Asymmetric Outrage Over Changing Prices

Isn’t it outrageous that gasoline prices are so [low] due to this recent pandemic? Greedy gas companies are charging [less] for gas just because demand has changed! They shouldn’t be changing their posted prices just because gas consumers are willing to pay [less] for a given quantity of gas.

If that sounds bizarre, now you know how I feel about the spittle-infused outrage spewed at so-called “price gougers.” Change the product from gasoline to toilet paper or hand sanitizer or face masks, and change the words in parentheses to “high” and “more”, and you get a perfect symmetry. You simply cannot have it both ways. If the decline in gas prices seems perfectly reasonable and banal, then the increase in prices for these other scarce goods makes just as much logical sense.

Like Alex Tabarrok says, prices are information wrapped in an incentive. When demand for a given product increases, the price should go up. The higher price discourages hording. (No one would be grabbing multiple mega-packs of toilet paper if you just charged a few extra bucks for each one.) It also encourages production. Supposing we need more disposable gowns and face masks, the suppliers need to see a higher market price before they’ll be willing to ramp up production. Manufacturers tend to optimize their cost structure for a given level of supply. They’ll use the most efficient factory and the most proficient workers and the cheapest available inputs. Expanding production implies using the second and third most efficient factories, hiring and training new workers, bidding more for existing inputs and using less efficient inputs, and so on. Naturally this will raise the price. That’s fine, assuming the scarce goods really are more valuable and more of them are needed.

We need to stop moralizing about prices. At the very least, we need to be consistent. If there’s nothing wrong with low gas prices, then there’s nothing wrong with high prices for face masks.

If someone could show me that the higher prices for, say, hand sanitizer or toilet paper were a significant portion of anyone’s household budget, I would backtrack slightly on this argument. (I would not end up endorsing anti “price-gouging” laws, but I’d have a little more sympathy for the people grousing about high prices.) But I don’t think that’s likely. Even at higher prices, I’m guessing that these scarce goods are a puny fraction of a household’s budget, even a low-income household.

Getting this right is deadly serious. Insisting on a bunch of new ventilators at the pre-crisis price means not getting any new ventilators. Moral outrage is not serving us well.