[epistemic status: somewhere between steelman of the complaints and recognition that theory is correct but there’s a lot of details that matter and are ignored in this piece. ]
This is true in theory, but for MANY goods and services, supply is artificially limited by regulations and restrictions on who and how something can be provided, or by emergency conditions that block travel and transport. When these restrictions are controlling (the main reason that marginal supply is slow/difficult), price signals can’t actually get used, and don’t change behavior. This is especially true for short-term shocks, when the price isn’t expected to last long enough to pay for investments.
It’s perfectly reasonable to be angry at the sheriff who spends public funds on a bounty that doesn’t change anything (say, the guy is already in custody, and the bounty is just a giveaway to the lucky person who has him).
Marginal supply can come way in advance, well before the emergency, because of anticipation of future ability to raise price. It doesn’t have to be a reactive thing where the price rises first and the extra supply appears afterwards.
Short-term gasoline availability after a natural disaster is a good example. Very high prices do not actually lead to more supply, because transportation constraints are binding, and the road crews don’t get any of the increase in prices. In a model world, it’s good, the gasoline vendors pay some of their earnings to the road crews to prioritize their (very valuable) goods. In the real world, the supply chain is too long and interconnected for price signals to change much in terms of availability.
Over longer timeframes, and for more normal goods and situations, the model is very powerful, and price fixing is extremely harmful. I’m not supporting rent control in any fashion. In fact, I’m not exactly supporting gasoline price limits in an emergency, just pointing out that the usual arguments for price flexibility may not apply.
For even more clarity: I don’t think the line of argument (high prices motivate supply) is valid for this particular case, but I do NOT mean to say that price-fixing is actually justified. It also doesn’t increase supply, and it imposes arbitrary government involvement in private affairs, in a way that usually outlasts the emergency. Slippery-slope arguments are ALSO somewhat weak, of course—I don’t know of an obvious killer argument in either direction. And that’s mostly my point with this comment.
[epistemic status: somewhere between steelman of the complaints and recognition that theory is correct but there’s a lot of details that matter and are ignored in this piece. ]
This is true in theory, but for MANY goods and services, supply is artificially limited by regulations and restrictions on who and how something can be provided, or by emergency conditions that block travel and transport. When these restrictions are controlling (the main reason that marginal supply is slow/difficult), price signals can’t actually get used, and don’t change behavior. This is especially true for short-term shocks, when the price isn’t expected to last long enough to pay for investments.
It’s perfectly reasonable to be angry at the sheriff who spends public funds on a bounty that doesn’t change anything (say, the guy is already in custody, and the bounty is just a giveaway to the lucky person who has him).
Can you give an example?
Marginal supply can come way in advance, well before the emergency, because of anticipation of future ability to raise price. It doesn’t have to be a reactive thing where the price rises first and the extra supply appears afterwards.
Short-term gasoline availability after a natural disaster is a good example. Very high prices do not actually lead to more supply, because transportation constraints are binding, and the road crews don’t get any of the increase in prices. In a model world, it’s good, the gasoline vendors pay some of their earnings to the road crews to prioritize their (very valuable) goods. In the real world, the supply chain is too long and interconnected for price signals to change much in terms of availability.
Over longer timeframes, and for more normal goods and situations, the model is very powerful, and price fixing is extremely harmful. I’m not supporting rent control in any fashion. In fact, I’m not exactly supporting gasoline price limits in an emergency, just pointing out that the usual arguments for price flexibility may not apply.
For even more clarity: I don’t think the line of argument (high prices motivate supply) is valid for this particular case, but I do NOT mean to say that price-fixing is actually justified. It also doesn’t increase supply, and it imposes arbitrary government involvement in private affairs, in a way that usually outlasts the emergency. Slippery-slope arguments are ALSO somewhat weak, of course—I don’t know of an obvious killer argument in either direction. And that’s mostly my point with this comment.
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