Bootleggers & Baptists VIII: Can The Bootlegger and The Baptist Be The Same Person: A Drive-Thru Revelation

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This morning I felt particularly stir crazy from being cooped up in the house, so I decided to go to pick up some coffee. When I finally reached the drive-thru window, I was met by one of the employees. He began to detail to me how several local restaurants had employees who had contracted COVID-19. Even blatantly pointing out the window to the adjacent establishment. Claiming that the franchisee owner was going so far to cover it up to prevent a loss in business.  Naturally, I was initially shocked by this individual’s candor. However, he made one fatal error which led me to start questioning the integrity of his accusations. He revealed the fact that he was a former employee of the adjacent building.  Informing me that he knew both the owner and the manager well. It doesn’t take a rocket scientist to understand why this individual would have the incentives to levy such claims against the other business. For anyone out there that has been fired or layoff, you aren’t going to have too many kind words for the former employer that released you.

 

The employee I was conversing with stated he obtained this information from speaking with the present manager of the neighboring eatery. As implausible it may seem for the manager to disclose such information to an employee of a competitor will have to be dispensed with. It degenerates into nothing more than he said/ she said scenario. There isn’t enough evidence on either side to make a definite claim. So I will be charitable and give him the benefit of the doubt. Let’s assume that his statement about the other establishment was true. There may have been multiple motives for him informing me of this development in the local culinary scene. He may have felt some unbridled compulsion to inform of the potential hazard of dining at the other restaurant.  He may have had personal moral code that would not allow him to withhold such information from innocent parties. Such as adhering to Kantian morality or having strong religious beliefs. Perhaps he is an admirer of George Washington. The conviction to want to shield innocent parties from exposure to COVID-19 is certainly a laudable objective. I would perceive this as the behavior of a Baptist.

 

Assuming the information was true and he possesses pure intentions for proliferating this news, he can be considered a Baptist. However, it is also possible for him to simultaneously be the Bootlegger as well? I would argue yes. As individuals, we can have multiple motives for engaging in an action. It isn’t outlandish to assume that he had subordinate motives for detailing to me that the neighboring establishment’s staff had tested positive for COVID-19. How does he benefit from disclosing knowledge to me? What are his incentives for doing so?

 

There are two potential self-seeking motives for his actions. The first reason would be attempting to enact vengeance on a former employer. Doing so by creating a rumor that damages their credibility in the community.  If the purported facts are completely fictitious the Bootleggers and Baptists dynamic dissolves. Any pure intention is no longer present. The second reason for his shocking candor that sways into the territory of defamation would be increased job security. The pandemic has likely chewed into the profits of his current employer. To avoid getting laid off for budgetary reasons, he is attempting to divert business to his restaurant. Done out of self-interest and exhibiting behavior that is in line with that of a bootlegger.

 

Bruce Yandle’s concept of Bootleggers and Baptists was intended to demonstrate how unlikely coalitions are formed in the political arena. Considering we as humans can have multiple reasons for advocating for a policy or engaging in various forms of rent-seeking, it is possible for an act to severe in both roles. Providing they are being honest about their moralistic motives, but also stand to benefit from their attempt to influence public opinion.  For instance, I could advocate for a ban on smoking in public parks. Truly feel that I am attempting to save others from the health effects of secondhand smoke. At the same time also be advocating for a smoking ban because I dislike cigarette smoke.  The roles of Bootleggers and Baptists are not always mutually exclusive.

 

It is analogous to the ID and Superego allying. Both are satisfied with the cause and both are the deep-rooted psychoanalytical manifestations of the Baptists and the Bootlegger. When an individual strikes a balance between their hyper-moralistic inclinations and darker impulses they can assume both roles. When avarice and morality align themselves in the intentions of one person this phenomenon becomes possible. Yes, this application of Yandle’s trope does exercise a bit of artistic license. However, Yandle never said that individuals couldn’t form coalitions within themselves.  Doing so by combining various rationals for advocacy and then vocalizing them. Typically under the guise of concern for the moral imperative of the situation.

Bootleggers and Baptists Part II- Netflix is One of the Winners of COVID-19

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As it has now approached Memorial Day weekend many localities are either starting to loosen or lift their shelter-in-place orders. Even in regulation heavy Massachusetts beaches have been reopened in commemoration of the holiday. The beaches were reopened with specified safety restrictions [1]. Even though states are starting to slowly reopen it is hard to say whether or not we are out of the woods. There is still the potential of a second wave resurgence in COVID-19 cases.

The economic turmoil that has been spurred by state-mandated shelter-in-place orders has been well documented. Approximately 38.6 million American workers have applied for unemployment benefits within the past couple of months [2]. Per the National Bureau of Labor Statics unemployment rate increased to 14.7% in April [3]. The recent surge in high profile companies filing for bankruptcy could be seen as another oblique consequence of COVID-19 lockdowns [4]. Painting a very bleak economic picture for the United States.

 

Despite the financial carnage caused by government-mandated shelter-in-place orders some businesses are thriving. Certain sectors such as cleaning and delivery services have experienced relative success in light of the pandemic [5]. It could even be fair to argue that some businesses have prospered due to the virus-related restrictions. Reminding us that there the unseen beneficiaries of many regulatory proposals. Even those implemented in the name of public health and safety.  Regulation cuts both ways. It may benefit some while being a detriment for others.

This odd phenomenon is punctuated by economic Bruce Yandle’s concept of Baptists and Bootleggers. The formation of coalitions with seemingly opposing factions coming together for a common goal (Munger, 2020, P.513) [6]. The Baptists being individuals who support the regulation on moral grounds such as public safety or common decency. The bootleggers are proponents of such measures due to the financial benefits they stand to gain. The example Yandle uses is the prohibition of alcohol sales on Sundays (Yandle, 1983, P.2) [7]. This regulation satisfies the moral concerns of the Baptists. The Bootleggers effectively have no competition on Sundays.

Yandle came to this counterintuitive realization while serving on Council on Wage and Price Stability back in the 1970s. Yandle was surprised to find out that many industry lobbyists opposed deregulation (Yandle, 1983, p.2) [8]. To a certain extent, there is a demand for regulation (Yandle, 1983, p.3) [9]. Commodifying the legislative process due to the benefit of reducing competition. Smaller companies may not have the resources to adapt to the new regulations effectively making continued operation illegal. Effectively putting them out of business. Creating barriers to entry without even requiring an antitrust exemption such as those allotted to agricultural collectives and Major League Baseball.

 

The Baptists of the shelter-in-place orders would have to be healthcare professionals. Coast to coast doctors and nurses on the frontlines have expressed their concerns about the spread of the virus. Back in March, an Arizona doctor started a petition urging the state to impose a statewide lockdown order [10]. Motived by the laudable goal of stifling the spread of the disease or in the vernacular of epidemiologists “flattening the curve”. Certainly well-intentioned from the standpoint of point of public health. Especially considering the death count from COVID-19 in the United States is presently estimated at 73,639 [11]. One unfortunate side-effect that good intentions have not accounted for was the “temporary” suspension of civil liberties. Such as the freedom of mobility and property rights issues (F.E. Guerra-Pujol, 2020, P.2-4) [12]. That is a separate issue.

 

Some states have loosened lockdown orders and have even allowed for dine-in services [13]. However, many healthcare professionals are slow to even reconvene business due to concern about the spread of COVID-19 [14]. Many health care professionals have urged states to reopen slowly to veer away from a secondary spike in cases [15]. Clearly demonstrating lingering worries for the spread of COVID-19. Also, strongly demonstrating a moral dimension of lockdown orders. These appeals for cautious relinquishment of restrictions has been framed in the context of harm reduction. Have been centered around the moral imperative of saving lives. Providing the moral smokescreen for anyone with products or services that will increase in demand due to the lockdown.

 

One of the quiet beneficiaries of shelter-in-place orders has been streaming services, particularly Netflix. Any company with a business model that requires little interaction with customers has the advantage. Entertainment venues such as movie theaters, restaurants, bars, clubs, etc. were closed due to government decree. Effectively narrowing the array of entertainment options to activities that involve minimal social interaction. The top contenders being social media, television, and video games. Netflix was already an established fixture in television streaming services. As well as one of the earliest entrants to the market. Over the past couple of years. television viewers swapping out cable boxes for stream services has secured Netflix’s foothold on the market [16]. Even though  Netflix has not openly petitioned for any “lockdown” legislation they are clearly the Bootleggers in this situation.

 

The spike in Netflix subscriptions within the past couple of months is clearly correlated with the shelter-in-place orders nationwide.  Back in April the company reported a 28 % increase in revenue [17]. The rabid success of Nexflix exclusive content such as the docuseries Tiger King is undeniable. This documentary mini-series become a cultural phenomenon. Solidifying itself as a distraction from the uncertainty we face in a COVID-19 impacted America. While such programming may serve as an entertaining diversion it also has helped Netflix excel and emerge as the dominant form of entertainment.  It certainly helps to have a captive audience with a limited number of alternatives when faced with various restrictions. Per consumer surveys, Netflix has been voted the most reliable streaming service [18]. Regardless of the conditions of the pandemic is merely another feather in their entrepreneurial hat.

 

This is not an indictment of the success of companies that have prospered in the COVID-19 economy. Rather an observation of how the regulatory sword slices both ways. The “quiet beneficiaries” such as Netflix may not have openly called for shelter-in-place orders, but they without a doubt have seen increases in revenue due to such laws.  In part, this surge in business has been facilitated by the Baptists in the health care industry.  Putting pressure on state governments to shut down all nonessential businesses. Creating clear winners and losers in the COVID-19 economy.  Some companies are thriving will others are dying.

Extrapolating the lessons from Richard Cantillon concerning the non-neutrality of money is very much applicable to regulation.  Much like how increasing the money supply impacts factor other than nominal prices (Thornton, 2006, p.6) [19]. Regulation isn’t regulated to the narrow window of the issue that it is intended to solve. It can possess loopholes that can be exploited. By design can create unintended anticompetitive features. Demonstrating the non-neutrality of regulations. They have downstream consequences that often are overlooked by the Baptists and are well known to the Bootleggers.

 

 

 

 

Cantillon Effect- Income Re-Distribution in Reverse

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The economic havoc wreaked by the COVID-19 outbreak has been felt not only across the United States but all over the world.  The government-sanctioned shelter-in-place orders and other restrictions have brought various sectors of the U.S. economy to a standstill. Presenting a profoundly compelling dilemma. Do we cripple our economy to flatten curve or do we impose few restrictions and allow this highly communicable disease to spread rapidly? The proposition on hand appears to be a lose-lose scenario. However, which is the greater of the two evils is a difficult question to answer. Although not surprisingly, the answer seems to split down partisan lines.

 

One method of temporarily easing concerns of the ailing economy has taken the form of the form of an economic stimulus bill. A stimulus bill of mammoth portions. An unprecedented amount of trillions of dollars have been allocated for the CARES Act relief bill [1]. There is a strong constitutional argument that can be made for providing just compensation for those who have lost their jobs due to the Corona Virus pandemic. Legal experts such as professor F.E. Guerra-Pujol of the University of Central Florida make such arguments. Invoking the Talkings Clause of the Fifth Amendment of the U.S. Constitution to provide a rationale for just compensation for those forced into unemployment by government mandate (Guerra-Pujol, 2020) [2].

 

Unfortunately,  the CARES Act does not exercise the restraint of professor Guerra-Pujol’s wage restoration approach. Rather a direct monthly allocation of  $1,200.00 plus an additional $500.00 for each dependent child for those making under $150,000.00 (the cutoff for joint filers) annually [3]. This is regardless of employment status. Making such efforts a departure from a property rights argument for government assistance.

 

The question becomes why would the government provide money to people who are still working? It seems a little counterintuitive. It based upon one of the chief assumptions of Keynesian economics. If the economy is going to weather inhospitable conditions we need economic activity. The solution is we need to stimulate aggregate demand or consumer demand for goods throughout the economy. The government sends everyone a check with the hope that they will go out and spend it. Spurring economic activity. Trump administration’s stimulus bill in many ways mirrors the stimulus policies of the Obama presidency. Maybe Nixon wasn’t kidding when he famously declared ” We are all Keynesians now” back in 1971[4]. I am not going to refute the efficacy of such policies in this essay.

 

Rather make a relatively obscure observation.  It is quite common for major spending bills to funded by monetary expansion rather than tax-dollars [5].  The reason for resorting to circuitous means of funding remains an open question. The wisdom imparted in public choice theory may shed some light on this question. The concept of fiscal illusion comes to mind. Defined as “… “the notion that systematic misperception of key fiscal parameters may significantly distort fiscal choices by the electorate..” ( SANANDAJI &  WALLACE, 2011, P.1) [6]. In other words, if the voting public experience the expense of raising taxes to fund the stimulus bill it would face visceral scrutiny. Funding through printing more money buries the direct cost of the policy. The average taxpayer does pay for the stimulus, just indirectly.  They pay for it in higher prices and reduced purchasing power of the currency. Nothing in this world is truly free.

 

It should be noted that the introduction of new money is not neutral. It does impact other factors in the economy other than prices.  An observation made by both David Hume and Richard Cantillon back in the 18th century (Humphrey, 1974, P.4) [7]. Beyond that new more is seldomly introduced into the economy evenly.  It is ironic that most advocates of income inequality frequently overlook this premise. Generally, because individuals with such ideological proclivities tend to favor the programs being funded by the new money. If you look a little deeper into the situation it becomes apparent that the uneven distribution of money creates inequalities. Those who have access to the new money prior to prices rising enjoy the benefit without the burden of the decreased purchasing power.  Those who receive the new money later on. Once prices have caught up with inflation have the implicit tax of decreased purchasing power. This occurrence is known as the Cantillon Effect.

 

This observation was first noted in the work of Irish-French economist Richard Cantillon. In his book An Essay on Economic Theory, he expounds upon how those who are closest to the mining industry benefit for the introduction of new precious metals into the economy.

All this increased expenditures on meat, wine, wool, etc., necessarily reduces the share of the other inhabitants in the state who do not participate at first in the wealth of the mines in question. The bargaining process of the market, with the demand for meat, wine, wool, etc., being stronger than usual, will not fail to increase their prices. These high prices will encourage farmers to employ more land to produce the following year, and these same farmers will profit from the increased prices and will increase their expenditure on their families like the others. Those who will suffer from these higher prices and increased consumption will be, first of all, the property owners, during the term of their leases, then their domestic servants and all the workmen or fixed-wage earners who support their families on a salary. They all must diminish their expenditures in proportion to the new consumption, which will compel a large number of them to emigrate and to seek a living elsewhere. The property owners will dismiss many of them, and the rest will demand a wage increase in order to live as before.  (Cantillon, 1755, Tranl. Saucier. Ed. Thoroton, 2010,P. 149) [8].

 

This passage exemplifies the principle behind the Cantillon Effect. Those closest to the new wealth receive the new money first. They benefit from the lag between the introduction of the new gold and the purgatorial period before the increase in the quantity of gold is reflected in prices. If the money was truly neutral we would not witness such effects. The introduction of new money truly does have “… real consequences … production, consumption, and distribution of income…”  (Thornton, 2006, P.6) [9]. If this wasn’t the case we would see prices rise evenly and such disparities would not be of any concern.

 

Since Cantillon’s day, the means of distributing has changed. After all, we are presently on a fiat currency system. It is important to remember that either a precise metal standard or command currency is susceptible to this effect [10]. Obviously, it is easier to manipulate a fiat concern in a manner that increases the aptitude of Cantillon Effects. Clearly, banks and mines were the institutional mechanisms for circulating currency back in the 18th century. In an era of centralized banking and MMT, one needs to look no further than the U.S. Bureau of Engraving and Printing. The modern substitute for the gold mines of our forefathers. In the days of a hard money standard, the gold mines were the point of entry for new money.

Similar to the gold mines, who gets the money first is geographically contingent. Naturally, banks situated near Federal Reserve locations would first receive the money. It is important to remember while the Federal Reserve does not print the money it does exert control on the size of the money supply [11]. There are 12 locations throughout the United States. Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco [12]. Definitely favoring anterior and affluent east coast. As well as interior major cities such as Dallas and Chicago which have well known financial districts. The surrounding institutions in these areas may get wind of freshly printed money and the knowledge to spend the money prior to the purgatorial lull before inflation starts impacting prices. Typically, those working in such circles are white-collar workers. Affluent and well educated.

 

Please notice that they opt to not establish any of their offices in Mississippi. Arguably one of the poorest states in the country [13]. This is why it important to not look at economic policies superficially nor ignore their downstream consequences. Many proponents of government welfare may even applaud the idea of printing more money to fund various programs. Often those who these programs intend to help may merely be disadvantaged by the higher prices caused by inflation. Those with institutional connections are ahead of the curve and spend the debased currency. While they have their true savings tied up in the real estate, stocks, and precious metals.  Making them less marred by the effects of inflation. While poorer people tend to have their savings (if any) in a savings account. Completely dominated in the fiat. I don’t begrudge those who are successful. Cantillon Effects are examples of inequality based on government meddling. Rather than the byproduct of skill, savvy entrepreneurship, or adding economic value to society. Those who benefit certainly benefit at the expense of others. They do not benefit on their own merits.

Price Gouging Laws in the Era of COVID-19-Redux

 

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To all my regular readers I apologize. I know I have already written two blog entries about the subject of price gouging laws.

 

However, I just recently completed a comprehensive essay focusing on the present concerns of price gouging. The topic is still very much relevant considering the strain the COVID-19 pandemic has put on the supply chain as a whole.

 

My latest essay was picked up by the American Freedom Institute. Link to my essay.

Defending Price Gouging

 

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Introduction:

 

Prevailing conventional wisdom dictates that price gouging is immoral. During times of crisis to even contemplating raising prices is considered to be morally dissent.  Especially in times of need, such as a pandemic of highly communicable disease. The act of price gouge tends to be a natural corollary of the most basic economic principles.  Enacting price gouging laws is an attempt to circumvent resolute economic laws. Typically, in the name of “fairness”. Viewing it from the perceptive of pricing equality ignores the inner mechanics of market pricing. To interrupt this process generally leads to less than optimal results. In every regard, price gouging laws are merely price controls with a different name.

 

Various varieties of price controls have their ill effects well documented. One prime example being rent control measures.  Which historically have shown to contribute to housing shortages and deteriorating conditions of impacted housing units (Bennett & DiLorenzo, 1985 P.69-71) [1]. Typically, most people just look at the immediate impact of the policy. Which is it “stabilizes” housing prices. However, the downstream effects of housing shortages and landlords losing any incentive to regularly maintain their properties are not acknowledged. Price gouging laws yield similar effects.

 

Price gouging does perform necessary functions within the market. Operate as an informal safeguard against supply shortages of essential commodities. Most people are concerned with the here and now. The emotional vitriol of feeling ripped-off or the vendor having leverage supersedes economic reasoning. Per the research of economist  Michael Munger, back in 1996 during Hurricane Fran, crowds appalled the arrest of several North Carolina price gouging vendors. These enterprising young men were selling ice at $8.00 per bag.  Despite the jubilation of the crowd over their arrest, the potential patron still lined up intent on purchase $8.00 bags of ice (Munger, 2007) [2]. Clearly demonstrating a disconnect between consumer perception and consumer behavior. If this price was truly inordinate no one would be lining up to buy ice.

 

For the rest of this essay will be dedicated to defending the actions of these aspiring entrepreneurs. As well as all other vendors who engage in the practice of price gouging. Price gouging has several critical functions in managing the market supply of essential goods. It discourages hoarding.  It provides differential compensation to vendors and employees in times of crisis. Finally, it encourages the production of essential goods.

 

Price Gouging Discourages Hoarding:

Has anyone attempted to purchase toilet paper lately? Anyone who has walked down the paper products aisle (toilet paper, paper towels) has noticed an extreme scarcity of commonly available products. Making me question whether or not COVID-19 is truly a respiratory virus or another incarnation of cholera. My poor attempt at humor aside. It is evident that people are conspicuously stockpiling toilet paper. Toilet paper is a shelf-stable product that is relatively low in cost, making an ideal item for hoarding.

The means by which price gouging operates as a deterrent from an item being hoarded is simple. If the price is higher people will be less apt to purchase excessive amounts of the good [3]. This function becomes more imperative as inventory for essential items starts to dwindle [4]. This premise is clearly compatible with the Law of Supply and Demand. If there a large spike in the demand for a specific item the market price will reflect this accordingly. If there is a law in place holding retailers to maintain the pre-crisis price of toilet paper shortages are inevitable. Naturally lower prices will encourage more consumption regardless of the scarcity of the item. Causing decreased availably and even shortages  ( Lee, 2015, P.13) [5]. Higher prices are the natural consequence of an influx in demand. The higher prices serve as a means of regulating supply.

While advocates of keeping prices fair have good intentions, they are typically ill-informed. Price gouging is not a perfect mechanism, it does disadvantage the poor. The question becomes is it better to have expensive toilet paper or no toilet paper. Most people would agree that expensive toilet paper is preferred. Some would suggest keeping the prices on par with pre-pandemic pricing and just impose purchasing limits. A vendor implemented purchasing limit is not full-proof. Is minimum wage enough of an incentive to encourage employees to enforce such company enacted policies? I would surmise not. Government sanctioned price controls would create supply shortages. This presents a similar situation to the rent control example presented previously.

 

Compensating Differential to the Vendors:

 

All because we are in the midst of a national emergency doesn’t mean that incentives fall by the wayside. If anything incentives become more important, especially if vendors are facing substantial risks by providing goods and services. To quote Adam Smith:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. (Smith, 1776, P.25) [6].

 

The message behind this excerpt from The Wealth of Nations is quite clear. No one sells goods or services for the sake of charity. Most vendors are attempting to make a profit. Prices fluctuate with market demand. However, in instances where there is bodily harm for providing the same goods and services, it is reasonable to expect to pay more. As previously mentioned this isn’t charity. The consumer is simply transferring the risk to the vendor. By expecting them to endure the risks inherent in a natural disaster or outbreak of deadly disease. Through braving such dangers I believe a compensating differential is justifiable. Which essential is additional compensation for offsetting undesirable aspects of a specific job, such as bodily harm [7]. Vendors also take on other risks as well. In the instance of a natural disaster, there are additional logistical considerations. Such as damaged infrastructure and lack of utilities (electricity, running water, etc). Beyond that vendors also take on legal risks. Potential fines for violating shelter-in-place orders (Giberson, 2011, P.6) [8].

 

The additional profits for enduring risk are what will incentivize entrepreneurs to continue to provide goods and services. It is a fact that is rarely brought up in a debate concerning the morality of price gouging. Even if you find the decision of business owners to raise prices to be distasteful, consider their employees. Business owners are going to have to pay their employees more to weather such dangerous conditions. If you still believe that price gouging is spurred by greed, remember that most business owners have employees. The hourly employees enduring such conditions need adequate compensation.

 

Price Gouging Encouraging Production:

 

Higher prices not only encourage entrepreneurs to endure more risks but also stimulates production. The incentives of increased profits persuade actors throughout the supply chain. If the price of hand sanitizer goes up exponentially this may persuade companies to divert production. Such as distillery switching from producing liquor to hand sanitizer [9]. If demand for hand sanitizer outpaces that of vodka it would be shrewd to reallocate resources in the direction of market demand. These adjustments in production are swayed by the potential for higher margins.

 

Market prices are the explicit quantification of information. They operate as a signal to the consumer as well as the producer. As was mentioned previously high prices convey short supply to the consumer. Hence why price gouging guards against hoarding. In a Hayekian sense, we are contending with imperfect market information (Zwolinski, 2008, P.16) [10]. If we do not have direct knowledge of the supply of toilet paper or hand sanitizer, what is going to entice us to produce it? The high prices direct production towards essential goods. Craft distilleries are now transitioning to producing hand sanitizer due to the high prices [11]. The high prices are a direct result of the high demand. The high prices convey the toll that overall demand has taken on the supply (Zwolinski, 2008, P.17) [12]. Pricing operating as a signaling mechanism operates as an indicator of how resources are to be best allocated. Government intervening on moral grounds can only cause more issues. The asymmetry in market information makes it impossible for a top-down solution to make pricing more equitable.

 

Conclusion:

 

Despite the conventional view of price gouging, it does play a vital role in managing the supply of essential goods in times of emergency. It stifles hoarding. It provides just compensation to vendors for assuming the risk and other logistical hardships in crisis conditions. It operates as a signaling model for resource allocation.  Spirited repudiations of the practice are well-intentioned but misguided. No one likes to feel ripped off. No one likes to see people who are disadvantaged suffer. However, there are justifiable reasons for the sharp increase in prices.

The jubilation of the crowd after the gentlemen selling ice (back in 1996) were arrested is understandable. Much like the advocating for fair pricing, this reaction is based upon faulty assumptions. Typically is indicative of anti-market bias.  Which is defined as “a tendency to underestimate the economic benefits of the market mechanism” [13]. Anti-market bias explains the amount of class envy and undue contempt aimed at the wealthy. This is also the narrative that fuels a lot of the irrational and debunkable claims about labor unions. Certain regulations and even specific forms of taxation. It is easy to be outraged by higher prices. It takes more effort to attempt to understand why prices are so steep.

 

 

 

 

 

 

 

Arizona Doesn’t Have Any Price Gouging Laws?!

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Amid the COVID-19 pandemic, many have witnessed an economic phenomenon that is synonymous with times crisis. That is the practice known as price gouging. This practice has the proclivity to ignite a universal cascade of outrage and indignation. Superficially such a reaction seems understandable. Considering by definition it is a sharp increase in the price of a good that is in high demand [1]. On the surface, it would seem morally base to take advantage of an emergency situation such as a hurricane. The general consensus would extend to the outbreak of an emergent pathogen such as COVID-19.

 

There is a general consensus on pricing gouging is morally objectionable. However, there isn’t much agreement on what constitutes price gouging. Approximately two-thirds of all states have some sort of price gouging law on the books [2]. It appears as if most states have a different interpretation of what price gouging entails. For instance, the state of Alabama provides clear and concise guidelines for defining price gouging :

Ala. Code §§ 8-31-1 thru 8-31-6

Prohibits “unconscionable prices” for sale or rental of any commodities or rental facilities during a declared state of emergency. A price is prima facie “unconscionable” if it exceeds 25% of the average price during the last 30 days immediately prior to the declared emergency and that increase is not attributable to reasonable costs. [3]

 

In contrast, the state of Texas provides a vague description of what is considered price gouging. Per Texas state law: “exorbitant or excessive” prices in connection with sale or lease of necessities during a declared disaster” would be illegal [4]. What defines “exorbitant” prices? I would not suggest that there should be federal standardization of price gouging laws. That should be left up to the states. At the very least be clear about the parameters defining the criminal act. Too much ambiguity can make enforcement problematic.

I currently reside in the state of Arizona. Arizona does not presently have any price gouging laws enacted. It is speculated that the reason being is that natural disasters are a rare occurrence [5]. Being a mountainous and landlocked state we are insulated from tornadoes and hurricanes. We have the good fortune of not experiencing the seismic activity that afflicts California. The prospect of a natural emergence putting a strain on the supply of essential goods is relatively foreign to Arizona. The one exception being the event of the 2003  Kinder Morgan pipeline burst. Which resulted in fuel shortages [6]. The significant increase in fuel prices passed along to the consumer was viewed as exorbitant [7]. Many residents at the time viewed it as vendors supplying fuel were engaging in some form of price gouging.

Seventeen years later some are now calling for corrective action to price gouging in Arizona[8]. Many vendors have been reacting to the COVID-19 outbreak with higher retail prices on essential goods. These higher prices are due to an increase in demand and the stockpiling of commodities such as toilet paper.

Personally, I am very incredulous when it comes to price gouging laws from an economic standpoint. Being a proponent of states rights’, Arizona can in my view pass price gouging laws. As states should cater their laws to what best suits their economy and culture providing it does not violate the Constitutional. Due to such measures not being pertinent in Arizona prior to COVID-19 is why such laws did not previously exist. I do know of at least one person who has referred to Arizona as “backward” for not having such laws in place. This is a misguided opinion.

As I mentioned earlier Arizona is relatively isolated from circumstances that would make price gouging more prevalent. This isn’t like hurricane-prone Florida or South Carolina not having price gouging laws in place. There is also the implied assumption that more laws and regulations are a net good for society. States and municipalities with fewer laws are unevolved. A law that is  either pointless, ineffective, or unjust is not universally positive due to the fact is merely another constraint.

 

I grew up in New England where there are still a litany of archaic laws and ordinances still on the books. What is colloquially known as “blue laws”. Laws that are no longer culturally or economically relevant. Frequently prohibit actions that most likely victimless crimes. While some history buffs find these laws quaint and harmless, I disagree. Even if these laws are never enforced, philosophically I oppose them. What is the purpose of laws? Depending on your answer to that question, it will shape your perception of what laws are just and reasonable. I feel that most blue laws only reinforce my rejection of legal positivism. The law should not determine what right, but it should protect what’s right. This perspective is codified in our Bill of Rights. Nowhere did I see any guarantee of economic equity or immunity from making bad decisions. The Bill of Rights were  established on the grounds of natural rights. Suppose to government decree and guarantee of positive rights.

 

In my next blog post, I will discuss why price gouging laws are economically illiterate. If lawmakers here in Arizona are persuaded by public outrage, I can only hope that they are reasonable. Provide firm guidelines that define what constitutes price gouging. That they opt for justifiable limitations. Unlike, Connecticut which cites any increase in prices during a  time of an emergency as illegal [9].

COVID-19 and The Rejection of Civility

human fist
Photo by Pixabay on Pexels.com

 

 

Amid all the chaos spurred by the COIV-19 outbreak, the deterioration of civility seems inevitable. People are being reduced to quarreling and fight over toilet paper. Conflicts over cases of bottled waters and other forms of provisions are becoming more prevalent. Such emergencies have the proclivity to bring out the worst in people. Similar occurrences aren’t relegated to this one instance. Look no further than the looting that transpired during Hurricane Katrina. The line between civilization and lawless chaos is razor-thin. All it takes is one natural disaster or national emergency to shift incentives away from cooperation to antisocial behavior.

 

Social Psychology has a litany of various theories to help explain the descent into pillaging and violence. Describing the psychological mechanisms driving mob behavior does explain the behavioral element of such actions. However, it fails to address the deeper moral questions of the “temporary” erosion of civility. It is reasonable to question whether this loosening of societal standards would be temporary if the precipitating circumstances remained. This question can only be indulged with pure conjecture. I would be so bold to suggest that the circumstantial decay of social standards serves as an indictment on the Enlightenment.

 

I am not addressing concepts of the Enlightenment but the intellectual movement of the whole. It was the thinkers of this era that lead us from the barbarism of the dark ages to the relative calm of modernity. To avoid falling into the trap of the Whig interpretation of history, the Enlightenment did not nullify classical philosophy. Rather expanded upon it. The Enlightenment is what orientated the Western world towards poverty rights and the rights of the individual. Neither can be validated in a climate of wanton destruction and disregard for your neighbor. In times of panic, we revert to our fight-or-flight reflect negating reason, principles, and decorum. Reducing our behavior to that of Neanderthals. Fear is antithetical to reason. Making it caustic to the clear thinking required to respond in a civilized manner. Causing us to plummet to the mentality of primitive man.

 

Many may see this phenomenon of “disaster panic” as a temporary rejection of Enlightenment ideals. I would argue otherwise. I would contend that many people never acquainted with the moral considerations or etiquette required for civility. There are a lot of people that behave rudely even under regular circumstances. Compound their incentives for boorish deportment with fear, society unravels rapidly. Which makes it reasonable to question whether the Hobbesian conception of human nature is true. It appears as if the rule of law is what typically constrains transgressions such as assault and looting. It should be noted that in the instance of the present crisis that this isn’t necessarily true. In most municipalities throughout the United States, law enforcement agencies are still operating. The fear of punishment can be ruled out as a constraint on antisocial behavior. But such behavior demonstrates a deep-seated lack of respect for property and fellow person.  Vandalism and theft demonstrate a lack of respect for property rights. Violence and confrontation displaying a lack of respect for our fellow person. Behavior falling short of the movement inspiring liberal values. The precepts that helped levitate Europe out of the squalor and pestilence of intellectual and physical serfdom.

 

What enforces mutual respect of person and property are informal social norms. Once panic sets in the strength of these norms are greatly reduced. It isn’t true respect, but rather an overt avoidance of opprobrium from our peers. Which does not demonstrate a true comprehension of person-hood or natural rights. Rather punishment avoidance. Merely an informal form of punishment evasion. An individual possessing a true understanding of natural rights would be able to reason why it is wrong to punch someone over a pallet of toilet paper. Not abstaining from such an action due to the consequences of legal or social punishment. Classical thinkers tended to believe that action in of itself wasn’t righteous unless the intention of the action was also righteous.  While we are veering slightly from the thought of the Enlightenment there is still quite a bit of truth here. If respect for person and property is not instilled in us on an intellectual and moral level it will not remain resolute. When the comfort and security of modernity frays so will our courtesy and civility. Then comes the downfall into a primitive mindset.  Hence, why I question if humans ever really adopted or even understood the ideals of the Enlightenment. Because if we did we would be able to better manage our savage urge to pursue self-preservation. If so, we would be reduced bludgeoning one another over toilet paper.  Then again, such conduct has been evident over so much less. Such as a $5.00 toaster on Black Friday. This leads me to postulate that we do not even a time of crisis to witness such regressions.