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Joke of the day on prices and price controls…. – Publications – AEI

Summary:
AEI Joke of the day on prices and price controls…. …. is from Mike Munger’s article “Three Undeniable Problems with Anti-Gouging Laws” on the American Institute for Economic Research website: A guy goes into a store, to buy some milk. But the milk is per gallon. So he complains to the owner: “! That’s too much!” The owner replies, “So, buy it at the store across the street. That guy is only charging .” The buyer shakes his head, “I can’t, he’s out of milk.” The owner nods, “Right. And as soon as I’m out of milk, I’ll be able to charge , too!” The point is obvious: it’s better to be able to buy milk at than to be out of milk at . The low price for things that aren’t available is no price at all. That was part of Munger’s Problem No. 1 with anti-price gouging laws —

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AEI
Joke of the day on prices and price controls….

…. is from Mike Munger’s article “Three Undeniable Problems with Anti-Gouging Laws” on the American Institute for Economic Research website:

A guy goes into a store, to buy some milk. But the milk is $8 per gallon. So he complains to the owner: “$8! That’s too much!” The owner replies, “So, buy it at the store across the street. That guy is only charging $4.”

The buyer shakes his head, “I can’t, he’s out of milk.” The owner nods, “Right. And as soon as I’m out of milk, I’ll be able to charge $4, too!”

The point is obvious: it’s better to be able to buy milk at $8 than to be out of milk at $4. The low price for things that aren’t available is no price at all.

That was part of Munger’s Problem No. 1 with anti-price gouging laws — Misallocation:

Some people need products or services more than other people need them. But if the price is kept artificially low, there is no reason for the person with mild needs to leave some for those still waiting in line, or who will come looking tomorrow for the product. With anti-price gouging (APG) laws, the first few people who go to the store buy everything up. APG laws, in other words, encourage hoarding rather than sharing.

And here’s Problem No. 3, the worst problem with APG laws according to Mike:

Discourage New Supplies Afterward.  This is by far the worst problem, and the one that APG supporters seem least to understand. The problem is actually not high prices, but scarcity. There is not enough of the desperately need products and services, and it—by assumption—an emergency where we should be doing everything possible to get as much of those supplies delivered, as fast as possible.

For example, it is common to recognize that many people want portable electric generators after a hurricane, because the power goes out. They don’t buy one in advance, because they are pretty expensive and no one is sure the electrical grid will go down until it’s too late to bring more generators in, in the face of the oncoming storm.

The hard thing for most people to understand is that only way to get plentiful supply at low prices is to allow high prices. High prices are a signal that more is needed, and that people serving that desperate demand can be paid enough to make it worthwhile.

But APG laws block this channel of resupply, as effectively as an enemy army might lay siege to a city. A “siege,” after all, is when a military unity surrounds a city and prevents needed supplies from getting through. APG laws actually require state and local officials to lay siege to cities. That would be an act of war if another army did it, but when we do it to ourselves it’s just “public policy.”

Munger’s Conclusion? “APG laws are either useless or harmful.”

Related: Mike quotes from this CD post “A challenge for supporters of anti-price-gouging laws: when does a ‘fair’ legal price become ‘illegal gouging’” about the now somewhat famous case of entrepreneur John Shepperson’s fateful experience following Hurricane Katrina:

In 2005, John Shepperson of Kentucky took time away from his normal job to buy 19 generators, rent a U-Haul truck, and drive it 600 miles to the Katrina-damaged area of Mississippi. John offered to sell his generators at twice the price he paid, to help cover his costs and make a profit. Instead his generators were confiscated by the local police, Shepperson was arrested for price gouging, held in jail by police for four days, and the generators kept in police custody for evidence. Sadly, the valuable and much-needed generators never made it to consumers with urgent needs who desperately wanted to buy them at the price Shepperson was asking.

Joke of the day on prices and price controls….
Mark Perry

Mark Perry
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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