OnPoint by Keith Ng

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OnPoint: On Price Gouging

171 Responses

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  • nzlemming, in reply to Lew Stoddart,

    It seems to me, in that piece, he equates price with value and uses both words a little recklessly.

    We know that demand for security in general is fairly elastic. Why else would we see such price dispersion in the various grades of, for example, kid car seats? Some folks put a lot of value on it, others don't.

    I think some analysis on his part, rather than supposition, would find that some people can afford more expensive child seats, which has no relevance to how safe the various seats are, nor how much people value their children's safety. Whether they have a seat at all is more likely to show their appreciation of value.

    He also fails by assuming that all players have perfect knowledge of all options, and consequently chides them for acting irrationally in the face of that knowledge. "The law says get a car seat, we've got a car seat, we're good to go" is about the level of analysis many would put to the issue - compliance rather than safety (cf. use of safety belts by adults).

    I wish we could get rid of this whole "rational actor" thing - it gets in the way of understanding how people operate.

    Waikanae • Since Nov 2006 • 1701 posts Report Reply

  • recordari,

    Last count, that's like 3 Bens in one thread. Is this some kind of Ben addiction?

    [cloak]

    And since you ask, yes, I am still missing Ian D.

    AUCKLAND • Since Dec 2009 • 2607 posts Report Reply

  • nzlemming, in reply to recordari,

    In nomine Ian
    et Ian
    et spiritus Ian...

    Waikanae • Since Nov 2006 • 1701 posts Report Reply

  • Bart Janssen, in reply to Ben Winters,

    isn’t direct government aid or charity a far more efficient way to help than to misprice a key, perhaps the key resource, for the entire city in crisis?

    Wow. This is kind of impressive. So you're advocating using tax dollars to allow price gougers to get rich. You'd be happy to pay extra tax would you or do you have magic way of increasing govt revenue without raising your own taxes to pay for this use of our taxes?

    I find it interesting that someone (and I'm guessing here) who opposes taxes increases and approves of tax cuts (for sound economic reasons of course) advocates spending tax dollars on simply making some greedy (yes that's the word I would use) people richer.

    Auckland • Since Nov 2006 • 3108 posts Report Reply

  • Bart Janssen, in reply to Ben Winters,

    that the pricing system will do a better job on average of selecting the more from the less needy because it uses information about time and place better than queues and charity or government officials can

    Yes I'm quite sure the modeling shows that. How about you go away and find real world data that proves that before you assert such a truth. My observations of the real world is that the perfect information flow required to make you model work does not exist in the real world. In general only the rich have full access to information to enable such "perfect pricing" decision making. The poor, or in this case those experiencing an actual disaster have very poor information flow and hence have no fucking clue that petrol is cheaper elsewhere or that prices will drop in 2 days.

    But it's OK because somebody got rich so it must have worked right?

    Auckland • Since Nov 2006 • 3108 posts Report Reply

  • recordari,

    On Sunday (I think) TV3 News had the ‘online editors selection’.

    The top one was;

    “Taxes go retro”.

    They meant taxis, but I think in light of some of the above, there is a distinct possibility they will have to re-use this, along with;

    “Carless days back to the future”.

    <sarc> In case it wasn't obviscous.

    AUCKLAND • Since Dec 2009 • 2607 posts Report Reply

  • Sacha, in reply to recordari,

    obviscous

    My, you really are taking the channelling-Ian thing seriously :)

    Ak • Since May 2008 • 15716 posts Report Reply

  • recordari, in reply to Sacha,

    In this context, unfortunately it’s about the only thing I can take seriously. Sorry to Keith, but the discussion on petrol gorging has left me wanting to drink meths.

    Metaphorically.

    AUCKLAND • Since Dec 2009 • 2607 posts Report Reply

  • linger, in reply to recordari,

    Isn’t this entire thread basically about a meths problem?

    Tokyo • Since Apr 2007 • 808 posts Report Reply

  • JackElder,

    I think some analysis on his part, rather than supposition, would find that some people can afford more expensive child seats, which has no relevance to how safe the various seats are, nor how much people value their children’s safety

    Indeed. Car seats are a poor example, because all car seats must meet certain legal safety standards. The difference between a cheap car seat and an expensive one is mostly not related to safety; it’s usually bells and whistles (number of recline positions, amount of cosmetic padding, shininess, etc). Absent the ability to meaningfully compete on safety (because all seats must be safe in order to be sold), most competition in child safety seats is at this status symbol level. (At least, this was my experience from shopping for child seats a few years ago). The ‘valuing of children’s safety’ bit seems to come in with the question of whether people actually bother to buy or use a car seat, not in the model of seat they choose.

    *Mess*-all impact, if you please.

    Mess you, mother-messer! #sfwswearing

    Wellington • Since Mar 2008 • 707 posts Report Reply

  • Matthew Poole, in reply to Ben McNicoll,

    On a more practical level, and ignoring whether or not it is a good idea, could Gerry Brownlee step in and set region wide prices for items such as petrol and milk under the wide ranging powers he has?

    That's actually a good question. My first reaction is no, since I'm not aware of any legislation that provides for such powers - if it ever existed, it would've been repealed during the Great Right-ening of the 80s and 90s.

    However, it's possible there's a combination of regulations and directions to the likes of ComCom that would have the effect of setting a price. Not sure what the limitations on that combination in relation to Brownlee would be, though, and don't really have time to investigate it properly.

    The pit from whence crawl… • Since Mar 2007 • 3731 posts Report Reply

  • Steve Barnes, in reply to Matthew Poole,

    could Gerry Brownlee step in and set region wide prices for items such as petrol and milk under the wide ranging powers he has?

    Most likely he is still blowing on his pie...

    Could someone confirm or deny that once a Government has called an election they cannot bring in new legislation?.

    The wireless north ;-) • Since Dec 2006 • 4445 posts Report Reply

  • Michael Jar,

    Economics offers explanations about human behaviour within a very narrow context of "rational" economic activity. To my knowledge, economics has yet to account for the wider range of human experience although many economists try to arrange all behaviours into convenient economic explanations like 19th century physicists explaining electromagnetic propagation through a non-existent ether.

    What we are seeing in Christchurch are behaviours we are all predisposed to through millenia of being ingrained into our genes. All our forebears came from groups of people who cooperated and looked after their communities in times of crisis to get through and survive. Those who didn't simply did not leave any descendants because they perished. The selfless acts of heroism and generosity we have seen did not come about because people were thinking about long term costs and externalities, they did so because they are human.

    I am sure that rationale economic explanations can be offered for all these behaviours, but this is simply fitting facts to a theory. If the only tool you have is a hammer, then all your problems start looking like a nail. I am sure that Adam Smith would look on in horror if he knew that his modern disciples advocate market forces as a way of regulating human behaviour in general, rather than only one aspect (although an important one) of society.

    Sydney • Since Mar 2011 • 1 posts Report Reply

  • Moz,

    One of my favorite holes-in-economics is the perfect information one. In the real world the cost of obtaining information can be prohibitive, and in fact that's one of the complaints that economists often have. But then they lurch back into nonsense about car seats when it comes to the decisions other people make.
    One solution might be to ask economists to help gather information. Say, about the presence of survivors in the CBD. Since perfect information is required in order to make rational decisions, it makes sense to go into the (remains of) the buildings to see whether there's anyone alive to rescue. From an economists point of view I'm sure that makes perfect sense, since the cost of gathering information can be ignored.

    Sydney, West Island • Since Nov 2006 • 294 posts Report Reply

  • Matthew Poole, in reply to Steve Barnes,

    Could someone confirm or deny that once a Government has called an election they cannot bring in new legislation?.

    Even if they can't, Key hasn't called the election. He's just announced the date, which is not the same thing. There's a whole procedural rigmarole to call the election, with writs, the Registrar of Electors, and the Governor General.

    The pit from whence crawl… • Since Mar 2007 • 3731 posts Report Reply

  • Steve Barnes, in reply to Matthew Poole,

    Damn, there goes another plan so cunning you could pin a tail on it and call it a Stoat...
    ;-)

    The wireless north ;-) • Since Dec 2006 • 4445 posts Report Reply

  • Tim Hannah, in reply to Steve Barnes,

    See Election NZ flowchart.

    We're at the first step - The PM has made an announcement. Parliament continues to sit and new legislation can be introduced and passed and all that until Parliament is dissolved, which is still at some point in the relatively distant future - mid/latish October.

    Wellington • Since Jan 2007 • 222 posts Report Reply

  • nzlemming, in reply to JackElder,

    *Mess*-all impact, if you please.

    Mess you, mother-messer! #sfwswearing

    Where the mess does that leave Liam?

    Waikanae • Since Nov 2006 • 1701 posts Report Reply

  • Ben Winters, in reply to Bart Janssen,

    Wow. This is kind of impressive. So you're advocating using tax dollars to allow price gougers to get rich. You'd be happy to pay extra tax would you or do you have magic way of increasing govt revenue without raising your own taxes to pay for this use of our taxes?

    I find it interesting that someone (and I'm guessing here) who opposes taxes increases and approves of tax cuts (for sound economic reasons of course) advocates spending tax dollars on simply making some greedy (yes that's the word I would use) people richer.

    Fine. The other way, as Crampton suggests, is to leave prices where they are but have the government add a $2 surcharge to petrol, and spend the money raised on earthquake relief. This will produce at least some of the benefits of a price closer to a market clearing price (which means less hoarding, less queuing, less likelihood of a shortage, and a less serious shortage even if one does still occur) without the problem of oil companies making money out of the crisis.

    The perfect rationality/perfect information arguments being bandied around is a straw man that has been endlessly rebutted by the profession. It is simply not the case that markets require perfect rationality or perfect information to outperform other allocation mechanisms. Human imperfections also impair government decision making. The question is, given the mistakes and foibles of real people in the real world, which of the many possible approaches to resource allocation perform best, and in which situations. As any economist will tell you, there is no one method that does best in every case.

    It is apparent that nobody on this thread understands how prices are formed in markets or their function in resource allocation, or the role profits can play. Just a bunch of folks who can't tell economics from a caricature and think every economist on the planet has missed a clever sound bite on rationality or knowledge.

    My observations of the real world is that the perfect information flow required to make you model work... general only the rich have full access to information to enable such "perfect pricing" decision making.

    Again the caricature. No economist believes that. No economist would, to my knowledge, advocate a solution whose result depended on perfect anything, unless it was clear that the model could produce a result that was a good approximation to reality in spite of that simplifying though obviously wrong assumption.

    No economist I know has any interest in defending the rich. Most, however, will defend property rights and advise against expropriation, and the main beneficiaries of this respect for the law is not the rich and powerful, who have access to the resources they need to defend themselves without the law, but the poor, who do not.

    Auckland • Since Feb 2011 • 14 posts Report Reply

  • Sacha,

    Ben, nothing you have said has addressed your conflation of need with ability to pay.

    That one's a showstopper if you want any credible claim for concern about the welfare of the poor. The rest of your musings about pricing in fantasyland are just white noise.

    Ak • Since May 2008 • 15716 posts Report Reply

  • nzlemming,

    I call troll. Move on. Nothing to see.

    Waikanae • Since Nov 2006 • 1701 posts Report Reply

  • Alex Coleman, in reply to Ben Winters,

    No economist I know has any interest in defending the rich. Most, however, will defend property rights and advise against expropriation, and the main beneficiaries of this respect for the law is not the rich and powerful, who have access to the resources they need to defend themselves without the law, but the poor, who do not.

    The law can defend and exact 'expropriation', and 'property rights' are defined by the law and can take many forms.

    So it seems a little off to say that defending a particular type of 'property rights' is 'respecting the law'. It might be, or it might not be; depending on what the law is.

    Are you saying that if a policy of 'expropriation' is put in place then the rich will do what they can to frustrate the law?

    That would seem to be true, but it seems quirky to frame it as 'defending themselves without the law'.

    Wellington • Since Nov 2006 • 193 posts Report Reply

  • Russell Brown, in reply to Ben Winters,

    Fine. The other way, as Crampton suggests, is to leave prices where they are but have the government add a $2 surcharge to petrol, and spend the money raised on earthquake relief.

    To solve the problem of a brief (and possibly non-existent and probably irrational) shortage in which selection was already being managed by queuing and vendor rationing? Seriously?

    I'm staggered by your willingness to conjure the intervention of the state to help the invisible hand of the market. You and Eric seem much more wedded to your theories than to actual life.

    Auckland • Since Nov 2006 • 17941 posts Report Reply

  • Jason Le Vaillant, in reply to Ben McNicoll,

    On a more practical level, and ignoring whether or not it is a good idea, could Gerry Brownlee step in and set region wide prices for items such as petrol and milk under the wide ranging powers he has?

    If it were a reasonably necessary or expedient step to assist with the response to the earthquake, then yes: http://www.legislation.govt.nz/act/public/2010/0114/latest/whole.html#DLM3233036

    Wellington • Since Feb 2011 • 7 posts Report Reply

  • BenWilson, in reply to Ben Winters,

    As any economist will tell you, there is no one method that does best in every case.

    Yes. In this case, the free market method does not work. Any economist could tell you that, and at least one has when he made this thread.

    Auckland • Since Nov 2006 • 8015 posts Report Reply

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