At the same time, demand for bottled water rises, principally because tap water is now less available and more dangerous. This fall in supply combined with rise in demand means that the value of each available bottle of water rises. People are willing to pay more for each bottle.
The higher price per bottle reflects the underlying reality; it reflects the fact that bottled-water supply is lower and bottled-water demand is higher. In short, it reflects the fact that bottled water is now more valuable than it was before the disaster.
Therefore, the fact that is unfortunate is not the higher price; it’s the underlying reality reflected by the higher price. That a natural disaster destroyed supplies and supply lines is indeed unfortunate. But this is the reality. Because, as economist Thomas Sowell reminds us, reality is not optional so we ought to deal with it as best as we can.
And how best to deal with this unfortunate reality? To begin, never pretend that reality is other than what it is. Face reality squarely, fully, and soberly. If this advice sounds trite, understand that government-imposed prohibitions on “price gouging” mask the underlying reality, shielding people from the truth of it.
If the market value of a bottle of water is $25, preventing merchants from charging a price higher than $5 shields consumers from the fact that potable water is now more precious than it was pre-disaster. The price cap also shields suppliers from this same truth. The inevitable consequences of this hoax only add to the problems caused by the natural disaster. With the price artificially kept low—at its pre-disaster level—consumers will try to use this now-more-precious commodity today with no more care than they used it yesterday.
But they can only try, for they’ll not succeed in using bottled water with the same nonchalance as they did pre-disaster. Misled by the counterfeit low price, consumers initially will do nothing to use water more carefully. But as fast as you can say “tsunami,” other signals will alert them to water’s now-greater preciousness. Long queues to buy water will emerge, as will empty shelves, black markets, and reports of neighbors hoarding bottled water in their basements.
Not only will most people who want bottled water be unable to buy all they want at the counterfeit price, many will spend valuable time waiting in queues (often to no avail). Some will drive over obstructed roads to buy water in distant towns, while others will use their personal or political connections to obtain water.
Time and resources that could be better spent cleaning up and launching the rebuilding effort are diverted to frequently futile efforts to obtain bottled water. These consequences are avoidable misfortunes compounding the pain of the natural disaster. Note several regrettable facts.
Fact one: capping the price does not keep the cost of bottled water low. Time spent waiting, time and fuel spent driving to distant towns where supplies are greater, and the anxiety unleashed by the inability to obtain water are all costs. The fact that these costs are not revealed in the price of bottled water does not render them less significant or real.
Fact two: while a higher market price both prompts consumers voluntarily to economize more diligently on water’s use and increases the quantity of water supplied (by giving incentives to suppliers to bring more water to this market), the queues and empty shelves generated by the price cap force consumers to economize, but do nothing to inspire suppliers to bring more water to market.
Fact three: the economization forced on consumers by price caps is ugly and arbitrary. Those obliged to do without are the unlucky ones who couldn’t get into the queue early enough and who have no political or business connections. These unlucky consumers are also typically too poor to pay the high prices demanded on the black market. A fact always missed by proponents of price caps is that black-market prices are higher than the unregulated market prices would be. The reason is that unregulated market prices—being visible and legal—will stimulate a larger inflow of supplies than will black-market prices.
There’s no denying that people dislike the higher prices. What is deniable is that the higher prices are the problem. They are not the problem; they reflect the problem. Because the problem itself is unfortunate, its undistorted reflection will reveal this misfortune. But only by revealing this misfortune as accurately as possible to everyone who can help to minimize its effects will reality be returned as quickly as possible to normal.
Still, why must merchants profit from other people’s misfortune? Surely sellers can and should choose to sell their inventories at pre-disaster prices? Such questions reveal a deep and persistent objection to post-disaster price hikes—namely, it’s simply unfair for merchants to profit from disasters.
Of course, merchants can voluntarily keep their prices below market levels. But to do so would be not only harmful but also unfair! If a grocer refuses to raise the price he charges for bottled water up to the market level, he will find his store besieged by consumers. Only consumers near the front of the line will be lucky enough to get the water; those closer to the rear will go home empty-handed. Is queuing a fair means of deciding who gets the water?
Also, by not raising the price, the grocer will mute the price signal sent to the global market that bottled water is especially needed in this locale. Muting this signal will reduce how much or the speed with which additional, much-needed supplies of bottled water are shipped from where they are valued less to the disaster area where they are desired more.
A better way for the merchant to extend a helping hand would be to charge market prices and, out of the profits he earns, to make cash contributions to cash-strapped victims of the disaster. Those contributions will enable victims to better express on the market their need for bottled water and other supplies—thus communicating to suppliers worldwide just how desperately they need things to help rebuild their lives—without diluting the incentives of all consumers to economize on the now-much-scarcer goods or the incentives of suppliers to turn their supplies to where they are now needed most urgently.
Thwarting market forces only worsens calamities and is therefore most unfair.
(Editor’s Note: The original version of this essay was published by FEE in its magazine, The Freeman, in April 2005 under the title, “On Price Gouging.”)
SUMMARY
•Prices are not set arbitrarily. They are what they are for a variety of reasons. These reasons are summarized by the two words “supply” and “demand”
•Government-imposed prohibitions on “price gouging” mask the underlying reality, shielding people from the truth of it
•Higher prices in the wake of reduced supplies result in conservation of what remains and the encouragement of new supplies, precisely what the situation calls for
#52
“PROGRESSIVES HAVE GOOD INTENTIONS, SO WHAT ELSE IS REQUIRED?”
BY LAWRENCE W. REED
IS IT TOO MUCH TO ASK OF GOVERNMENT THAT IT DO A SMALL JOB RIGHT BEFORE it takes on a much bigger one?
If you’re wearing the sight-proof blindfolds that most progressives wear, the answer is probably “YES.”
Progressives advocate for a welfare state and sell it not so much on its track record (that would be embarrassing) but more for its good intentions. “We want to help people!” they exclaim. Definitions of the welfare state abound, and often depend on one’s perspective. Here’s my own brutally candid assessment:
Since people are not decent and compassionate enough to assist their deserving fellows in distress, we must expect them to somehow elect politicians who are more decent and compassionate than they are. Those politicians will then take money from them under threat of imprisonment, launder it through an expensive bureaucracy, and spend what’s left not to actually solve the problem but to manage it into perpetuity for endless dependency, demagoguery and political gain. And then the advocates of the welfare state will pat themselves on the back and salve their guilty consciences. They will compliment themselves for possessing a monopoly on compassion and ignore the destructive results of their handiwork, except to condemn a
s “heartless” those with the audacity to point them out.
Take the federal Department of Veterans Affairs (please!). Its website says its primary job is to provide “patient care and federal benefits to veterans and their dependents.” It manages more than a thousand hospitals, nursing facilities and health clinics. Horror stories emanating from this socialized medicine sampler are numerous and legendary. They include long waiting lists, staff shortages, death rates that would be unacceptable anywhere else in the country and care so shoddy that many veterans prefer to pay for private alternatives. But that doesn’t stop progressives from plowing full steam ahead for even more government in health care.
Writing in the February 25, 2014 Washington Examiner, Mark Flatten provided the latest shocking revelation: To cover up its massive backlog of orders for medical services, the VA simply cancelled tens of thousands of scheduled exams and appointments. Voila! Get rid of the patients and you get rid of the embarrassing backlogs. Imagine the huge outcry if a private provider behaved this way. Would anyone in his right mind say, “Give that outfit some more patients and money!”?
But don’t expect any scandal coming out of the VA to give pause to the progressive apologists for ever more government in health care. Being a progressive means never having to say you’re sorry. Good intentions trump everything else. Apparently, the one thing progressives share with almost everyone else is a very high level of expectations for the private sector and a very low one for the public sector.
This raises a much more fundamental question about the progressive, big government folks: what’s up with their thought process? It’s so riddled with inconsistencies, non-sequiturs and dubious notions that the rest of us are often left scratching our heads in disbelief. Faulty, illogical or contradictory premises just might be the reason they often come to the wrong conclusions.
Over the years, I’ve observed quite a few attributes of the progressive thought process that are, to be polite, rather questionable. Here’s a short list:
1.They spend more time promoting dependency than they do encouraging self-reliance.
2.Deceptions (for example, Barack Obama’s “If you like your health care plan, you can keep your health care plan”) don’t rankle most of them because they believe their ends justify almost any means.
3.They think intentions matter far more than actual results.
4.They lump people into groups and assign them fictitious rights.
5.They learn little or nothing from history or economics.
6.They think emotions, slogans and bumper-stickers trump reason and logic.
7.Compassion is their favorite word even as they put a gun to your head.
8.They respect property if it’s theirs, but not if it’s yours.
9.They’d rather shut you up than engage you in serious debate.
10.Individuals are never among the minorities they say they support.
11.When the first conservative or libertarian faculty member is hired at their university, they think it’s a hostile takeover.
12.They think a welfare check is an entitlement, but a paycheck isn’t.
13.When their policies flop, they assume no responsibility and demand more of the same.
14.They’re always busy reforming you even if their own lives are dysfunctional.
15.They claim to know the future (e.g., which industry to subsidize) while showing no evidence they even understand the past.
16.They dislike business less because they have sound arguments against it and more because they have no idea how to start or run one themselves.
17.They criticize people and companies for not paying more in taxes than they are legally required to, yet never make any “donations” to government themselves beyond their own legal tax liability.
18.They are angry most of the time, have no sense of humor, find victims under every bed, and can’t even tell a joke that’s reasonably funny.
19.They’ve perfected the fine art of the double-standard, exempting their own from the very actions they criticize in others.
20.They appeal to the worst in us by emphasizing racial divisions, pitting class against class, and buying votes with other people’s money.
In The Art of War, Sun Tzu advised, “Know your enemy and know yourself and you can fight a hundred battles without disaster.” Perhaps so, but it sure seems that the more you know about government-worshiping progressives, the harder it is to actually figure them out.
When it comes to the good intentions that progressives insist they possess, I’m willing to grant that most of them do indeed possess them. But it’s preposterous to assume that those who oppose their proposals do not have good intentions. Moreover, it’s wise to remember, as the old saying admonishes, that “The road to Hell is paved with good intentions.”
Good intentions are not enough. Nowhere near enough, in fact. Other things matter too, such as reason, logic, moral principles, evidence, outcomes, history and experience, reality and facts.
(Editor’s Note: A shorter version of this essay was first published under a different title at www.cnsnews.com.)
SUMMARY
•One thing progressives share with almost everyone else is a very high level of expectations for the private sector and a very low one for the public sector
•Good intentions are, by themselves, nowhere near enough
ABOUT THE EDITOR AND CO-AUTHOR
LAWRENCE W. (“LARRY”) REED BECAME PRESIDENT OF THE FOUNDATION FOR Economic Education (FEE) in 2008, after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for more than twenty years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught Economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its Department of Economics from 1982 to 1984.
He holds a B.A. degree in Economics from Grove City College (1975) and an M.A. degree in History from Slippery Rock State University (1978), both in Pennsylvania. He holds two honorary doctorates, one from Central Michigan University (Public Administration—1993) and Northwood University (Laws—2008).
A champion for liberty, Reed has authored over 1,000 newspaper columns and articles, dozens of articles in magazines and journals in the U. S. and abroad. His writings have appeared in the Wall Street Journal, Christian Science Monitor, USA Today, Baltimore Sun, Detroit News, and Detroit Free Press, among many others. He has authored or co-authored seven books, including A Republic—If We Can Keep It, Striking the Root: Essays on Liberty, The Great Hope, and Are We Good Enough For Liberty? He is frequently interviewed on radio talk shows and has appeared as a guest on numerous television programs, including those anchored by Judge Andrew Napolitano and John Stossel on Fox Business News.
Reed has delivered at least 75 speeches annually in the past 30 years—in virtually every state and dozens of countries from Bulgaria to China to Bolivia. His best-known lectures include “Seven Principles of Sound Policy” and “Great Myths of the Great Depression”—both of which have been translated into more than a dozen languages and distributed worldwide.
His interests in political and economic affairs have taken him as a freelance journalist to 81 countries on six continents since 1985. He is a member of the prestigious Mont Pelerin Society and an advisor to numerous organizations around the world. He served for 15 years as a member of the board (and one term as president) of the State Policy Network. His numerous recognitions include the “Champion of Freedom” award from the Mackinac Center for Public Policy and the “Distinguished Alumni” award from Grove City College.
He is a native of Pennsylvania and a 30-year resident of Michigan, and now resides in Newnan, Georgia.
CONTRIBUTING AUTHORS
Julian Adorney is an economic historian, entrepreneur, and fiction writer.
Charles W. Baird is a former Professor of Economics at California State University at East Bay, and a contributor to The Freeman.
Melvin D. Barger is a retired corporate public relations representative and writer who lives in Toledo, Ohio. He is a contributor for the Foundation for Economic Education’s 1994 edition of the book, Clichés of Politics, edited by former FEE trustee Mark Spangler.
Max Borders is editor of The Freeman and director of content at the Foundation for Economic Education.
Donald J. Boudreaux is a past president of the Foundation for Economic Education and a Professor of Economics at George Mason University in Fairfax, Virginia.
Anne Rathbone Bradley is the Vice President of Economic Initiatives at the Institute for Faith, Work & Economics (IFWE), where she develops and commissions research toward a systematic biblical theology of economic freedom. A frequent lecturer at FEE seminars, she is a visiting professor at Georgetown University, and she also teaches at The Institute for World Politics and George Mason University. Additionally, she is a visiting scholar at the Bernard Center for Women, Politics, and Public Policy. She is an editor of and contributing author to IFWE’s recently released book, For the Least of These: A Biblical Answer to Poverty.
Burton W. Folsom is a professor of history at Hillsdale College and authored Young America’s Foundation’s book, The Myth of the Robber Barons. Dr. Folsom is also the author of several bestselling books including New Deal or Raw Deal: How FDR’s Economic Legacy Has Damaged America. In addition, along with his wife, Anita, he wrote the 2013 book, FDR Goes to War.
Gary M. Galles is Professor of Economics at Pepperdine University in Malibu, California.
George P. Harbison is a financial officer with an Atlanta, Georgia-based corporation.
Henry Hazlitt was a remarkable economist and journalist whose writings appeared widely during his lifetime, including in the Wall Street Journal, Newsweek, New York Times and The Freeman. He served for many years as a trustee of the Foundation for Economic Education (FEE) and was its founding vice president. His inspiration for this essay was the French economist Frédéric Bastiat. The most notable of Hazlitt’s many books was the popular Economics in One Lesson, available for no charge at FEE.org.
Excuse Me, Professor: Challenging the Myths of Progressivism Page 23