Gouging WILL Be Tolerated!
With the recent events of Hurricane Ike, it tells you something about the state of economics education when you watch news stories where two complaints are put forward by the same parties…. One, that gasoline stations are running out of gas, and two, that the government better step in if they see any gas stations daring to raise prices. No shortages! No gouging!
It’s just the new sloganeered politics, where a good sound bite beats facts every time. Then again, how new is that? Academics, politicians, and laymen have all pontificated for years that “communism works on paper.” If you’re coldly applying it to a system that ignores human nature and in which you don’t have to participate, maybe it does. What it argues is that central planning can get needed goods to consumers more efficiently, without interruption, and at affordable prices. No shortages! No gouging! Full circle on the slogans.
But, let’s say you work in a job that has a “market rate” of $40,000 a year. You find an employer who needs you, and will pay you $60,000. Should your present employer be able to accuse you of “gouging” and require you to take their existing $40,000 job? No? Welcome to capitalism! We knew you’d come around.
So now let’s test your new love of economic liberty and free markets. You pull into a gas station after a massive hurricane temporarily halts oil production. You see a price of $3.60 a gallon, but all the pump handles have plastic bags over them. No gas! Across the street, you see another station open and people still pumping. The price is $5.00 a gallon. Oh, you’re already dialing the governor’s office to report “gouging,” aren’t you?! Where did your laissez-faire ideas of the not so distant past go?
What so many people refer to as “price gouging” is a natural market response to increased demand. People didn’t suddenly need more gas than they did yesterday. Nor did a temporary, 2 to 3 day supply shutdown from one source cause a real-time drop in supply, especially considering there are 5 to 10 days of local reserves. It was a human reaction to fear about shortages that caused them to hoard the product. If the market can react to this increased demand with higher prices, then the initial panic is replaced with a more pragmatic point of view. People who need gas right then have a supply that is available. People who don’t truly need it suddenly decide they can wait a few days. But you can’t have the government keep the price artificially low and keep human nature from depleting immediate supply. Nor do limits and rationing work, because then everyone will line up to get their 10 gallons, fearing it to be their one opportunity. You can have a stable supply, or you can have cheap prices. The only winner is the one who got the cheap price before the supply ran dry. Is that truly more “fair” than a price increase?
Maybe you’re coming around on the idea. Maybe you think since disasters like hurricanes are relatively rare, it’s not an important point to make. Then let’s get back to the idea of your pay increase at your new job….
Actually, the same forces that promote the idea of government-imposed “fairness” in markets want a stab at that, too. In that there would be a massive revolt if they directly required every employer to pay a certain rate for a certain job, giving government ownership of the job (communism), confiscatory tax rates are imposed to redistribute your newfound wealth (socialism). This is all in the name of “fairness.” It doesn’t help the revenue stream of the government. It deincentivizes one to create wealth, knowing part will be taken away for little reason. Tax cuts fuel growth that actually increases revenues by the treasury, a fact that has been proven historically on multiple occasions.
But these economic concerns have political answers, which for many people discourages involvement. It’s amazing to me that arguing with the same set of data that there exists any argument between capitalism and socialism. And the answer to that is, once again, it has more to do with human nature and emotional reactivity than it does with the data. And I believe that hurts people on the individual level.
If you believe the value for things is defined and that deviations are unfair aberrations, it leaves a lot of room to sell yourself short. That is to say, if you assume the value of what you do is $40,000, you’re not likely to be looking for the $60,000 gem. I call these people “union members.” In that mindset, it makes more sense to ask for some entity to impose “fairness” than it does to look for another, better job. But as with the price gouging example, this “fairness” is usually anything but. You may get a 5% increase, and so did everyone at your company’s competitor. They’re not looking to hire you. If everyone gets 5%, no one person is ever going to be worth, say, 10%.
Even though many companies don’t have unions, employees will place this limitation upon themselves, and assume they cannot do better. But the value of what you do BELONGS to you. What you can ultimately make from it is up to you. But you have to free your mind from “fairness” or “the market.” You have the freedom to create your market and sell to it. People who achieve real success don’t wait for someone to impose new rules. They live by their own rules. Those that think they can’t do or have because life is unfair inevitably work to prove themselves right. Which would you rather be?
Jared A. Chambers
