Power & Market

Price Gouging: A Life-Saving Market Mechanism

09/13/2018TJ Roberts

As Hurricane Florence prepares to ravage the Southeastern United States, social media warriors, and “news” outlets are exclaiming their outrage at the business owners who are raising prices on essential items such as water, food, gasoline, plywood, and even hotel rooms. This “price gouging,” however, is absolutely essential, for people’s lives are at risk due to this storm. When clouded by emotion, increasing the price of these commodities may come across as detrimental, and even malicious. But a sober mind must acknowledge the necessity of price flexibility.

Price Gouging and Basic Economics

We can look at the effects of price gouging from two perspectives: supply and demand.

On the demand side, increasing the price of these goods makes consumers more conscious of their purchases. In other words, this encourages people to live within their means. When a disaster is incoming, such as a hurricane or a blizzard, people will see others at grocery stores stocking up on water and other essentials. They will, however, purchase too much if the price stays the same. Whereas a storm and its immediate aftermath may last for a few days, people will purchase enough to last them for months, resulting in shortages.

By increasing the price of a good, customers are more likely to purchase only what they need to survive. Now, many will say that this just means that the rich will outbid the poor on necessary resources. But this is not the case when one thinks on the margin. In everyday life, the rich don’t outbid the poor on food because the rich do not need all the food in the world. They will only purchase food so long as the perceived benefit acquired is worth more than the money they will have lost if they make the purchase. In other words, price gouging stops the rich from buying all of the water and thus allows the poor to buy water that they may desperately need.

Keeping the Prices the Same Hurts Everyone

Suppose water stayed at the same price throughout a disaster. The receivers of the water will then be the first to show up. But what if the first comers take far more than they need for this disaster? Then there will be nothing left. By increasing prices, store managers are making sure that people only buy what they find to be necessary so that they do not run out of goods. This allows for a greater distribution of essential goods.

On the supply side, price gouging helps increase the quantity. The rich can only outbid the poor if there is a fixed amount of a given resource within the area in which a disaster has occurred. This is far from the case. By increasing prices, the market is signaling to businesses to reallocate resources to the area in need of resources. This has two effects.

First, entrepreneurs who live outside the disaster area see a willingness of consumers to purchase items at a higher price. That means that entrepreneurs will be far more likely to take the risk of traveling to the area to sell the items. This makes the number of goods to rise, allowing for more people to be able to access essential resources.

Second, charities see higher prices and begin initiatives to give resources to those in need. Governments cause shortages by implementing price controls. Charities and entrepreneurs save lives. There is not a fixed amount of goods. The price system readjusts incentive structures to ensure that enough people have what they need to survive a natural disaster.

Price gouging is no different from any other instance of price flexibility. Those who charge a higher price despite popular outrage deserve a medal, for they are saving lives by ensuring people only purchase what they need to survive a disaster. For all of you who will be affected by Hurricane Florence, stay safe and thank a price gouger!

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Peter Klein Receives the 2018 Strategic Entrepreneurship Journal Best Paper Prize

07/31/2018Mises Institute

Congratulations to Mises Senior Fellow Peter Klein for being recognized by the Strategic Entrepreneurship Society with its Strategic Entrepreneurship Journal Best Paper Prize for his paper "Opportunity Discovery, Entrepreneurial Action, and Economic Organization."

One of the aspects that makes this award particularly important is that it recognizes the impact of a paper. As such, papers are not eligible until they have been published for five or more years. 

The award committee consists of the Editorial Board of the Strategic Entrepreneurship Journal and is supplemented by surveys of leading figures in the field of strategic entrepreneurship conducted by the Co-Editors of the Strategic Entrepreneurship Journal.

This paper is included in Dr. Klein's 2010 book The Capitalist and the Entrepreneur.

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Police Abuse Hate Crime Laws to Enhance Their Own Power

07/25/2018Tate Fegley

Previously I wrote about efforts in the US Congress to pass legislation that would make police officers an even more protected class by allowing federal prosecutors to charge individuals with committing "hate crimes" against them. While that legislation has not yet passed in the Senate and will hopefully die, some police officers have found other ways to use hate crimes legislation to their benefit.

The state of Pennsylvania has a hate crime statute known as "ethnic intimidation," applying to a person committing an offense "with malicious intention toward the race, color, religion or national origin of another individual or group of individuals..." The effect of the statute is to enhance the grading of the actual criminal offense committed by one degree, potentially turning a 1st degree misdemeanor into a 3rd degree felony.

The statute was used against Robbie Sanderson , a 52-year-old black man, who was arrested for stealing around $100 worth of merchandise from a CVS Pharmacy. According to the affidavit filed by the Crafton Borough police, during the arrest, he called the officers "Nazis," "skinheads" and "Gestapo," and told one officer that he would find that officer's wife and have sex with her. Sanderson was charged with "felony ethnic intimidation" and "misdemeanor terroristic threats" for these comments.

Pennsylvania law enforcement has used this statute in a number of cases to punish those who insult them: Sannetta Amoroso, a 43-year-old black woman, was charged with felony ethnic intimidation for saying "I'm going to kill all you white b****es" and "death to all you white b****es" while attempting to report a crime to the McKees Rocks Police. Steven Ray Oller was charged with misdemeanor ethnic intimidation for threatening officers and using a racial slur directed at a Latino officer during an arrest for DUI. Anthony Payne was also charged with misdemeanor ethnic intimidation for calling an officer "Gandhi mother****er" during a welfare check at Payne's home.

All of these charges were later dropped and rightfully so, as the text of the statute states that ethnic intimidation cannot be a standalone offense, but rather applies when another crime is motivated by malicious intention toward race, color, religion, or national origin. The officers in these cases blatantly misapplied the law, but faced no adverse consequences for doing so. This should come as no surprise; despite the assurances of apologists for hate crime legislation that it "only appl[ies] when there is an underlying crime to prosecute," this is clearly not the case in practice.

Furthermore, police apply it for ideological reasons outside of the stated intentions of the law. For example, two teenagers in Baltimore were charged with a hate crime for setting fire to a Trump campaign sign. We are on the slippery slope we were assured wouldn't occur.

What's very strange about the whole issue is that those organizations that claim to hold civil liberties in the highest regard, including the 1st Amendment and due process, are those that tend to be most in favor of such sentencing enhancements. They also tend to deny the utility of harsher prison sentences for reducing most other types of crime; as such, they are either inconsistent in their views about harsher sentencing or view the purpose of hate crimes legislation as purely symbolic. Neither alternative reflects well upon them. What is indisputable, however, is that such legislation gives police officers greater discretion and power over individuals. This is something about which those calling themselves civil libertarians need to think carefully.

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Professor Israel Kirzner Receives Distinguished Fellow Award

Congratulations to Israel Kirzner who received the Distinguished Fellow Award from the History of Economics Society at its 2018 annual meetings held in Chicago this past weekend. The Society confers the honor of “Distinguished Fellow” on “those who have contributed a lifetime of study to the history of economics.”  In receiving this honor, Professor Kirzner, one of the most illustrious representatives of the modern Austrian school,  joins a roster of eminent economists including Friedrich Hayek, George Stigler, Lionel Robbins, Don Patinkin, and Joseph Dorfman among others.  Kirzner’s book The Economic Point of View: An Essay in the History of Economic Thought, which was based on the Ph.D. dissertation he wrote under Ludwig von Mises, remains the best history of the transformation of economics from a study of the causes of material wealth to the science of human action. 

Israel Kirzner HOES.jpg
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Peter Klein Named Outstanding Professor by Baylor University

06/01/2018Mises Institute

Congratulations to Mises Senior Fellow Peter G. Klein for being recognized by Baylor University as an Outstanding Professor for 2017-2018. In particular, Dr. Klein was credited for his scholarship as the W. W. Caruth Chair and Professor of Entrepreneurship, and Senior Research Fellow with the Baugh Center for Entrepreneurship & Free Enterprise. 

His works the past year includes:

Stakeholders and Corporate Social Responsibility: An Ownership Perspective: Emerald Insight, February 2018 (coauthors: Nicolai Foss). 

"Business Law and the Austrian Theory of the Firm," , Cheltenham: Edward Elgar, December 2017, pp. 325-346 (coauthors: Peter J. Boettke, Todd J. Zywicki, Thomas A. Lambert). 

"Uncertainty Types and Transitions in the Entrepreneurial Process," Organization Science, Vol. 28, No. 5, (October 2017), pp. 840-856 (coauthors: Mark D Packard). 

"Entrepreneurial Discovery or Creation? In Search of the Middle Ground," Academy of Management Review, Vol. 42, No. 4, (October 2017), pp. 735-737 (coauthors: Nicolai J Foss). 

"The Effects of Academic Incubators on University Innovation," Strategic Entrepreneurship Journal, Vol. 11, No. 2, (June 2017), pp. 145-170 (coauthors: Christos Kolympiris). 

"Entrepreneurial Traits, Formal Institutions, and the Motivation to Engage in Entrepreneurial Action," (May 2017) (coauthors: Boris Nikolaev, Christopher Boudreaux). 

"Organizational Governance Adaptation: Who Is In, Who Is Out, and Who Gets What," Academy of Management Review, (2017) (coauthors: Joseph T Mahoney, Anita M McGahan, Christos Pitelis). 

"Uncovering the Hidden Transaction Costs of Market Power: A Property Rights Approach to Strategic Positioning," Managerial and Decision Economics, (2017) (coauthors: Kirsten Foss, Nicolai Foss). 

"My Contributions to Entrepreneurship Theory," , London: Routledge, 2017. 

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Pope Francis Endorses Slower Growth, More Poverty

I almost feel guilty when I criticize the garbled economic thoughts of Pope Francis. After all, he was influenced by Peronist ideology as a youngster, so he was probably a lost cause from the beginning.

Moreover, Walter Williams and Thomas Sowell have already dissected his irrational ramblings on economics and explained that free markets are better for the poor. Especially when compared to government dependency.

But since Pope Francis just attacked tax havens, and I consider myself the world’s foremost defender of these low-tax jurisdictions, I can’t resist adding my two cents. Here’s what the Wall Street Journal just reported about the Pope’s ideological opposition to market-friendly tax systems.

The Vatican denounced the use of offshore tax havens… The document, which was released jointly by the Vatican’s offices for Catholic doctrine and social justice, echoed past warnings by Pope Francis over the dangers of unbridled capitalism. …The teaching document, which was personally approved by the pope, suggested that greater regulation of the world’s financial markets was necessary to contain “predatory and speculative” practices and economic inequality.

He even embraced global regulation, not understanding that this increases systemic risk.

The supranational dimension of the economic system makes it easy to bypass the regulations established by individual countries,” the Vatican said. “The current globalization of the financial system requires a stable, clear and effective coordination among various national regulatory authorities.

And he said that governments should have more money to spend.

A section of the document was dedicated to criticizing offshore tax havens, which it said contribute to the “creation of economic systems founded on inequality,” by depriving nations of legitimate revenue.

Wow, it’s like the Pope is applying for a job at the IMF or OECD. Or even with the scam charity Oxfam.

In any event, he’s definitely wrong on how to generate more prosperity. Maybe he should watch this video.

Or read Marian Tupy.

Or see what Nobel Prize winners have to say.

P.S. And if the all that doesn’t work, methinks Pope Francis should have a conversation with Libertarian Jesus. He could start herehere, and here.

Originally published at Dan Mitchell's blog International Liberty
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Public Policy as Revenge: Patrick Newman on the Tom Woods Show

03/29/2018Tho Bishop

We've known for a while now that Donald Trump is not a fan of Jeff Bezos or Amazon. Tweets from the President confirmed prior reports that he takes particular exception to the rates the US Post Office charges Amazon for their delivery services, as well as voicing your standard protectionist concerns about how delivery services threaten brick and mortar businesses. 

Of course some speculate that Trump's particular fixation with Amazon may have something to do with another branch of the Bezopus - the Washington Post

The Post has gained the reputation as one of the Trump Administration's most frequent critics, and added “Democracy Dies in Darkness" underneath its masthead in response to the President's attacks on the media. New York Magazine has helpfully compiled a list of some of Trump's attacks the paper, including a few barbed tweets. 

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While the idea of public policy being waged as a form of revenge is rightfully terrifying, it's certainly not new.

At last weekend's Austrian Economics Research Conference, Dr. Patrick Newman presented a paper on the origins of the Sherman Antitrust Act contending that the origins and lobbying for the legislation in part stemmed from a personal grudge between Ohio Sen John Sherman and Michigan Governor Russell Alger. Sherman believed Alger was to blame for him failing to become the Republican nominee in 1888, and was determined to make sure Alger paid the price  for it. The paper was inspired by Newman's work as the editor of the recently published Rothbard book on the Progressive Era.

He recently joined the Tom Woods Show to talk about the paper. It's a fascinating conversation, and a worthwhile anecdote the next time a friend complains about how bad modern politics is these days (in reality, it was never really good to begin with.) 

 

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Powell Raises Rates, Is Wrong About the Fed Not Subsidizing Wall Street

03/21/2018Tho Bishop

The Federal Reserve continues to slowly increase the federal funds rate from 1.5 to 1.75 percent today, the first such decision of the Jerome  Powell era. More interesting is that, when asked during his press conference, Chairman Powell dismissed the idea of the Fed's Interest on Excess Reserves (IOER) policy as a subsidy to Wall Street. 

IOER is the Fed's payments on interest held by large banks at the Fed beyond what they are required to store. Though the policy is a new one - coming into practice in 2008 - it has quickly become, in the words of former Chairwoman Yellen, the key policy tool of the Fed. The idea is that the Fed can set the lower bound for interest rates with the tool (as a risk free way to park reserves), while still giving the Fed the flexibility to expand its balance sheets. In doing so, as George Selgin has done a great job writing about, the Fed has transitioned from a traditional "corridor"-style operating system (focused on overnight bank lending) to a "floor" system. 

Putting aside for this post questions about the policy's effectiveness and legality, this policy is one of the most vivid examples of how the Federal Reserve benefits Wall Street at the expense of tax payers. After all, the money the Fed uses to make these payments on interest comes from the profits of the Fed itself. As such, Wall Street banks have now been given a risk-free avenue to get return on their holdings. Clearly the banks see this as a better return than they would get lending on the market, or else we wouldn't see excess reserves continue to stand at over $2 trillion. 

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As this policy comes under increased scrutiny on Capitol Hill, expect to see the topic continue to come up in the future. 

Other highlights from today announcement include the Fed acknowledging that economic growth has slowed so far in 2018, with the language used to describe economic and job browth being changed from "solid" to "moderate." Still, the FOMC increased their projections for economic grwoth - from 2.5% to 2.7% - though Powell noted in his press conference that there is some concern over the impact of President Trump's tariffs going forward.

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Pompeo and Haspel are Symptoms of a Deeper Problem

03/19/2018Ron Paul

President Trump’s recent cabinet shake-up looks to be a real boost to hard-line militarism and neo-conservatism. If his nominees to head the State Department and CIA are confirmed, we may well have moved closer to war.

Before being chosen by Trump to head up the CIA, Secretary of State nominee Mike Pompeo was one of the most pro-war Members of Congress. He has been militantly hostile toward Iran, and many times has erroneously claimed that Iran is the world’s number one state sponsor of terror. The truth is, Iran neither attacks nor threatens the United States.

At a time when President Trump appears set to make history by meeting North Korean leader Kim Jong-un face-to-face, Pompeo remains dedicated to a “regime change” policy that leads to war, not diplomacy and peace. He blames Iran – rather than the 2003 US invasion – for the ongoing disaster in Iraq. He enthusiastically embraced the Bush policy of “enhanced interrogation,” which the rest of us call “torture.”

Speaking of torture, even if some of the details of Trump’s CIA nominee Gina Haspel’s involvement in the torture of Abu Zubaydah are disputed, the mere fact that she helped develop an interrogation regimen that our own government admitted was torture, that she oversaw an infamous “black site” where torture took place, and that she covered up the evidence of her crimes should automatically disqualify her for further government service.

In a society that actually valued the rule of law, Haspel may be facing time in a much different kind of federal facility than CIA headquarters.

While it may be disappointing to see people like Mike Pompeo as Secretary of State and Gina Haspel as the head of the CIA, it shouldn’t be all that surprising. The few areas where President Trump’s actions are consistent with candidate Trump’s promises are ripping up the nuclear deal with Iran and embracing the torture policies of President George W. Bush. Candidate Trump in late 2015 promised to bring back waterboarding “and a whole lot worse” if he became president. It seems that is his intention with the elevation of Pompeo and Haspel to the most senior positions in his Administration.

We should be concerned, of course, but the real problem is not really Mike Pompeo or Gina Haspel. It is partly true that “personnel is policy,” but it’s more than just that. It matters less who fills the position of Secretary of State or CIA director when the real issue is that both federal agencies are routinely engaged in activities that are both unconstitutional and anti-American. It is the current Executive Branch over-reach that threatens our republic more than the individuals who fill positions in that Executive Branch. As long as Congress refuses to exercise its Constitutional authority and oversight obligations – especially in matters of war and peace – we will continue our slide toward authoritarianism, where the president becomes a kind of king who takes us to war whenever he wishes.

I am heartened to see some Senators – including Sen. Rand Paul – pledging to oppose President Trump’s nominees for State and CIA. Let’s hope many more join him – and let’s hope the rest of the Congress wakes up to its role as first among equals in our political system!

Reprinted with permission. 

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