« Oh Dear! Foreigners Continue to Invest Here! | Main | Little Puffs of Smoke» Don Boudreaux
August 29, 2004
Prices: The Great Equalizer
Don Boudreaux
Last night I was a guest on Jay Diamond’s radio talk show on WRKO in Boston. The issue was price gouging.
Mr. Diamond supports regulations that prevent so-called “price gouging.” The hypothetical possibility he raised again and again was a shortage of food following a natural disaster, with the unregulated high prices making it impossible for a poor family to feed its starving children, while a rich drug dealer gets all the food he wants.
My response to this hypothetical was only mediocre. I pointed out that the relevant question is “as compared to what?” While I’m confident that this response is a sound start, I didn’t carry my point to as compelling a conclusion as I would have liked.
Here’s what I would like to have said, had I the eloquence and the time; my concluding line would have been “market prices are the great equalizer.”
I would have reached this conclusion by pointing out that any alternative to freely adjusting prices involves some non-price method of rationing. Any practical, realistic method apart from rationing by price hikes will involve arbitrariness at least as great (I think greater) than whatever arbitrariness there is in income distribution.
One alternative method of rationing is queuing. But surely first-come, first-served is quite arbitrary. Perhaps the father with starving children will get to the front of the line, but who’s to say that the drug dealer won’t beat him to the front of the queue? Indeed, the father with starving children likely has lots of important tasks to carry out at home in the immediate aftermath of a natural disaster. These tasks might well keep him at home too long to get a favorable spot in the queue, or, if he does get a favorable spot, he’ll waste lots of time queuing rather than being at home with his family during an especially dire time of need.
An even more likely alternative to rationing by price is rationing by personal connections – family ties or political ties. The poor family with starving children is unlikely to have as many personal and political connections as are wealthier people in town. The outcome of rationing by connections will almost certainly be biased in favor of wealthier, more-prominent citizens.
One great advantage of rationing by market prices is that they reduce to a minimum the role of arbitrariness. Price are, in other words, a great equalizer. Anyone who is willing to pay the market price for a good or service is just as likely to get that good or service as is the seller’s mother, neighbor, or bowling buddy.
Posted by Don Boudreaux in Prices | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d834518ccc69e200d834219e7053ef
Listed below are links to weblogs that reference Prices: The Great Equalizer:
» Gouging and Desert from Catallarchy
Cap'n Arbyte believes that even people who understand the economic arguments against anti-gouging laws will not be swayed, because ability to pay does not equate to need.
Most laypeople think ill of price gouging, as evidenced by the popularity of ... [Read More]
Tracked on Aug 30, 2004 12:01:25 AM
» Monday's Daily News from The Club for Growth Blog
Relevant News and Commentary Understanding ‘Middle-Class Squeeze’ - A. Kling, TCS A Vision for Health Care - J. Wanniski, Wanniski.com Eateries Push for Obesity Suit Protection - AP Presto, a Better Jobs Picture - T. Kane, Heritage Scary Ec... [Read More]
Tracked on Aug 30, 2004 10:25:48 AM
» PRICES ARE EQUALIZERS from Knowledge Problem
Lynne Kiesling Don Boudreaux has a post on prices as the great equalizer that's is very important. After looking at two of the different ways of rationing stuff (queuing and family connections), Don points out that One great advantage of... [Read More]
Tracked on Aug 31, 2004 9:45:37 AM
» Making Our Own Welcome from Law, Legislation, and Lunacy
Learning to combine pithy phrases with genuine knowledge [Read More]
Tracked on Sep 1, 2004 12:11:33 AM
» Good Ethics, Poor Economics from The Liberal Order
Randy Cohen, a columnist for the New York Times who writes on ethics, is posed the following question: A friend and I disagree about an investment he wants to make. It involves buying (at a discount) the life insurance of [Read More]
Tracked on Sep 6, 2004 2:12:34 PM
» The Political Economy of Battlestar Galactica from Positive Liberty
Last night’s episode of Battlestar Galactica was disappointing in some ways, but hopeful in others. The plot centered around nasty dealings within the black market that has sprung up among the fleet. This market apparently consists of people tradin... [Read More]
Tracked on Jan 28, 2006 7:55:33 PM
» Full Albums Archive from MP3 Album Finder
Enter Artist or Song or Album name to search: ... Download VA - –усска€ коллекци€ 4 «олотой шл€гер 70 х (1973 1979) mp3 ... [Read More]
Tracked on Apr 5, 2006 2:58:54 PM
» MP3 Downloads, Full Albums, Latest Hits, MP3 Search from Global Media Search Engine
Big Mp3 Archive, Mp3 Search, Mp3 Albums, Mp3 Songs, Mp3 Software, Mp3 Traffic Exchange, Advertising... [Read More]
Tracked on Apr 5, 2006 3:16:03 PM
» SmartPhone Today: Orange SPV C500 from Smartphone Reviews; Best SmartPhones
The Internet's 3rd Party information center for SmartPhone Shareware, SmartPhone Freeware, Reviews, Hardware, Discussion, and more! Updated Daily... [Read More]
Tracked on Apr 30, 2006 11:58:15 AM
» Jewelry Shop from Jewelry making, Tips from The Jeweler's bench - Jewelry making
The Gem and Jewelry World's foremost Resource on The Internet. ... The Jeweler's Selected Bibliography. Add Ganoksin Power Search to your website ...
[Read More]
Tracked on May 20, 2006 4:23:52 AM
» Suns Expect to See Aggressive Bryant from to be more aggressive
still want to expose the Suns on the interior, but the notion that Bryant will be looking to score and initiate the offense more is [Read More]
Tracked on May 24, 2006 6:01:52 PM
» Taxicab Concessions from high-level wheeling
high-level wheeling and dealing makes all of us fare game (By Tom Robbins) [Read More]
Tracked on Jun 8, 2006 9:13:07 AM
» Server GIS Seminars Profile Spatial Integration for Better Decision-making from anagers Invited
anagers Invited to Attend Free ESRI Seminar Coming in June 2006 [Read More]
Tracked on Jun 13, 2006 12:08:55 AM
» loan student
from consolidate loan student
Loans Home Equity Loans - Home Mortgage Student Loans [Read More]
Tracked on Jun 18, 2006 1:47:42 PM
