don't think the logical conclusion to draw from this is that baseball bats are a necessary evil. One might simply say that baseball bats are basically good but that they can be misused.

By that same token, under free speech, one can spread vile, racist rhetoric. But that does not detract from the goodness of free speech, for what is the alternative? The alternative is censorship, which is an unnecessary evil.

I think that that which is necessary cannot be evil; it is simply necessary or possibly even good, even if it can be abused.

And if there is a water shortage, price-gouging is not evil, for it is vital for us to consider the alternative.

Now let's say there's a hurricane, and there is a water shortage. The price of a bottle of water goes up from, say, $10 to $50. There are only 100 bottles available. If a bottle of water sells at $50 per bottle, then maybe 100 people can each get a bottle of water if each person can spend up to $50 on water.

But let's say we put price controls on every bottle of water so that each bottle remains at $10 per bottle. This means that there is no incentive for any consumer to conserve his water. So when the first consumer seems that there is a water shortage and every bottle remains cheap, the fact that the market gives him no incentive to conserve will instead encourage him to be wasteful. He may buy five bottles of water. Then the second customer will buy five bottles of water. The result is that if each person who otherwise would have purchased a single bottle of water at $50 can instead purchase five bottles of water at $10 each. the result the first 20 people who get to buy water will get more water than they need, while the other 80 people end up with nothing. That exacerbates the problem. The shortage has been made worse.

It can be said that it is unfair that, if the price goes up in a shortage due to price-gouging, only 100 of the richer people end up with water while other people do not.

But what's the alternative? If we impose the price controls I discussed, then a likelier outcome is that only 20 people will end up with all the water, which is even WORSE.

The laws of supply and demand are not a necessary evil, but a necessary good as well.

 
At 11:50 AM , Blogger Talifaitasi Satele said...

Thanks for the comment Stuart.

To me price gouging doesn't exist.
Parties attempting to trade with one another are always going to try to get the best deal possible. Would anyone complain if stores had too much supplies that they had to undercut market prices? Store owners would, but not the consumer.

In my article, I didn't want to waste space refuting the price gouging concept. This was a quick letter to SamoaNews so I'll have to save it for another article. But I tried to relate to the common reader. Hopefully he or she would at least relate "price gouging" as a phenomenon afforded by freedom. This doesn't make freedom evil, but it also doesn't give us the excuse to limit freedom by any means.

People quickly confuse rising market prices for limited supplies as price gouging. Though it may happen, this doesn't give the state a right to regulate prices that are determined by hundreds of factors that influence market supply and demand. A bureaucracy never gets the right price for anything in the economy.

Thanks for the point and I hope more people comment on the issue.

 
At 11:51 AM , Blogger Talifaitasi Satele said...

Thanks for the comment Stuart.

To me price gouging doesn't exist.
Parties attempting to trade with one another are always going to try to get the best deal possible. Would anyone complain if stores had too much supplies that they had to undercut market prices? Store owners would, but not the consumer.

In my article, I didn't want to waste space refuting the price gouging concept. This was a quick letter to SamoaNews so I'll have to save it for another article. But I tried to relate to the common reader. Hopefully he or she would at least relate "price gouging" as a phenomenon afforded by freedom. This doesn't make freedom evil, but it also doesn't give us the excuse to limit freedom by any means.

People quickly confuse rising market prices for limited supplies as price gouging. Though it may happen, this doesn't give the state a right to regulate prices that are determined by hundreds of factors that influence market supply and demand. A bureaucracy never gets the right price for anything in the economy.

Thanks for the point and I hope more people comment on the issue.

 

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