Price Gouging Is the Worst Form of Allocation, Except for All the Others…

It’s hurricane season, so you know what that means- a plethora of articles econsplaining that actually price gouging is awesome and people’s silly little non-econ brains just don’t get it. Ok fine, they’re not ALL that bad…some of them are more “ok fine it’s not great but can you think of anything better and what we actually do is worse.”

I took a stab at it, and I tried to veer into why people hate the concept of price gouging:

Why Do People Hate “Price Gouging” So Much? Economists, Take Note…

Why Do People Hate “Price Gouging” So Much? Economists, Take Note…

Every time a natural disaster or other crisis situation hits, we see two things: one, people outraged that the things they want to buy have…


In terms of feedback I’ve gotten, two things surprised me a little:

1. Some people, even economist people, tried to argue that income in itself doesn’t change willingness to pay. *looks at randomly chosen textbook* So I see here that income is a determinant of demand, and, for normal goods at least, increases in income (ceteris paribus even!) lead to increases in demand, i.e. a shift to the right of the demand curve. Looking at this diagram, I’d have to do some serious mental gymnastics to argue that this increase in demand can’t be equivalently stated as an increase in willingness to pay (i.e. a vertical shift).

2. Some people tried to argue that there’s no better system, which fine, I do kind of agree with, but upon further reflection I HAVE AN IDEA. Here goes- we give each person the same number of tokens when they’re born, and the total price of an item will be the sum of the money price and the token price. Now we disallow price gouging with the money price but we let the token part of the price adjust- you want that generator in short supply? Pay MSRP, but token up. Boom. Ok, maybe this is why economists don’t always make great policymakers, but you know you’re intrigued.

Until the country gets behind my genius token scheme, I guess we’re kind of stuck with what we have in terms of crappy but socially acceptable rationing mechanisms. Luckily, people are sometimes better than economic models given them credit for:

(Sidenote: If this people are better than economists think thing interests you, I have a whole talk about it here.)

Leave a Reply

Your email address will not be published. Required fields are marked *