Tom Mullen on the efficient functioning of prices in a free market economy:
Market prices are the foundation of civilization. They are the signal that tells producers how much of any one thing to produce. They tell consumers how much to consume or whether to consume a product at all. The reason retailers don’t normally throw away 80 percent of their stock is because market prices tell them how much to have on hand at any one time to meet current demand.
When they miscalculate and buy a little too much, they still don’t typically waste their stock. They put it on sale and meet the demand at a lower price.
To the extent the market is allowed to set prices, producers generally produce what consumers want to buy in the quantities they want to buy. When all supply is consumed and large amounts of consumers are not left with unmet demand, it is referred to as the market “clearing.”
The government is always and everywhere at war with market prices. Regulations creating barriers to entry limit supply, artificially inflating prices. Price controls, including “anti-price gouging” laws override market prices, creating shortages. Subsidies to producers (farm subsidies, for example), allow producers to limit supply, artificially inflating the price.
But when the market works properly, it often delivers news to consumers and to governments that is unpopular, and governments frequently attempt to “hold back the sea” by introducing market distortions:
All these price adjustments by the market are essential for our well-being. They are the cure for the economic disease caused by the government response to the virus and the previous 12 years of monetary inflation and artificially low interest rates.
What is the government doing in response? It is escalating its usual, conventional war on market prices to a nuclear war. It is punishing suppliers of essential goods for raising prices. It is ramping up monetary inflation to historic levels to keep stock prices artificially high and unprofitable businesses alive to go on producing products for which there is no demand. At a time when market prices are more essential to our survival than ever, the government is doing more to override them than ever.
This is not an academic theory that only works on a graph in a classroom. This plays out before our very eyes in the form of essential goods not available to us at any price.
Why is there no toilet paper available? Ask most people and they will say it is because of “hoarders.” These are people who bought far more than they needed in anticipation of future shortages. The people who arrived at the store after the toilet paper is sold out vilify them. Others might just call them prudent.
The same people who vilify hoarders also vilify “price gougers.” They don’t seem to grasp the obvious cause/effect relationship here. If it weren’t for artificial limits on price, i.e., “anti-price gouging” laws, the price of toilet paper would rise dramatically with the surge in demand and the so-called hoarders would not be able to buy nearly as much. That would leave far more for everyone else. The toilet paper market would find the optimal price level where the greatest number of people could get what they need.
The Ontario government, of course, is doing everything they can to obstruct the market from operating freely.
I think there is a distinct difference between market adjustment and plain old gouging though. Lets say a product like Lysol wipes normally costs $4.99 for a container. Raising the price to $5.99 or $6.99 during high demand, with lower supplies, would be palatable to most people. Charging people $29.99, we all know that is criminal.
Sadly, charging people 19.9% and higher for credit cards is just as criminal, but ignored. Governments decide who to pursue over gouging, and life, still goes on.
Comment by Dwayne — March 30, 2020 @ 14:52