Russell and Duenes

Greed and the Role of Prices

with 15 comments

It is quite right to say that no particular economic system foments greed. Greed is something that, as Jesus said, comes out from the wicked hearts of men. Having said that, it is certainly not the case that each particular economic system is equal in how it handles the greed that is inevitably there. What I would argue, and have argued before, is that greed has less deleterious effects in a market system where prices are allowed to function. This is true because a greedy person cannot just charge whatever he’d like for whatever it is he wants to trade in. Prices respond to market forces. But the more control a governing authority has over the economy, with the power of force and coercion behind it, the less prices can have their proper effects. So, greed plays out in communism in different, and I would argue, more destructive ways than it does in capitalism. The government surely has a vested interest in making sure that businesses adhere to laws of honesty and justice. But other than that, government should allow for the freest flow of trade between willing parties.

-D

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Written by Michael Duenes

April 29, 2010 at 10:56 pm

Posted in Duenes, Economics

15 Responses

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  1. You are right, ideally, markets work.
    What would you say about the price gouging of gasoline as people fled hurricane Katrina? A fluke? Remember, it wasn’t until the government intervened that the situation got better. Enron? What about markets working there? It wasn’t until government forced them to reshape their energy policies that California stopped having “created” blackouts. Markets don’t necessarily work well when corruption is in play; and this has been my point all along.
    -R

    russellandduenes

    April 30, 2010 at 8:07 am

  2. Thus, I think you and I agree. I think the “price gouging” of Katrina is more complex than people make it out to be, and it’s not like these stations were charging $10.00 a gallon or something. Further, it was a temporary jump in prices, something that would have adjusted itself even if the government hadn’t intervened. I wonder how many people who wanted to buy gas simply couldn’t buy any because they were broke.

    Enron? I agree totally. Markets don’t work when there is corruption, and when it occurs, I do expect, like you, that the government will step in to stop it. That’s one of government’s proper roles.

    -D

    russellandduenes

    April 30, 2010 at 8:34 am

  3. I do think we generally agree.
    As for Katrina, many stations on routes out of hurricane regions generally charged $2 a gallon more than they were charging before people were leaving en mass (up to about $4.50-$5.00/gallon). Some gas stations, though they were not the norm, charged upwards of $8 per gallon and two gas stations were found to have charged $10-$11/gallon as people were fleeing from a deadly hurricane. We both have to agree that there are moral problems with this. Yes supply is fleeting fast, but what about the ethical problem that is created by exorbitant profits in times of human distress. In other words, what would the biblical response be vs. the economic response?
    -R

    russellandduenes

    April 30, 2010 at 10:51 am

  4. @Russell: I actually have to side with Duenes on this one. Even in the case of raised gasoline prices, I would like to point out two things:

    1 – There was a very real raised local demand for gasoline. Prices would be expected to increase.

    2 – Buying gasoline from any particular station is a voluntary choice. If the price is excessive, the customer has every right to refuse to purchase it.

    Silas Reinagel

    April 30, 2010 at 3:50 pm

  5. Yet, even regarding Katrina gas prices, the price was high because the demand was high with no sign of increased supply. A high price would make someone think twice about filling up his/her tank. Maybe 5 gallons would get them out of harms way. Then, the other 5 gallons is available to the next guy thinking the same thing. If prices are forced to stay low, what inevitably happens? Shortage. One person buys all the gas at a low price and then no one else has any – at any price.
    Same thing happens with generators during a hurricane. When the power goes out, people want power, they buy generators. When the supply of generators runs out, they can’t be purchased because they no longer exist. If an entrepreneurial type decides to buy a few generators in Atlanta for $250 each, drives them down to Florida to sell for $350, he is not price gouging, he is providing what people want. If the government steps in and tells him that he must sell them at $250 or else go to jail for “price gouging,” guess what? He doesn’t make the trip. The result, people who want generators don’t get them – at any price. Yup, sounds fair to me.
    Remember, something is worth only what someone is willing to pay for it. Some things are priceless. Others are worthless. Those things are different for different people.
    Get government out of the price setting business. Let the markets work.

    Joel

    April 30, 2010 at 4:23 pm

    • Joel,
      Very well said, and your analysis is also why we see black markets in countries where prices are not allowed to work.

      -D

      russellandduenes

      April 30, 2010 at 8:57 pm

      • All of your comments about basic economics are viable- but not moral. My problem is with the morality and ethics behind price gouging during emergencies, not with basic issues of supply and demand.
        -R

        russellandduenes

        May 1, 2010 at 10:05 pm

      • R,
        The question then becomes, “What is the ‘moral’ price to charge people in any given situation?” Do gas prices around Katrina become “immoral” at a certain price? If a person makes a $2.00 profit vs. a $3.00 profit, is he being greedy? These are not “gotcha” questions, but legitimate ones when it comes to understanding the morality of economics. Further, how is it moral to charge people less and then face a shortage so that some desperate people do without? You would say that if something is good for me to have then it’s also good for others to have. I would say that charging less, leading some people to over-consume such that there are shortages would be a violation of that principle.

        -D

        russellandduenes

        May 2, 2010 at 1:19 pm

  6. Basic Answer: Keep prices as they were and determine how much gasoline a person would have to have to escape the area. Allow gasoline purchases accordingly.

    Reasoning:
    Frankly, if people are fleeing for their lives and I had a gasoline station with supply to aid people and someone came in with NO money- I would give them gas. That is the difference I am referring to. In my gas station, during a crisis or emergency like this, I wouldn’t give a d–n about prices, supply, demand, and economics when people might die. I wouldn’t concern myself with my bottom line or whether or not I could make my rent. I am more concerned about treating these people as if they were Christ Himself. I certainly wouldn’t raise prices to pocket extra money because all of the sudden I am able to do so.
    -R

    russellandduenes

    May 3, 2010 at 8:10 am

  7. A spike in gasoline prices also causes a flood of new gasoline to come in from far away places, as greedy refineries try to “take advantage” of the market. Result- more gas for people who need it, lowered prices. Preventing “gouging” will not allow this to happen.

    R- Why is the price before the hurricane considered fair? Weren’t gas stations greedy and charging as much as they could before the hurricane hit? Did they suddenly get greedy after the hurricane hit? What if there was no hurricane, but demand increased because a Hummer convention came to town? Would it be ok to raise prices then? Who decides all this stuff in your system? You? If you owned a gas station, you would be free to do as you wished with it, which includes giving gas away for free. What gives you the right to control someone else’s property?

    Walmart was the first to get supplies in, not FEMA. Walmart is greedy, FEMA is good.

    Joel- Your example with the generators actually happened. A man was arrested for loading a U-haul with generators and driving down there to sell them (can look up a link, if you like). What if he got there and no one wanted them? Who would have taken the financial hit? I guess it’s only illegal if he’s successful at it.

    Enron went out of business. The market punished them. When was the last time a government agency went out of business for corruption? Answer- never. Usually they just get more money for more “oversight”.

    Bates

    May 10, 2010 at 10:32 am

    • Bates-
      1. I never said the price of gasoline was fair prior to Katrina, and it is the immorality of price gouging that I despise.
      2. Hummer conventions and people fleeing for their lives are different and you know it.
      3. In a “moral” system, unlike the one you obviously prefer, people aid others when major disasters strike. Review the teachings of Christ.
      4. It is obvious I am not trying to control anyone with this blog and my comments. I am trying to show why it is immoral and why people who think like you do in emergency situations are the problem.
      5. Governments can be corrupt as well, which I can see. Business’s have been corrupt, which you cannot see.
      -R

      russellandduenes

      May 11, 2010 at 10:04 pm

      • R,
        I think you are dealing with the question of what’s moral to do in a given situation, and Bates is trying to talk about an economic system. It certainly is the moral thing to do to show generosity and compassion in the face of human suffering and need, and I gather Bates wouldn’t disagree; but when we try to mandate “moral” behavior as an economic “system,” it doesn’t turn out so well. If we’re talking about real economic systems where real sinners are making decisions, what is our best shot? And it is still a legitimate question: How low does one’s profit margin have to be before he can be considered “moral,” or non-corrupt? Reviewing the teachings of Christ is not going to answer this question.

        -D

        russellandduenes

        May 11, 2010 at 10:15 pm

  8. D-

    “How low does one’s profit margin have to be before he can be considered “moral,” or non-corrupt? ”

    Somewhere just above my profit margin, unless I get a raise.

    -Bates

    Bates

    May 13, 2010 at 9:00 am

  9. R-

    I disagree with every point you made. Here’s why:

    1. You did indeed imply prices were fair before Katrina, when you said we should forcibly keep prices where they were. If you don’t think prices before Katrina were fair, why set them at that unfair level?

    2. True, a Hummer convention is different than people “running for their lives”. The point I was making is that when demand increases and supply does not, prices will rise, whatever the reason for the demand increase. Who decides when prices can rise? (As for Katrina people “running for their lives”, why did the gas station owners stay behind to sell gas? Didn’t they need to get away, too? Would they bother to stay behind and “risk their lives” if they were forced to sell gas at $2 a gallon? I doubt it. What happens when the gas runs out at that price, which it will, because it’s being sold below market rate. What happens to all the people who didn’t get any gas at all?)

    3. Communism forces people to aid each other at all times, not just in times of need. It controls prices, too. Is it moral? Does it work?

    4. You did indeed promote the control of others’ property when you proposed fixing prices via force. You are controlling what they are allowed to do with it, what they can trade it for, the value it has.

    5. I never said businesses cannot be corrupt. I said they go out of business more quickly when they are. I mentioned Enron as a case in point. Still waiting for the case in point of a government agency that goes out of business due to corruption.

    Bates

    May 13, 2010 at 11:24 am

    • I’d like to hear a response to point #5 myself, considering Fannie and Freddie are two of the most corrupt government entities ever known to man, and our government is prepared to double-down, triple-down, ad infinitum-down on funding it. When do they go out of business?

      -D

      russellandduenes

      May 13, 2010 at 10:11 pm


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