Price Gouging Is Good #swineflu

The Colombian government has imposed a price fix for face-masks of 180 pesos (about 8¢ US).  Violators will be fined, shut down, and/or imprisoned.  This is a basic economic mistake governments always make during emergencies (real or hype).  Even in emergency situations, the free market should dictate the price of things, not a centralized bureaucracy.

This is because forcing the price to stay low will only result in a shortage and distribution complications.  Likewise, allowing the price to rise mitigate these problems.  Will certain people be denied access to face-masks?  Yes, either way, they will.  But if denial of face-masks is brought on by government intervention, less people will actually receive them due to red tape than if they were merely unable to afford them.

This is why price gouging is good.  If a face-masks are fixed at 8¢ each even during an emergency, I am more likely to buy more than I need, which would bring about a shortage.  But if each face-mask is going for $10 each, I might be a little more careful and leave some for other people.

The free market solution is to allow the masks to rise to a point where no one can buy them, even in a panic.  Maybe they rise to $1,000 each.  Crazy, right?  Maybe one sucker would buy one mask and that's it.  After that, the seller won't sell any more until the price falls.  Eventually, it will fall to a level where more and more people can afford them.

People critical of the above free market solution would say this slows everything down.  They think it takes too long for the price to fall to the "proper" level.  They would say the government should step in because they know a) the proper price and b) the proper quantity.

Yet, if they remain at 8¢ each, the one person who would have used $1,000 for one mask is suddenly able to afford ten thousand masks.  This is where governments decide to impose limits which slow the whole process because they know the proper quantity, after all.

Trusting the free market is smart because it naturally addresses the problems associated with hording better than red tape ever could.  Private property and multiple wills react better and more quickly than government "experts" and red-tape.

Trusting the government that sucks at everything it does is just dumb.  What makes us believe they know the proper price and quantity for face-masks, especially in a hyped emergency?

Gouging protects against the effects of panic.  This applies to face-masks as well as medicine and generators.  Whenever the government monkeys with prices and quantities, unintended consequences abound.

Posted via email from Anthony Martin's Weblog