Friday, January 20, 2006

LEAVE YOUR STORES OPEN OR WE'LL SHOOT YOU

The underlying reasoning behind price-gouging measures is the blissful ignorance of how prices are set in the marketplace. In a very Marxist fashion, popular thinking suggests that costs and costs alone should determine “fair” prices for particular goods. If only this were true, then ignorance would truly be bliss.

Even if costs were to remain unchanged for all businesses during an emergency, storeowners still have to deal with the following surge in demand. A hurricane is coming, everyone gets warning from the news, and understandably, everyone goes to the store to prepare for the worst. How are businesses to distribute their goods?

Should they base distribution on a first-come-first-serve basis or on need? If based on the former, are they to implement quotas and create long lines and waiting times? If based on the latter, are businesses to look into a person’s background to determine if that individual is in more need than the next guy in line to get the last piece of hardware?

Could businesses allocate to consumers on basis of family connections or friendships? If high prices are evil, shouldn’t we consider these criteria evil as well?

Do businesses even have the right to consider whatever criterion they want when selling their products? I believe they do because it’s their property; they should have the exclusive right to its disposition. They may sell their goods based on price, intentions of charity, family connection or friendships. It’s up to them.

Since price-gouging measures seek to make the price option less attractive, more weight will be given to the other qualifications when businesses decide how sell their goods. Are we willing to exchange the qualification of being able to pay for the unlikely qualification of being a family member, a friend or the first in line?

A businessperson may engage in the “sharp business practice” of charging as much as possible, but open competition and the profit motive will ensure that such a practice is short lived. On the other hand, price-gouging laws will exacerbate and prolong the real underlying reason behind high prices: shortages.

There’s no better way to discourage suppliers from supplying than having government dictation of prices and a possibility of retaliation in the courts. Price-gouging measures would do both very well. The government practically puts a noose in the hand of every consumer and government official with which they can hang storeowners. Stores would be at the mercy of the mob and government mobsters.

Storeowners are better off shutting down and closing their doors before the storm even reaches our shores. They risk incurring big losses because they would lack the ability to raise prices arbitrarily in anticipation of rising costs and smaller profit margins because price-gouging laws would criminalize them for doing so. People need the flexibility to change prices to reflect any assumed changes in the market as quickly as possible in order to survive.

I’m afraid if businesses were to protect themselves by shutting down, the ASG would go so far as to consider a “Leave Your Stores Open or We’ll Shoot You” bill.

Should the Governor’s proposal or any form of it become law, then an explicit “loser pays” provision is necessary to curb frivolous lawsuits. If citizens and government make claims in attempts to extort and manipulate businesses, then the ASG should force irresponsible parties to pay for the defendant’s legal costs and any resulting damages.

Moreover, if price-gouging laws were fair, then proponents should write their legislation to also apply to employees since we always seek to gouge the highest wage (the price for our labor) possible out of our employers.

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