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Source link: http://archive.mises.org/8477/fill-in-the-blank-article-about-price-gouging-laws/

Fill-in-the-Blank Article About Price-Gouging Laws

September 8, 2008 by

As surely as summer follows spring, natural disasters are followed by saber rattling about “price gouging,” which is usually defined very lucidly and clearly as an “unconscionable” increase in the price of a necessity. These tend to follow a formula, so I thought that instead of writing a new article discussing the unintended consequences of every price-gouging law that goes into effect after a natural disaster, it would be useful to write a universal, fill-in-the-blank article discussing the economics of price-gouging laws. Whenever there is a natural disaster, you can just fill in the relevant blanks for a complete analysis of the economics of the situation. FULL ARTICLE

{ 53 comments }

Peter September 10, 2008 at 8:15 pm

I think it’s clear by now that Michael has no interest in learning anything, therefore there’s no point arguing with him.
Don’t feed the commies.

PR September 11, 2008 at 9:02 am

…normal market pricing mechanisms…
…adversely impacts…
…the rest of the economy…
…undue expenditure…
…other needs…

Wow. Just, wow. Those terms are so vague they could justify practically anything. I wonder what King Michael I will do when investment drops in those industries due to the policital uncertainty.

michael September 11, 2008 at 10:13 am

PR offers this comment: “Wow. Just, wow. Those terms are so vague they could justify practically anything. I wonder what King Michael I will do when investment drops in those industries due to the policital uncertainty.”

I think we can take that risk. All our financial markets, over the past twenty years, have shown a pattern of chronic overinvestment.

Income flow has become so distorted that while the working class has become starved of funds, the investing class has become glutted with them. Thus on one end of the economy, there is insufficient consumer demand to spur production. Take a look at the current dilemma in Detroit for an instructive example.

While at the same time, once all the capital markets have become saturated in funds adequate to keep the wheels of industry turning, those most fortunate among us still have several trillion dollars left over in their pockets, after meeting personal expenses. And so they plunge into poorly conceived speculative ventures.

In time the resulting bubble pops. The S&L crisis of the 1980s, which was largely a real estate bubble; the Asian Meltdown of the late 1990s, which was another one; the tech stock bubble of 2001-2002; and the current subprime mortgage bubble. And each time one of these bubbles pops, several trillion dollars just becomes wasted energy, annihilated out there in the ether. The stimuluting effect in each of those occasions was misplaced, and capital was lost en masse.

Money is not a good in its own sake, but is there ideally to serve a purpose. And that purpose is the allocation of goods and resources to those in need of them, the promotion of the general welfare (that one’s in our Constitution) and the stimulation of profitable forms of industrial production. All those purposes are best served when a portion of the profits being spun off goes to stimulate capital investment, while another portion goes to allow the consumer slash worker to buy the fruits of our collective labors.

When all the profits go toward investment, the engine chokes and stalls just as surely as if they all were to go toward labor and none toward investment. It’s like tuning a carburetor. Too much air and it sputters and dies; too little air and it floods and stalls.

Get it just right, guys. I strongly suspect none of you have had so much as one day’s practical experience, as I have, in running an actual business.

Oh, and Peter? If you have had the requisite experience, say something and I’ll be glad to learn from you. If you’ve just been reading books on economics? Maybe you should be paying attention to me.

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