In my view, one of the more shameful episodes in the Canterbury earthquake was the call by some for retailers to implement so-called ‘efficient’ pricing of crucial goods such as water. Among these was University of Canterbury economist Eric Crampton, whose article on the topic was even printed in the papers. Read his blog post In defense of price gouging. I often agree with Eric, but on this topic I just don’t.
I’m no big-city economist, and I seem to have misplaced the argument I wrote on the topic at the time, but essentially the problem is: if nothing is done, the resource just runs out and people who need it can’t get it. Absent some mechanism (rationing, gouging, &c) the criterion for access to the resource is speed and/or ruthlessness — the person who goes down to the supermarket & fills their ute with bottled water wins; everyone else has to rely on other means, such as asking their neighbours or others for help. I see efficient pricing as simply a means to shift the the criterion for access from ‘speed+ruthlessness’ to ‘accessible wealth+ruthlessness’. Those neither speedy nor wealthy (that is, almost everyone) will have to fall back on those same social structures of cooperation and goodwill to get their water in either case, and I don’t accept that privileging those with cash on hand is much of an improvement over privileging those who can get through the gate quickest.
However there is a non-economic factor to consider: in times of disaster, social cohesion is crucial. To large extent it operates on the notion that both the mighty and the humble are brought low; that we’re all in this together, and when the chips are down, Jack’s as good as his master. A resource allocation mechanism which punctures these illusions so as to damage social cohesion, such as by turning the poor against the rich, must deliver an enormous efficiency benefit in order to offset the harm it causes by sapping the goodwill upon which disaster recovery thrives. At a time when the foremost objective should be to promote social cohesion, ‘efficient’ pricing is an ugly imposition of individualism on the collective spirit.
Anyway, the point of this post wasn’t to relitigate that, or to criticise Eric, so much as to say that — by contrast — reports of price-gouging in post-flood Queensland have drawn a firm response from officials. Fair Trading Minister Peter Lawlor warned retailers of the possible strategic consequences of gouging:
“I think traders who attempt to profit from the misery of others during the floods should keep in mind that people have long memories. Even if there’s no official complaint, any quick returns they seek to make will be of little value to the business in the longer term.” [he said]. Mr Lawlor says if there is evidence they are breaking the law, they will be prosecuted.
More robust still was the statement from Ipswich Mayor Paul Pisasale, the same who warned looters that they would be used as flood markers if caught:
Ipswich Mayor Paul Pisasale says the city will remember businesses that try to take advantage of the disaster. “I know I’m not supposed to say [this] – but the health inspectors are on their way and the building inspectors are on their way after we finish this to see if we can help those businesses – [but] like hell,” he said.
This suggests a vigilante streak and willingness to bring the coercive force of the state to bear for social, rather than strictly regulatory reasons, and this is not usually a beneficial trait in a civic leader. However I think in cases like this there is some justification for such a stance. Pisasale’s position is a manifestation of the ‘Queensland culture’ called upon by Premier Anna Bligh in her speeches, and which may now be her political legacy. If it all came to pass, perhaps a disgruntled gouger might take legal action against Pisasale or his agencies for harrassment; but this would be an uphill battle, because Pisasale enjoys the protection of being right in the eyes of his society. After all; the only thing most Aussie battlers hate more than a government bureaucrat is a disaster profiteer. He is on firm ground as a representative of his people, because his representation rings true. His commitment is to the cohesion of his society. He is doing what crisis leaders do; efficiency be damned.