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Comment by herbstein | Hacker News Reader

Yes, that is an an argument. It's just not terribly convincing if you don't already subscribe to the idea that markets are always right, externalities be damned.

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High prices induce production that would not have occurred otherwise. They also curve demand downwards so that only those who really want the item will get it. There is little reason to outlaw price gouging save for humans have a disgust response to people who profit from tragic events. Absent these laws, there would be incentive to create stockpiles of needed items before a disaster and retool less-efficient factories to produce now more-profitable items during a crisis. We do not think markets are magic. We think they are machines that run on price signals, and bashing these signals with hammers will degrade the efficiency of the machine.

I do agree with the inducing production part. Where this massively fails is the "only those who really want the item will get it". This is really "the wealthy can afford the item without batting an eye and the poor be damned". Not exactly a great idea for essential items.

It is not that. A higher price doesn't magically mean that rich people get it and poor people don't. Everyone will respond to that price signal and adjust their behavior.

Everyone will also change their priorities. There seems to be this idea that there are millions upon millions of people who have a fixed budget and purchase plan that has no room for adjustment at all. I don't think that is true, it is a myth.

And in any case, if the preferred policy of not letting prices float results in a completely empty shelf in the grocery store, please explain to me how the poor, middle class, or rich are going to purchase anything from that empty shelf?

> High prices induce production that would not have occurred otherwise. They also curve demand downwards so that only those who really want the item will get it.

These are good points.

> There is little reason to outlaw price gouging save for humans have a disgust response to people who profit from tragic events.

There is at least one reason:

Setting a price ceiling means that the distribution of the good will be tilted more towards those with less financial capital than it would be if the price were allowed to climb further. I believe this is a point that many care about for a number of reasons.

I'm not arguing that it's better if you are optimizing solely for maximizing total utility received from the supply of the good, but I would question whether that is necessarily the right course of action.

Markets exist on the pre-supposition of a smoothly functioning society/civilization in which to conduct business; i.e. one not under the pressure of a perceived existential threat. The work exists to be done regardless of how "market signals" make it appear, and last time I checked, nobody has a great track record of either "making" or "applying" an economic wrench in ways that have had very satisfying results in about the last 30 year's or so. We want healthy people, and a minimally burdened healthcare system unroll either herd immunity, or pharmacological treatment becomes possible.

In short, pick up a shovel, and get to work. The Market will continue when people stop fearing existential threats.

Whether or not an economist is happy with that state of affairs is beside the point. Economists don't run the country. People do. Contrary to popular belief, most people are fine leaving money on the table as long as it pays off in the long run in terms of not losing those they care about.

What externalities?

One example is a pandemic.

The point is that capping the price of e.g. masks means _fewer masks_ are produced, which is worse for stopping the pandemic.

Price gouging laws typically apply at the consumer point of sale, I'm not sure they prevent a higher price from factory to store.

If the law prevents the store from charging a high price to the consumer, then that effectively prevents the factory from charging a high price to the store, because the store would make a loss if it accepted that price.

>>What if a seller increased the price of a good or service because the seller’s costs of providing the good or service increased?

>If the seller can prove that the increased price is directly attributable to increases in the cost of labor or materials needed to provide the good or service, the seller may not be liable under the statute.

It's right there on the linked page. This basically prohibits large markups while allowing for passing of costs.

How is that an externality?

I am intimately aware of exactly what constitutes an externality. I fail to see how this situation (two parties agreeing to a high price for a consumption good) has impacts on third parties.

I'm not sure how "pandemic" applies, either.

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