The free market at work in Houston

[Dim Bulb]

Institutional economists would argue that laws are simply methods to internalize external costs and correct free market failure. The free market fails when costs are incurred by people outside of the market in question. Thus, factories that pollute nearby streams and wells and cause damages to people living nearby who neither use their products nor work at the factory are "free"to the company and impose external costs. The government steps in with laws to restrict pollution and fines factories that impose those costs, thus internalizing the cost imposed on the innocents.

So a gouging law, in an economic sense, can be seen not as government interference, but rather as free market correction, ensuring that all costs are reflected in the market. In some senses as my OP points out all laws are simply put in place to protect against market failure. Tougher time making that argument with a gouging law.... and some fancy gas nozzle.

Pollution only occurs in places that no one (or the government) owns. You can't pollute someone else's property because they will sue you. Where streams and lakes are owned by someone, you'll find virtually no pollution. The way to prevent pollution is to sell off unowned assets like streams and lakes. Where that isn't feasible, like the atmosphere, then simply impose the cost of the pollution onto the polluters.

Gouging laws do the exact opposite of what you claim. They prevent the market from reflecting the true cost of an item. While the vendor may not have paid anything close to $99/case for bottled water, the next case he buys will cost a good fraction of that amount. If he can't get money to cover that cost, then no one is going to be going to great effort to bring bottled water into the city.

The $99 price isn't "market failure." That's the market doing what it's supposed to do: allocate scarce resources to the people who need them the most. Your way allocates them to the people who happen to be in the right place at the right time. It saves none for anyone who may come by later.

Again, thank you for no expletives in your reply! You misunderstand. I am taking no position, just telling you what an institutional economist would say. Your first graf contains a real whopper, but otherwise is describing exactly how external costs in a market work. I am still chuckling about "where streams are owned by someone..." that's funny.

An institutional economist would disagree with your second two grafs. He/she would say that the gouging laws are there to prevent market failure. I don't know that I agree with them or with you. The former because while I like the theory it doesn't always work (see, e.g., Hayek). The latter because there are external costs at work in charging for a $99 bottle of water.

The latter because there are external costs at work in charging for a $99 bottle of water.

Sounds interesting. Can you explain further?

A free market presupposes a couple of things: (1) everyone has the same information about supply and demand (as expressed through price) and

Wrong

(2) there are no external costs not accounted for in the pricing of the good in question.

In the case of the $99 bottle of water, an economist would argue that neither of these presuppositions applies. First, not everyone has the same information about water supply (free in their sink or where to pay money for it if they knew), nor do they have the same information about the intensity of the storm. Risk averse people will assume it will be really really bad, and, like brit, buy early. Risk preferential people will not. Second, it is clear this disparate information causes an externality to misprice the good in question (again, this would be an institutional ecomomist's argument, not mine). The supplier is pricing at a level that doesn't support allocating the good, but rather takes advantage of the disparate information. Put simply, if you thought your sink would have running water tomorrow, you'd never pay it. But nobody has this information in such a crisis time.

The fact that some people don't plan ahead, no matter what the reason, is exactly why the $99 price is beneficial. It allows those who didn't plant to at least get some water, whereas the pre-hurricane price means no water will be available to them. You obviously don't understand the meaning of "allocate." It doesn't mean to unload it as fast as possible to whoever happens to show up first. It means everyone can get some at a price they are willing to pay.

Interesting that so many people have built a lot of wealth during wars and crises. Not by the mechanism of the free market that brit and others posit, but rather by using the lack of information in the market to their advantage. That's market failure because you're not allocating resources through price any more, you are rather, in an economist's terms, pricing the product for the lack of information. That's an external cost.

Spreading information is one thing prices do extremely well. It provides an incentive for some people to discover information as early as possible. This data is then transmitted to the rest of the population through price changes. It's not a "market failure." It's one of the market's chief advantages over government allocation of resources. The alternative is for some bureaucrat to set prices, and what are those based on? Certainly not any intimate knowledge of market conditions. When bureaucrats set prices we end up with surpluses and shortages. We have a Soviet style economy - people standing in long lines for some products, and warehouse full of stuff that no one wants. That's exactly what you are supporting.

Economics is the study of how resources get allocated. You are imposing your own political beliefs on the word "allocation." You sound like a Hayek disciple. Which means you know that a central critique of Hayek is that information in markets is always incomplete and therefore market failure is inevitable.

But hey, feel free to tell me what I'm supporting (when I am not) and what I understand (which I do). I was just talking economic theory which as you deftly point out, I just don't understand.

Peace out, Brit.

 

[Slade3200]

I'm asking you to defend your arguement not run from it like you did. Under your premise... IF a doctor did that then there would be no consequence. Is that correct?

You're asking me to solve some ridiculous situation that will never happen. Of course there would be a consequence. I just described it for you. Furthermore, there has never been a situation where a doctor had to treat someone in 5 minutes or the patient would die. There are always EMTs on the scene who stabilize the situation and give the doctors some time to do what they need to do. Furthermore, doctors are seldom the ones who demand payment. They leave that dirty business to hospital staff.

Your scenario is absurd.

Your skirting around the issue is absurd... since you seem incapable of getting the point how about I use some real life examples. Let's say Bernie Madoff and how he tricked hard working Americans into giving him billions of dollars. That is classic exploitation, but it sounds like your stance is that it's good ol free market capitalism and Bernie did good for himself, is that right?

Bernie Madoff committed fraud, which is already a crime. Yet, it still happened. Legal remedies aren't going to prevent something from ever happening.

How about millions of gallons of oil leaking into our oceans, or barrels of toxic waste destroying soil and water sources for entire towns.... I could go on all day to show why common sense regulation isnt only good, but necessary for our country.

The oceans aren't owned by anyone. I have already discussed why this is an issue that market remedies can't solve. As for toxic waste destroying entire towns, any company that did this would be sued into bankruptcy. It's ironic that government agencies are responsible for most of the instances of this that we know of, like Love Canal.

Legal remedies will never prevent everything bad from happening but they reduce risk by instituting safe guards and and oversight.

You are right that government agency also cause problems, yet you don't see the need for regulations. Suing a company into bankruptcy is fine and dandy but means nothing to those who die or get terminally ill because of their actions. There are still towns in the US that have radioactive soil, so the effects last much longer than a lawsuit.

Economists would argue that legal remedies are a "tax" that attempt to increase the cost of production to account for the externalities. That's where you start getting into central planning arguments.

True, sometimes taxes are used to influence behavior, also tax credits. But there are also plain ol safety regulations design to increase safety and quality for consumers. They come in many forms, some are helpful and others restrictive and unnecessary.