Economic question from the last Storm, re: "gouging"

[cthulu2016]

In June my area experienced a severe wind storm that ravaged the electrical system.

Within hours all 7-11s and grocery stores were out of ice. The radio news became full of stories of people who needed a small amount of ice to keep their insulin cool.

Why was there no ice to be had in stores at any price? Because people bought all the ice, which was ridiculously under-priced. The regular price of ice did not reflect the post-storm demand to the point where ice was, for all practical purposes, free if you could find it. Which you couldn't, in practice, because it all sold out immediately.

If ice had been priced at a level that one would not buy ice unless it was a matter of life and death then ice would possibly be available for cases where it was, in fact, a matter of life and death. Not nessecarily, but possibly.

It was so bad that I seriously considered driving to where there was power, renting a truck, driving west to an unaffected area, loading the truck with ice, coming back to the affected area and selling it in the empty parking lot next to 7-11 for the highest price that would still result in the truck being quickly emptied.

My purpose in doing so would have been to make money. It would have been a business venture.

I decided not to do this because there was a chance of being identified on the TV news as a "gouger," and potentially facing violence from people who felt they were entitled to the ice at whatever 7-11 usually charged.

It was not worth it.

It would, however, have been a great service to many people. After getting over their reflexive indignation at paying what ice was actually worth in that marketplace, many people would have been glad to have ice rather than no ice.

I was not, however, inclined to spend the money on the truck and the ice and the time and labor (and risk of power coming back on while I was driving back to the area) unless there was a lot of money in it. And though this same idea surely occurred to many thousands of people, they weren't doing it either.

We did not have any gouging, but that was accomplished only by not having any ice at all.

Questions:

Did my failure to go get a truckload of ice from Front Royal benefit people in my area? If so, what was the benefit?

Would my importing that ice have been an injury to people in my area? If so, what is the nature of the injury?

[phantom power]

1. Here's the thing....

the closest you came to making a utilitarian case for gouging was this: "ice would be available to people who really needed it for something important." The problem is, it wouldn't work that way either. There's no correlation between people who need to keep their drugs cold, and people who happen to have money on hand to pay a highly inflated price based on low availability.

So, I think the reason gouging is considered bad is: (a) it costs people extra money they don't really have available, (b) it doesn't put goods in the hand of those who need it most, only those who might happen to have the most money, and who get there first.

Also, I think there's an ethical component: engaging in gouging as a 'business venture' goes against the ethical standard of trying to help people out in a disaster because they need the help, not because we are out to make a windfall profit.

Now, suppose you had gone and gotten a truck of ice, and then sold it, at a reasonable markup (or no markup, just cost-defraying) based on the cost of getting it (which might be higher than normal), and also held some out preferentially to people who needed to keep their drugs cold. That would not be gouging, but would be engaging in a public service.

[cthulu2016]

3. I agree that charity would be nice, but we have the real world example

It would have been lovely if a bunch of people had mobilized to import ice to then sell at low prices, but it didn't happen.

And it would have been very good, in my view, if the government had made ice available to diabetics at not or low cost.

That is my preferred solution. But it was apparently not happening.


As to whether gouging mis-allocates supply, that is a very difficult argument to make. The mis-allocation is in the relative wealth of the consumers, so it is deeper than supply and demand.

Assuming you will run out of ice in all scenarios, high-pricing will allocate resources better than price controls but worse than planned allocation.

I am all for the government having ice to ration to people who most need it. Sensible planned allocation.

In the marketplace, leaving government policy, rich people can, of course, buy all the stuff at any price, but that is what happened anyway. People who needed it less than a diabetic did bought it all up, even though their life was not so endangered by a lack of ice.

If my hypothetical ice truck was in place selling ice, a diabetic waiting in line would sensibly prefer that the ice was priced at $10 rather than $2 because the ods of there being any ice left when she gets to the ice truck are much higher at $10.

There may be no ice at either price, but there is likelier to be ice at $10.

Being a reasonably decent person, I would surely have helped out a poor diabetic in practice, even if she had no money at all. But to help anybody I would have to have that truck of ice in that parking lot. That's the first condition.

And if there was a $2/bag rule that would never happen. Nobody would drive 100 miles to buy ice at $2/bag to sell at $2/bag except as an overt act of charity, which I would applaud. But in practice it wasn't happening (enough) either way.

At $4 the equation is different. At $6 different still. Given the costs and risks perhaps $10/bag would be the right price. But that is 5 times what 7-11 charges (when they have ice) and would have been condemned by many as a form of theft, and taking cruel advantage of a disaster.

But renting a truck to buy ice retail to sell retail 100 miles away is a senseless business model except in an emergency.

I was not suggesting charging a shocking price. I would have charged whatever demand dictated to empty the truck in an hour or two, but not to have people buying 100 bags (suggesting the price was too low).

I have no idea what that price would have been. But whatever it was, it would have been reflective of real demand.

[phantom power]

5. I think if your price reflected a "reasonable" markup (<=25%? <=50%?) then it's not gouging.

It sounds like your chief worry was you'd be punished for gouging. It seems to me that if your markup is within some sane bound, and you can back it all up with receipts, etc, then you can tell people to go pound sand if they accuse you of gouging.

Clearly, in this scenario, cost includes renting a truck, buying the ice, and some amount of your time. So 25% markup on that is going to be more expensive than what we usually pay for a bag of ice, maybe by a lot.

I think one typical characteristic of true "gouging" is that there's literally no upper bound on what people charge. If you were sticking to some markup model, and that markup was sane, it's not gouging, even if you're making a decent buck on it.

And it seems like no matter what, you could easily enough hold back 10 or 20 bags out of a whole truck for diabetic charity or what-have-you.

[TreasonousBastard]

2. A lot of open questions here, like...

were there other options, hospitals, medical offices... to keep the insulin cool or obtain ice? Even other odd options, like running water, that can chill things? Labs with liquid nitrogen?

But, to the issue of price gouging, prices do rise from scarcity, but that's a lousy economic model for temporary shortages. Raising the price of a bag of ice from 3 bucks to 50 bucks for the week it takes to get electricity back is not economics but scumbaggery. Unfortunately, perhaps no one thought of who would need ice for something more important than cooling beer but the proper way to deal with such things is regulation-- hold a reserve for sale to whoever has a life threatening need.

Raising the price artificially doesn't mean fairer distribution-- it just means anyone with the money in hand will get the goods, and that will rarely be a fair distribution. It reduces the chances to zero that someone who has an equivalent need but little money will get the product, while just selling it at the regular price will at least give everyone a chance. Not everyone will be happy, but you want everyone to have an equal chance for satisfaction until things get back to normal.

Your ice truck could indeed have been of great service had you done it. Since you have no official capacity to do such a thing, the question is what benefit would you get-- profit or would you consider it your public service? If profit, how much profit would you need to make it worth your while, and what price the ice to meet that number? If public service, how much could you afford, or want, to spend out of your own pocket to do this?

[cthulu2016]

6. I would have been a fine public service. I was surprised there wasn't more of it.

There may have been some private charity going on of a sort I would not have seen—church members picking up ice for people in their group, for instance.

As for the government role, I am sure there was emergency ice/refrigeration available somehow from the government. And I think the grocery stores with generators would have let somebody put their insulin in a cooler there.

I can think of 100 ways someone needing such refrigeration might have gotten it. But in practice, what I know is that it was enough of a problem to report on the news.


If government and private charity had the situation under control then that's good. I am assuming they did not, for whatever reason.

As for the allocation question, there is little chance of ice being so high that people would die from lacking the difference between regular ice and high-priced ice, versus available ice and no available ice.

If a person simple can not pay $20 for a bag of ice, even to save their life, then that is what it is in that instance. (A person with no money couldn't pay $2 either) But that is a less common scenario than what was really going on, which was people finding that there was no ice to be had at any price who would have paid a premium price out of medical necessity.

Something that would help the supply situation is Rationing. If everyone had a one bag to a customer policy the ice would have been available to more different people.

And I am all for rationing in an emergency.

Rationing is best done by government, not 7-11, of course. But 7-11s that had a one bag policy would be doing a public service.

Being a fairly decent person, my hypothetical ice truck would have had a bag limit (despite that being more labor for the same money) and would have helped out a diabetic with no money.

I probably would have asked who in the crowd needed ice for insulin or other medical necessity and served them first.

That's me.

But either way, the ice has to get from Front Royal to Washington DC and the price implicit in that will be much higher than the normal cost of ice, so unless the government or private charity imports that ice it will be expensive ice or no ice.

Some people will, indeed, be left out by expensive ice. Everyone is left out by no ice.

The arrival of the expensive ice truck may not benefit everyone, but it doesn't harm anyone, versus the status quo.

[TreasonousBastard]

9. In my haste I did forget rationing, and that brings up hoarding, which is one of the worst...

problems in shortages, and rationing, if possible, reduces. Price spiking might even encourage hoarding by overvaluing the product.

Government rationing plans take too long for short-term emergencies like this. If 7-11 put a one bag limit on ice, like they often do with sale items, the ice would be spread out further amongst the population, hoarding would be reduced, and resale at even higher prices would be limited. I've seen gas stations put 5-10 gallon limits on purchases during shortages, which also had the side benefit of reducing waiting times.

BTW, asking who has a medical problem is begging for people to lie to you, but not much else can be done at times. And people with special problems often come up with amazing resources the rest of us would never think of.

(And, perhaps you could have worked out a deal to supply 7-11 with a load of ice if their regular supplier couldn't-- the possibilities are endless after the fact.)

[Nye Bevan]

4. After Katrina, John Shepperson thought he could help, so he bought 19 generators, rented a U-haul,

and drove 600 miles to an area of Mississippi that was left without power in the wake of the hurricane.

He offered to sell his generators for twice what he had paid for them, and people were eager to buy. Police confiscated his generators, though, and Shepperson was jailed for four days for price-gouging. His generators are still in police custody.

So did the public benefit? Here's the real question: What is the best way to deal with shortages after a natural disaster?

http://abcnews.go.com/2020/Stossel/story?id=1954352&page=1#.UJPoxYbZ3nh

[cthulu2016]

7. Ideally, government is the best way to deal with such shortages

But government cannot, and probably should not do everything

A case such as the one you cite is a good example of the peculiarity of the situation. In some circumstances people would be praying for a profiteer to show up with a generator.

What people rebel against is the seeming unfairness of it, but I would suggest that the unfairness comes from having been hit by a natural disaster when some other area was not.

It is, however, not practical to blame god.

These economic questions are genuinely complex, ethically.

It seems outrageous to lend to someone at 30% interest. It seems like it should be illegal. But unless the government requires lenders to make money-losing loans then a usury law means no access to credit whatsoever, no matter the need, for some risky borrowers.

Tricky stuff.

[Egalitarian Thug]

12. That is price gouging.

[cthulu2016]

13. Generators make electricity better than smug self-satisfaction does.

I've tried both. Generators are better.

You fervent desire that those generators should have stayed outside the disaster area helps no one.

And if only the rich can get those generators then that reduces the demand for government assistance so more of it goes to people without money.

Those generators do not reduce relief available to others.

[Nye Bevan]

14. So, how did arresting the guy and impounding the generators help the victims of Katrina, exactly?

Remember that people actually wanted to buy the generators at the price he was asking.

[Egalitarian Thug]

15. Two different issues. Arresting and charging him for preying on other's desperation was the

right thing to do. Police and court procedures being rigid, cumbersome, and frequently counter-productive is typical.

The one does not justify the other.

Who is hurt in insurance fraud? How about when a meth dealer is robbed?

[Egalitarian Thug]

8. You are an utter failure as a human being. The fact that you apparently don't

see that, or why is more evidence of your complete lack of humanity.

[cthulu2016]

10. If I were capable of human emotion I'd be hurt

But since I have a complete lack of humanity I am unaffected by your infantile, self-righteous tantrum.

[Egalitarian Thug]

11. No tantrum here, a word BTW, that is regularly used on this site to berate

common humanity or thoughtful consideration by those that lack them, merely pointing out what your post makes so obvious.

But here's another kick to both further expose your failure and simultaneously give you the attention you obviously crave.

[jmowreader]

16. The problem is, it is impossible to price something high enough...

to make them not buy ice unless it was a matter of life and death.

Okay, consider the notion that you'd price your ice at $25 per bag. That MIGHT cause people to not buy ice unless they absolutely had to have it; it might also cause people to see ice as some sort of luxury item and buy it because they would then have ice and the poor people who can't afford to spend $25 on a bag of ice (or, alternately, who CAN afford $25 ice but choose to buy building materials instead) would not have ice.

The other problem we need to cover is there are plenty of sick people who would forego buying ice at $25 per bag, either because they couldn't afford it or because ice just HAS to come down from this artificial peak so they'll wait until the ice sellers come to their senses, and die as a result.

Could you have sold the ice at a reasonable price--$3 to $4 would be okay in a disaster--and written off the truck costs as a business expense?