Hacker News Reader

Comment by wccrawford | Hacker News Reader

Actually, there was a post on HN from a guy who makes medical masks that isn't ramping up production as much as he can. The article's headline was basically just that, trying to get as many clicks as possible.

The real story was that last time there was a shortage, he did ramp up production. But after the shortage ended, his customers dried up immediately and he was left with paying unemployment for all the new workers that he had to fire now. It nearly destroyed his business, and he's not making the same mistake again.

His masks cost 10c where Chinese-made masks cost 2c. There's no way to get hospitals to keep him in business during non-crisis times at 5x the price. If there were, he'd do it.

So it isn't just inability to physically increase production. Economics factors in heavily, too. If he could charge more for these masks, he could bank that extra and pay the unemployment (and other business expenses from ramping down) after this crisis ends.

View on HN

Yeah, it's kind of impossible to argue that production costs haven't gone up for manufacturers. I have an employee who we need to still go into the office for some manual work 2x a week - he asked that we pay for an Uber for him because he doesn't want to ride public transport.

That's just one of many additional costs companies that struggle to continue working are paying.

Some degree (within reason) of increased prices for an high-in-demand product is a necessary if you want to convince employees to work longer hours and through tough conditions.

...not to mention many of their underlying fabric costs are probably higher as well.

There's a difference between price gouging and covering expenses.

The guy buying up all the masks and reselling them for 10x the price is price gouging. He doesn't make anything.

If a manufacturer ramped production and billed the current inventory to cover costs, then that's a very different thing. Of course all of this is why the Defense Production Act even exists.

A perfect use of the DPA would be a mask manufacturer ramping up local production - if they had predictability of pricing beyond the current crisis, then it would let them forecast what they could and could not make, or get subsidized at the higher rate to ensure their business could ramp down gradually (or be retained at the subsidy price to ensure local availability for the next time).

>The guy buying up all the masks and reselling them for 10x the price is price gouging. He doesn't make anything.

The guy buying up all the masks and reselling them for 10x the price is making availability, which is highly important in a crisis.

He's capturing availability, the manufacturer made the availability. There is no value-adding middle man role with a 10x value here (well value to anyone other than the middle man).

There's none available to purchase at the old, lower price. So he's providing value to me, someone who wishes to buy one.

Because he bought them all. This is why, in states where disasters are probable due to natural issues (hurricanes, earthquakes), price gouging is a crime. Not only is it a crime, but it is one where there is full bi-partisan support for the continuance of the law. If you want to put a smile on the face on someone suffering from calamity, first help them, and then arrest the bastard who tried to profit off of it. The first smile will be gentle and gracious, and the second will be of pure glee.

If the gouger actually bought them all then you have a monopoly, which is a different problem. The gauger, instead, bought some. So did many other people. The difference is he's willing to sell his. That's the value to me he's providing. Could you retry your analysis with this corrected information?

Doesn't matter if he bought all or some. If he is attempting to profit off of a disaster, he will be seeing a fine or jail time in plenty of states.

Should for-profit grave-digging be illegal too?

The fun thing about a lot of people dying is that the government will take care of the bodies for you. Try another strawman tactic, my dude. That one missed the mark.

A strawman is an irrelevant argument, but this one is perfectly relevant: A grave-digger makes money in the event of death, it needn't be during an epidemic, "my dude" (or whatever patronising, PA phrase you prefer)

If people shouldn't profit off disaster, why profit from any misfortune?

I think we're talking about two different things. I'm talking about whether or not a price gouger provides the service of making some product available on the market, albeit at a higher price. I feel that fact is indisputable and I personally find that valuable. You seem focused on whether or not you consider this action of making something available to me is moral/legal. That's a different question altogether. One which I'm explicitly not commenting on.

Your position is moot. Without the emergency, there would be no incentive for the gouger to source and acquire the product. By acquiring the product, the gouger removes the product from the market for those who are following ethical guidelines, so he's not providing a service at all. You can't disentangle the moral or legal aspects of this just when it suits your whim.

Your position is moot because gougers are not the only ones buying up supply they don't personally need. The gougers price the hoarders out of the market.

No, gougers working completely independently can achieve a similar, regrettable end.

Hoarders aren’t selling theirs, he is. If he didn’t exist, more hoarders would have critical supplies.

>...The first smile will be gentle and gracious, and the second will be of pure glee.

What kind of smile is there when there is nothing to buy at any price?

Before all these laws, in natural disasters there used to be marginal producers (people with a pickup truck etc) who would load up on some supplies like ice etc. and bring them to the area that was hit to make a quick profit. When the electricity is out and someone wants $12 a bag for ice it would anger you if you just want to keep your drinks cold, but you would think it is a bargain if that way you can keep your insulin chilled.

https://www.econlib.org/library/Columns/y2007/Mungergouging....

There are tons of people out there who will handle these things for their communities without expecting an exorbitant amount of money. Your scenario is also completely different from someone trying to buy up the existing supply so that he can gouge people.

>...There are tons of people out there who will handle these things for their communities without expecting an exorbitant amount of money.

The article I linked too was the personal experience of an economist who was in Raleigh after a hurricane hit the area. As he writes:

>...The problem for Raleigh residents was all about price, at that point. The prices of all the necessities that I wanted to use to “preserve, protect, or sustain” my own life shot up to infinity. Within a day after the storm, there were no generators, ice, or chain saws to be had, none. But that means that anyone who brought these commodities into the crippled city, and charged less than infinity, would be doing us a service.

There were not tons of people bringing supplies into the city. The state had to actually beg other states and the federal government for supplies.

In the long run, high profits during a shortage also mean that suppliers in general will be incentivized to keep a larger stockpile of things that have a good shelf-life since they know they will be able to make good money the next time there is a shortage (more than the storage costs). If you are going to literally make it illegal to try this, then you better have a government be willing to spend its tax dollars on creating a stockpile rather than spending money on more immediate things that are more likely to get votes. (We've now seen that all the talk of the national stockpile the federal government supposedly had was greatly exaggerated.)

For these reasons, a majority of economists are opposed to 'price gouging' laws. For example see http://www.igmchicago.org/surveys/price-gouging/

Right and yet most everyone in this thread can agree that it wouldn’t be the most prudent use of it when there are other lives more at risk than yours.

It’s likely people forget what economy was even for. It doesn’t exist solely to serve itself, well I suppose it could if you are a true masochist, but instead a means to an end: health, happiness, freedom, etc

In reality I have not gone out and purchased overpriced goods. I'm wearing a cloth mask when I go out.

In the hypothetical, you have no idea whose life is more at risk. And the central planners who want to implement price fixing, purchasing quotas, etc. do not have much if any more insight than you.

Watch out of you'll end up in a debate about whether and how HFT and front-running are good for the Main Street investor...

I don't think anyone defends front-running. It's illegal in various forms for good reasons.

A _manufacturer_ charging more is not _front-running_.

The guy buying up all the masks and reselling them is likely buying them in similar markets to the people who he will be selling them to eventually. His net effect is likely going to be doing diddly squat to the availability.

None are available to purchase at the old, lower price, because demand at the old price outpaced production. The higher price drives some consumers out of the market, meaning there are still some for sale.

Demand at the old price from people who bought them to resell at the new price?

Mostly, because the guy buying them all up to resell at 10x the price is a scumbag just like ticket scalpers, except worse because whether you pay $500 or $200 to get a ticket to a rock concert won't potentially kill you.

The availability is primarily negatively impacted because of hoarders and gougers.

Do you believe that, absent price gougers, I would be able to walk into Home Depot, CVS, Walmart, etc. and buy some N95 masks for my personal use? I don't think that's likely, so wherever you were heading with that is irrelevant.

I want to be clear I'm intentionally separating two things. The gouger is making product available on the market where otherwise there would be none. The higher price discourages hoarders or others with lower needs. This is clearly a valuable service that some, perhaps many, are willing to pay for. I feel like these are indisputable facts.

There is a separate topic of moralizing about the issue, whether or not you think the gouger is a bad actor or whatever. You can keep going on about that, but I won't address it because I don't care about your feelings regarding my personal health.

What you're missing is that, in the timescales at issue with price-gouging, both supply and demand are inelastic. So at, say, $10, you'd have 100 units of supply and 200 units of demand, while at $20, you have... 100 units of supply and 200 units of demand.

Higher prices don't discourage hoarders, because a fair fraction of the hoarders are going to be people who are planning on reselling them to desperate people, so they're virtually guaranteed a profit. If you want to discourage hoarders, then enact purchasing limits: limit 1 per person.

I dismiss the idea that demand is inelastic. At $1/mask basically everyone wants an N95 mask. At $1k/mask most consumers are going to wear a bandana or alternative type of mask.

Sure, demand isn't perfectly inelastic. But at the price points we're talking about, the demand isn't dropping off fast enough to make the market look even close to equilibrium.

But I noticed you didn't even attempt to engage with the solution of enforcing purchasing quotas instead of allowing price gouging.

Enforcing purchasing quotas does not allocate resources to where they're most needed.

Pricing (including gouging) may be imperfect, but it is better than central resource allocation, price fixing, etc. at leading to efficient allocation of resources.

> The higher price discourages hoarders or others with lower needs.

Others with lower means, you meant?

With central planning, resources go to the politically connected. So it's no different, the poor are reliant on better connected and/or wealthier people to provide them with some resources.

Pricing (which includes 'gouging') is not perfect, but it's better than central planning, price fixing, and quotas at efficient allocation of resources. At the very least it provides a 'wisdom of the crowds' affect where anyone with enough money can reallocate some of the resources to a location of need that might lack visibility to the hand full of people that would hypothetically be centrally planning all the resource allocation.

Wait, who was proposing or even talking about central planning in this thread? I think you're the first. I was going to propose we allocate resources by sacrificing goats to the thirteen forgotten gods of the underworld, and then interpret their bones for wisdom.

I just wanted to clarify that when you said higher prices discourage those with lower needs, what you really meant is that it discourages those with lower means-weighted-needs. Which is to say, it discourages the desperate-but-poor, rebalancing demand toward the less-desperate-but-more-wealthy.

The other alternatives proposed all over this thread such as purchase quotas, price fixing (stopping gouging), etc. are all central planning solutions. And those types of solutions are worse at efficient resource allocation than pricing and are less likely to get resources where they're needed most regardless of means or desperation.

Pricing spreads the capability of resource allocation around. In the central planning model the poor desperate person is reliant on a tiny group of central planners to allocate them some resources, and the central planners may not see that particular poor/desperate group. With the pricing model, anyone with the means can allocate resources where they see a need. In both scenarios the poor are reliant on someone else to allocate them resources. In the pricing model, the poor person has a better chance of being seen by at least someone with the means to make it happen.

You sound very certain about this. Where does that certainty come from?

This is pretty mainstream economics.

The grandparent's label of "central planning" seems to encompass almost any possible policy that deviates from a completely free market. I don't think any mainstream economics, other than caricatures, supports the idea that any possible economic policy that isn't a completely free market doesn't work.

You are making false claims about what I said. I intentionally used language like "better/worse" or "more/less efficient." Of course central planning will "work" in the sense that you will see that someone commanded some masks to be sent to a hospital, the hospital used them, and some lives were saved. However, a basic understanding of economics informs us that pricing is a more efficient tool at getting masks where they are most needed, and is likely to save even more lives. Pricing simply works "better."

If you have an interest in learning the core concepts of economics I can't speak highly enough about "Basic Economics" by Thomas Sowell. It provides a really great understanding of economics using history and lots of real world examples to explain the concepts in plain English. It's non-technical enough that the audio book is an excellent fit.

https://www.amazon.com/Basic-Economics-Fifth-Common-Economy/...

This posits a simplistic economy where everyone can predict the future. The real world has risk and unknown effects. If someone stockpiles a lot of masks on the chance that they'll be needed, hoping to thereby profit, they're taking significant risk, and reward for that is not unreasonable.

This is essentially how finance, banking, markets, and pretty much our whole economy work.

The idea that producers should only be able to charge a modest margin over their "costs" is pernicious nonsense. Furthermore, if you punish this sort of risk-taking intensely enough, producers will just shut down during unusual times (the exact opposite of what is needed).

During the Great Recession my industry was hit particularly hard (environmental engineering, pollution remediation). I remained on unemployment for the full 2 years while pursuing about 5 real job opportunities per year. 80% of the time employers told me they were very impressed, but decided not to hire, or promote internally, because they didn't want to be on the hook for unemployment if work dried up again.

This is an anecdote, but if unemployment didn't exist I would have had a decent paying job within 4 months of being laid off. IMO this is preferable to being trapped in an unemployment system with terrible incentives.

I ultimately changed industries after realizing that cleaning up pollution is the last thing people will pay for during economic downturns.

His masks cost 10c where Chinese-made masks cost 2c.

Once you factor in the cost of this crisis as an externality, the cost of Chinese-made anything skyrockets. Outsourcing is a bait-and-switch, always was.

You're completely correct, but what guarantee does he have that the Government will account for this with tariffs?

The other externalities being environmental degradation and, to some degree, labor abuse.

Also ahem, world security risk to empower despotic regimes that force political and religious prisoners into concentration camps.

Coronavirus wasn’t created by cheap Chinese manufacturing.

You’ve got it backwards. China’s lack of regulation is what makes both cheap manufacturing possible and spread of pandemics inevitable. The wet markets have gone straight back into business.

Wet markets existed when it was a communist economy.

Cheap manufacturing cones from cheap labor, which comes from recently being a third world nation.

Wet markets existed when it was a communist economy

Then as now, the only thing that is forbidden is criticism of The Party. Want to exploit your workers and ignore all environmental and hygienic concerns? That was and is OK there. That’s how they undercut the West in manufacturing, no other reason. Concepts of protecting the environment or workers rights ironically only exist in the capitalist West.

That there are some factual basis to your assertions, but in aggregate you are missing the boat.

Chinese labor is cheap because it has been a poor country, lacking capital to raise its productivity and labor standards to western levels.

Comparative advantage means both sides benefit when Chinese labor makes goods for the west. They get better paying work, and we get to make our goods cheaper.

Working for Foxconn is a huge improvement in living standards over the rural jobs most of the Chinese workforce comes from.

Environmental protections cost money. It’s far easier for wealthier first world countries to bear those costs without significantly reducing their living standards.

Poor countries, whether it be China, first half 1900s USA, or as we saw previously with the USSR, are more likely to prioritize economic output over environmental protections.

Economic growth is why environmental standards improve over time. It costs proportionately less to increase them, and new technologies also lower costs of enacting tougher restrictions.

As China continues to grow wealthier, it will likely continue to increase its environmental protections. Especially if it ever turns into a real democracy.

So the 8c is the price of economic independence from China and stability in times of crisis, could be subsidized just like agriculture is in many countries.

A repost from my other comment:

You don't need to subsidise anything. > On March 1, 2018, Trump announced his intention to impose a 25% tariff on steel and a 10% tariff on aluminum imports. > Trade Act of 1974 allows the president to impose a 15% tariff for 150 days if there is "an adverse impact on national security from imports

>NAFTA originally required automakers to use 62.5% of North American-made parts in their cars to be imported duty free

You can just require that 25% of PPE purchased by the government has to be made domestically. That would give you 3-4 factories. You make a requirement so they are 1000 miles away from each other and be able to 4x capacity within 2 weeks.

Reply on news.ycombinator.com