Ranting to /dev/null

Hmm. The more I think about it, the more I think you're wrong on the gouging bit. I agreed with you wholeheartedly, until I heard Bill O'Reilly make a fool of himself arguing the anti-gouging case.

Just how, precisely, does one define "gouging"? I just listened to O'Reilly essentially argue that gouging is defined as "prices that are a lot higher than what the retailer pays for the gasoline." But this is economically stupid. The price for the retailer is NEVER what defines the price for the consumer. Instead, it's determined by numerous market forces - supply and demand, among other things.

It seems that an anti-alleged-gouging sentiment is a failure of economic imagination.

Is it not possible that the gas stations are anticipating a possible future shortage? Is that not precisely the job of markets and pricing? If nobody were willing to pay the amount, would gas stations charge it? And if people are willing to pay it, why shouldn't they charge it?

Are the gas stations fostering paranoia or responding to it?

Is it not possible that during times of paranoia, people will be tempted to purchase an inordinate amount of gasoline during a time of scarcity, resulting in shortages, and thus the market corrects with prices? You yourself said it - artifically low prices result in shortages.

I can imagine, for example, that the high prices serve to restrict gasoline consumption to the people who really value it the most during times when gasoline is scarce.

But the point isn't that a particular scenario can be imagined. The point instead is that it is inherently arrogant to claim to be able to "figure out" what prices should be any better than the free choices of participants in the market economy.

Like I said, I initially agreed with you. But I think you need to think about this a bit more - especially in terms of principles that you yourself espouse - principles, in fact, that you've persuaded me of in the past.

Have you look at the FEE article that I've linked? Here's another one from Sowell:

"'Price Gouging' in Florida"

Posted by: nick at September 1, 2005 09:25 PM

The following isn't necessarily an argument against the current price structure, but a defense of the idea of gouging and an argument as to why it's wrong. You won't hear me arguing against the market's methods for determining the monetary value of a given good, but I also believe that an entirely free market isn't a good thing. The fact that the market will seem to bear $6.00/gallon gasoline doesn't mean that it's right for retailers to prey on public paranoia. Similarly, just because there are plenty of people who are willing to pay 17-25% interest on their credit cards doesn't mean they aren't victims of usury.

If there really is a gasoline shortage, than people must expect to pay whatever price is necessary to acquire the goods in question. But holding desperate people hostage by jacking prices on essential goods and services is wrong. It'd be like selling bottled water in New Orleans for $4.00 a pop. Will the market bear it? Probably. Would it be wrong for you to do that? Certainly.

Any time you buy something you should expect the merchant to make money: he isn't selling to you out of the goodness of his heart. A certain amount of profit is built into every transaction. But the merchant does have a responsibility to not abuse his position as a supplier. Scripture speaks against that kind of thing on moral grounds.

Posted by: ryan at September 1, 2005 10:41 PM

1.) So, why can't it be moral to raise prices in anticipation of shortages? More importantly, who gets to decide?

2.) Nobody (except full-blown anarchists) believes an "entirely free market" is a good thing, if you mean by that "free from all laws and authority." But if by freedom you mean "free from arbitrary coercion," then yes, an "entirely free market" is a good thing.

3.) As for selling water at $4 per bottle, did you read the Sowell article? Of course it could be immoral, but of course there are situations where it would be moral. (Heck, there are situations where it would be immoral to insist on any payment at all. There are situations where it would be immoral not to buy the water _for_ the person.) But this is the case for all prices on all things at all times. The question is that of what should be _illegal_.

4.) It does not follow from the immorality of something that it ought to be illegal.

Posted by: nick at September 1, 2005 11:07 PM

In the realm of specifically personal behavior such as consensual sexuality and the consumption of exotic substances, I agree that immorality does not immediately affect legality. But economic behavior is inherently communal and thus much more liable to the argument.

Nick: two questions: 1) Is usury wrong? 2) Should usury be illegal? I'm not talking about the mere charging of interest, but the charging of usurious interest. If you answer to the affirmative to both of those questions, I'd like to know why you think the concept of price-gouging is different. In both cases we've got people who are not being physically coerced to do anything being charged an unreasonable and/or damaging price for the benefit of the supplier. Scripture clearly states that usury is wrong, and I would argue that any practice which oppresses large sections of the population should be illegal. Your counter-argument?

Posted by: ryan at September 2, 2005 07:51 AM

I think the assertion that people are "being charged an unreasonable and/or damaging price for the benefit of the supplier" - while rhetorically effective - is not accurately capturing the economic realities involved. (Never mind the impossibility of defining "unreasonable.")

Have you read the Sowell article?

Here's another one:

Price Gouging Saves Lives

As for interest somtimes being usurous, I tend to think that the definition of "usury" is entirely situation-specific. That being the case, it'd be really, really hard to make usury itself illegal. You'd wind up also outlawing countless moral uses of a particular interest rate or a particular type of loan.

I listened to one person, for instance, breathlessly lament the terrible injustice of zero-interest loans on houses. "These banks are taking advantage of the idiots who take out these loans! How utterly evil - this practice must be outlawed," he exclaimed. But another person standing there was perplexed. "That's funny, I know lots of guys who like to use these zero-interest loans to buy houses, fix them up, and then sell them again." You see, outlawing the zero-interest loans themselves would outlaw a perfectly legitimate practice.

In my mind, particular interest rates or particular loan practices - while often decidedly immoral - face the same difficulty. At the moment, I'd have to conclude not that usury _shouldn't_ be illegal, but that it'd be virtually impossible to make it illegal. It'd be like outlawing mean attitudes.

I share your disgust over certain paycheck lending practices. I laud Wal-Mart's decision to make its check cashing service available (at more "reasonable" rates) to the hispanics who often get taken advantage of by these other companies.

But I am also disgusted with daytime advertisements that shamelessly cultivate avarice in children and mothers. I'm disgusted with latenight ads that target bored elderly people. I'm disgusted with ads that "manipulate" people into liking products without really saying anything good about them. All of these practices, in my opinion, are potentially immoral and, given your use of the word, "oppress" people. But at the same time, I think it'd be decidedly silly to make them illegal.

Better to take one's genuinely righteous indication and befriend someone who might otherwise be taken of by such practices. Better yet, be like Wal-Mart and start banking services that do NOT take advantage of people's ignorance. I think these are the appropriate solutions and - in the long run - are the solutions that are better for everybody.

Posted by: nick at September 2, 2005 06:51 PM

Yes, I have read Sowell. I'm not trying to argue that what I describe as price gouging is not the result of the operation of a free market. All I'm aiming for here is for you to admit that there are circumstances in which a merchant, in an effort to reap a quick profit, might charge more than is moral for a good he is selling, particularly when his selling price has little to do with his buying price.

I think that everyone involved in commerce has the right to try and earn a profit. But I think that economic history indicates that profit margins in excess of 10% tend to involve shady practices (e.g. usury) and/or irrational spending (e.g. the dot-com boom).

The crux of my argument is this: There's a distinct moral difference between enticing people to buy a product they don't need at a fair price, and selling someone a loan you know quite well that they will never, ever be able to repay. A merchant who has a good may sell it, and as long as he knows he's charging a fair price, it isn't his concern whether or not the people buying it can afford it: it's their responsibility, not his. But a loan-shark is selling a product that is always, only, harmful and exploitative, and is designed from the get-go to be that way. If you only make minimum payments on a $4000 credit card bill, it can take 10 years to pay it down, and you'll have paid a total of $14000 dollars. That isn't right. There isn't any way to argue that this is of benefit to anyone but the lender, and as such, the lender should not be allowed to offer that as an option.

Similarly, there is a difference between consumers responding to shortages in the supply of a given good by bidding up the price, and merchants charging a price the market will seem to bear but that bears no relationship to their costs. Monopolies may sound like the ultimate achievement in a free-market system, but they are actually the embodiment of its opposite: when only one person controls the supply, the market is anything but free.

Regarding usury as such: The only reason outlawing usury is difficult is because the Supreme Court has dicated that states may "export" their own usury laws to other states. Until the last century, usury laws were in force and effective. You didn't need dozens of different stipulations for kinds of loans, you just say that lenders are not permitted to charge more than a stated number of points above prime.

Interest is intended to balance the risk a lender is taking in agreeing to give out money: the higher the interest, the higher the risk. The reason banks don't do short-term loans is that the only people who need them are such hideous risks that they qualify for no normal loan or consumer credit vehicle. There really isn't any way of making sure they'll pay back the loan, because they can't afford it. Lending to them on normal terms is a waste of money, so the only way of ensuring the bank gets its due is to charge so much interest that they'll probably never pay off the loan, though they spend several times that in interest.

Your example about "zero interest loans" makes absolutely no sense: a zero interest loan would be fantastic, and the bank would be the idiot, not the borrower.

Posted by: ryan at September 3, 2005 12:12 AM

Ha, that's funny. I meant "zero principle" loans, which probably isn't a real term either. I'm talking about those loans you can get where you don't make any payment toward the principle - you _only_ pay interest.

You said this: "All I'm aiming for here is for you to admit that there are circumstances in which a merchant, in an effort to reap a quick profit, might charge more than is moral for a good he is selling, particularly when his selling price has little to do with his buying price."

I grant whole-heartedly "that there are circumstances in which a merchant ... might charge more than is moral for a good he is selling...."

I deny, however, that the morality of it has anything to do with his buying price. (In fact, I think there are times where it would be immoral for him to refuse to sell at a loss, there are times it would be immoral not to give the good away, and there are times it would be immoral not to go out and buy a hundred more to give away to the person in need.)

Further, I deny that the morality of it has anything to do with whether or not it should be illegal. (See the parenthetical examples, above.)

Look, would it be legal for him not to be in the market at all? Would it be legal for him to simply keep his goods in his basement and go into a different business? If so, then it seems remarkably silly to say that it may be illegal for him to accept a consumer's offer of a particular price.

Perhaps here is one of our fundamental differences. You wrote: "Similarly, there is a difference between consumers responding to shortages in the supply of a given good by bidding up the price, and merchants charging a price the market will seem to bear but that bears no relationship to their costs."

In my view of things, "consumers ... bidding up the price" and "merchages charging a price the market will seem to bear" are the exact same thing, in principle. A transaction doesn't occur unless both parties think it is beneficial to them.

I believe people should be free to do really, really stupid things - in part because a certain action isn't stupid for everybody in all situations.

You wrote: "If you only make minimum payments on a $4000 credit card bill, it can take 10 years to pay it down, and you'll have paid a total of $14000 dollars. That isn't right."

This point is just weird. Of course it would be dumb to always ever only make the minimum payment (and I'm sure such practices have been immorally encouraged). But can't you conceive of a situation where you'd want to make only minimum (or only interest) payments on a loan for a time? Can't you conceive of a situation where someone's money would be THAT valuable to you? Your statement that "this isn't right" seems a little naive. In some situations, the loan could be immoral, and in others, it wouldn't be. Like I said from the beginning, I'm not defending loans to particular people in particular situations. I'm simply saying that the nature of the loan itself isn't enough to make it immoral. We'd need to know the person and the situation as well.

This statement leaves me (almost) speechless: "I think that everyone involved in commerce has the right to try and earn a profit. But I think that economic history indicates that profit margins in excess of 10% tend to involve shady practices (e.g. usury) and/or irrational spending (e.g. the dot-com boom)."

Where do you come up with these numbers? Are you really serious about this? Do you have any idea how intangible the idea of "profit" is in real life? Do you really want "10% profit" to have anything to do with the government drawing lines?

Let's say someone has money that I want to borrow. he never lends his money, but I really want to borrow some of it. He says "man, I just can't afford to hand it out at normal interest rates." I know I'll be able to pay it back, and I know that I'll be able to make a lot of his money, so I'm desperate to get the loan. Can't you conceive of a situation where it'd be worthwhile to me to be willing to pay a ridiculously high interest rate because of particular people involved and because of a particular situation?

I know that loan sharks do far worse than this. But my point is that the interest rate is not sufficient to make a loan usurous, nor is the minimum payment, nor is the total amount of interest paid at maturity. I believe that a zero-interest loan (and this time I mean "zero-interest") could also be given in an immoral way. I believe that it could be immoral to charge too little interest. And I believe that it could be perfectly moral in some situations with some people to charge ridiculously high interest. And remember - once a transaction is agreed upon, there is no difference in principle between a borrower offering a certain interest rate because he deems it beneficial (in my example, above), and a lender demanding a certain interest rate because he can get it (in your usury examples). When you make the transaction illegal, you're impinging on the freedom of both the borrower and the lender.

I happen to believe that as a borrower, I should be free to offer whatever interest rates I want when I want to take out a loan, that I should be free to offer whatever payment plan I want, and that I should be free to be as stupid as I want. Further, I believe that I should be free to pay as much principle and interest by the time of maturity as I want - as much as I deem worthwhile in my particular situation.

Further, as a lender, I should be free to hate and smear and advertise against and compete with the immoral practicies of other lenders.

As a citizen, I am free to educate and help people who might make stupid economic decisions. But I think they should be free to make those stupid decisions.

And further, again, I praise Wal-Mart for offering services that may those evil paycheck-cashing services unnecessary for their employees and now, for anyone.

Again, like I said originally, I agree with your moral sensibilities (given particular people and particular situations), but I think you're demonstrating a huge failure of economic imagination.

Posted by: nick at September 3, 2005 10:05 AM

Just noticed something else. You wrote: "enticing people to buy a product they don't need at a fair price," and then contrasted that with usury.

But wouldn't that also be a case of taking somebody's money? "Fair price" is defined by the value of the product to the person (when it intersects with the price at which the present owner is willing to sell it). Theoretically, if the price does not reflect the product's value to the buyer, then he's making a stupid purchase and basicallly giving his money away.

Further, if the seller aggressivly tried to convince the person to make the purchase, I would argue that this would be immoral, just as much as a usurous loan would be. (A usurous loan would simply be a case of selling money at a price that doesn't reflect the value of the money to the consumer.)

[I want to be careful, however, to preserve the validity of the salesman's job. At least to some extent, it's the respnsibility of the consumer to know the price at which he's willing to buy something, whether it be a physical good or a loan. It's the responsibility of the salesman to make know the possible sources of value in the product. Value may include "looking cool" and "feeling good about myself," so I want to be slow in condemning particular advertising methods as well.]

Posted by: nick at September 3, 2005 10:20 AM

It gets worse. You wrote: "A merchant who has a good may sell it, and as long as he knows he's charging a fair price, it isn't his concern whether or not the people buying it can afford it: it's their responsibility, not his."

But "fair price" is entirely relative to the value of the product to the consumer. Again, I could be selling something at a loss, and if I persuaded someone to buy it, knowing all along that this person doesn't _really_ value it at the price I'm offering it, I would be doing something immoral. I would be taking the person's money in the same manner as I would if I gave a loan at an interest rate that didn't _really_ reflect the value of the loan to the borrower.

Again, "fair price" has nothing to do the seller's buying price. When arguing such, you prove too little.

Perhaps I think the moral difference you're getting at is simply a matter of bigness. If that's the case, then I agree, as far as it goes. Persuading someone to throw away $10k is far worse than persuading them to throw away $10. In that sense, a big usurous loan is worse than a smaller wasted purchase.

But if I convinced someone to throw away $10k on a wasteful purchase, that would be morally identical to convincing them to throw away $10k on a stupid loan.

Posted by: nick at September 3, 2005 10:26 AM

One more thing. You wrote: "A merchant who has a good may sell it, and as long as he knows he's charging a fair price, it isn't his concern whether or not the people buying it can afford it: it's their responsibility, not his."

It's not possible for him to "know he's charging a fair price" apart from or prior to the choices of individual consumers to make the purchase.

What if I only were willing to sell my books if someone were to give me $200 a piece? This price - on its own - is neither moral nor immoral, nor fair nor unfair. It's simply the value of my books to myself as that is reflected in the price I'm willing to accept. Further, the fairness is not solely (or even largely or primarily) determined by the price at which I originally acquired them. If someone were to value one of my books at $200, then it'd be perfectly fair for me to sell it to him. But if I persuaded him to buy it from me, knowing that he really shouldn't value this particular book that highly (regardless of the actual price at which I'm selling it, or the price at which I purchased the books), then it could be immoral for me to sell it.

My point is that "fair price" simply cannot be defined apart from or prior to particular individual transactions.

Posted by: nick at September 3, 2005 10:35 AM

Ebay would be an example of consumers bidding up a price to discover the market value of a good. But gas station owners jacking their prices by 50% overnight without concrete evidence of a shortage is not the same thing. There are no supply problems in Pennsylvania. Gas stations are not running out of gas, and we're not getting most of our fuel from the Gulf anyway: too far to travel when we've got ports in Baltimore, Philadelphia, and New York. Why, then should the price of gas have jumped from $2.49 to $3.49 in less than 24 hours? Only because the retailers are playing off consumers fears. There is no concrete reason to charge that much: their costs are unchanged, and consumer demand is unchanged.

"Failure of economic imagination" my ass. I know damned well I'm impinging on the freedom of both borrower and lender by outlawing usurious loans. That's the point. Why did God forbid the Israelites from charging any kind of interest? Because at the time, the only reason you borrowed money was if you were desperate, and charging interest to desperate people is exploitative. We no longer live in an agrarian society, but a market-based society, and the charging of interest is now done fairly and as a matter of course. Households with a high degree of financial stability and comfort are expected to carry a certain amount of debt.

But it's demonstrably bad for a household to be swamped in debt it cannot and could never have afforded, and it isn't even a case when the lender can say "I can't tell if what I'm offering is good for them or not. It's a fair product, and it's not my fault if they're dumb." There isn't any way one can argue that predatory lending is ever good for the consumer. It's designed not to be. Credit cards are a little different, in that it's possible to use consumer credit wisely and well, but for pity's sake (and I mean that quite literally, as it happens), why in heaven's name (that literally too) are we offering lines of credit that come to more than 50% of a household's annual income?! There isn't any reason to believe that they'll ever be able to pay it off, and there isn't any reason to believe that they will ever reap any benefit from it. A lender who offers those kind of terms knows that he will either make a huge profit over time or wind up taking their house/car/whatever. And what does the consumer have to show for it? Nothing. Nothing at all. This is wrong, a cause of widespread economic disaster, and should be illegal. The savings rate in this country is negative. A significant chunk of our current economic woes is caused by this - we're burning up all our potential capital - and we're headed for a massive crisis at some point in the intermediate near future. And why? Because we've made it possible for people who should never have been able to borrow money to get in debt up to their eyeballs.

Concerning salesmen: there isn't anything wrong with sales, provided the product is legitimate. This summer, I worked sales for a time. I sold knives. They're expensive. But they're damned good. I felt entirely comfortable asking people to buy from me and encouraging them to do so, because I knew they'd value the product and never have to replace it. But pushing predatory loans is the financial equivalent of selling snake oil as a remedy for the common cold. It's worthless at best and harmful at worst, compounded by the fact that you've assured the consumer of some benefit to them in buying the product. It's dishonest. Sure, you may be able to pay your bills this week, but what they don't tell you is that you'll never, ever be able to stop paying them.

Posted by: ryan at September 3, 2005 10:42 AM

Price is determined by some combination of supply restrictions (certain things are harder to get than others, and there may not be enough of something to go around) and consumer demand (if more people want a thing than can have it, the price goes up). But if we've got a situation in which the supply is unchanged, and consumer demand is unchanged, why should there be a price increase? Because you can only get gasoline from one kind of retailer? This is starting to sound like price-fixing and racketeering. Gangsters may collude to artifically jack the price of a good by having all the sellers conspire together to charge inflated prices, but this is not normal market operations, and the price of the good is incorrect. The fact that people will pay whatever they have to to get to work does not mean that gasoline is really worth $6.00 a gallon, only that the suppliers have figured out a way of getting people to pay that much. This isn't normal market operations, it's blatant exploitation of the supplier's position.

Your example with the books is irrelevant and oversimplistic. We're not dealing with single individuals, but economies, and at best you've described a monopoly situation, which I've already argued does not fall under the normal operations of the free market.

Posted by: ryan at September 3, 2005 10:52 AM

"It's dishonest." This is true, and a better avenue for arguing that it should be illegal. Those two words may actually have persuaded me. I'll get back to you.

I agree with you whole-heartedly as to the immorality of all of the practices you describe. You keep making that case as though it's up for debate.

This may be a cop-out, but I don't have time to argue with you about monopolies and price fixing. In general, in an ideal world, I don't think such things should be interfered with by the federal government. My commitment to a "free market" has nothing to do with a desire for "normal market operations" or for the maintenance of a situation where every product has multiple competing suppliers, or for the maintenance of what some consider a "level playing field." Instead, it's a commitment to the freedom of the market from arbitrary coercion.

The problem, of course, is that this market doesn't exist anywhere, and that I need to learn to work with things as they are. Perhaps you're just better than me at working in the real world on these matters. I appreciate how you apply your principles to the real world.

Can I say this again? I agree with you whole-heartedly as to the immorality of all of the practices you describe.

Posted by: nick at September 3, 2005 11:08 AM

Okay, glad we're coming together here.

I'd argue that price fixing and monopoly situations are, in fact, arbitrary coercion upon the market, because they aren't letting the price float. The fact that it comes from a private instead of a public source doesn't really change anything.

Here's to productive discussions.

Posted by: ryan at September 3, 2005 11:13 AM

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