December 29, 2004

Gouge Away

Speaking of natural disasters, Don Boudreaux of Café Hayek has a really interesting post (and follow-up) in defense of price gouging:
Even if you're concerned only with 'the poor,' therefore, the correct question is not "are the poor less able to pay higher prices than lower prices for staple goods?’ The answer to this question is all too obvious: yes.

The relevant question instead is "are the poor less able to pay higher market prices than they are able to pay to take advantage of the other methods of rationing that necessarily replace higher prices?" The answer to this question isn’t at all obvious.
See also this relevant Economist article from a few weeks back. In Iraq, the price of gas is kept artificially low—almost zero, in fact. This doesn't help the poor or needy at all; instead gas gets leaked into the black market for much higher prices, and chronic shortages tend to hurt the poor the most (who are less able to afford to wait in long lines).

As a third alternative, someone could probably set up some sort of disasters futures market to prepare for problems like these, but I have no idea how you would go about doing that.
-- Brad Plumer 9:33 PM || ||