Economists and price spikes – Econlib

Economists often respond to events differently than most people. Critics of economists will often say something like, “Sure, that’s easy for you because of the position you’re in, but if you were in the shoes of someone who had to go through it, I bet you would change your tune! ” Economists, for example, don’t view so-called “price gouging” as a terrible insult – but perhaps that’s just because these economists have never been on the receiving end of the price gouging, and if they were, they’d think again . But such critics shouldn’t be so sure. The economist John Cochrane recently explained why his experience with “price gouging” was positive:

Uber peak pricing was an important lesson for me. I loved it. I could always get a car if I really needed one, and I could see how much extra I was paying and decide if I didn’t need it. I was grateful that Uber let me pay other people to delay their trips for a while, sending a loud message that more drivers are needed. But drivers reported that everyone else hated it and felt cheated.

Cochrane also describes his mother being furious as they tried to find a hotel room in what turned out to be the middle of Woodstock II. Finally, they found one at a Super Motel 8 that cost significantly more than that chain’s going rate. He tried to reassure his mother that the fact that the room was available at a high price was in fact something to be grateful for:

I did my best to explain. “If he charged $50 or $100, those rooms would be gone long ago and we’d be sleeping in the car tonight. Thank him and be grateful! He is a struggling immigrant who runs a business. We don’t need gifts from people who run Super-8s in New York State.” But even though she was a wonderful, smart, wise and well-traveled woman, she didn’t have it. Nothing I could do could convince her that the hotel owner wasn’t terrible at “abusing us.”

My own experience of this comes from the other side of the issue: I was in a situation where there was no ‘price gouging’ and wished there had been.

This was in 2016. I left my job at the Medical University of South Carolina in Charleston and moved to Minnesota. Most of my stuff had been picked up by movers a few days earlier, and I was driving away that weekend. However, a few days before I was originally scheduled to leave, Hurricane Matthew was scheduled to arrive in Charleston. So I decided to get up extra early the next morning and hit the road a few days earlier than I had originally planned.

When I woke up the next morning, I realized I had screwed up. My gas tank was very low, almost empty, and I had a very long drive ahead of me. So I had to refuel. And what I found was that even at 4:30 in the morning at every nearby gas station there was a very long line at every pump as people prepared to leave the area before the hurricane. However, the gas price had not changed at all – there was no price gouging here! And that worried me.

Everyone needed gas, but not everyone needed it equally. I’m sure many people in that line, as well as those who had fueled up and left in the last few days, had tanks that were almost or mostly full, but wanted to “fill up” before hitting the road. And then there were people like me, whose gas tanks were steaming and who couldn’t even drive ten minutes down the highway to get to a gas station in the next town. In a perfect world, the remaining gas would go to people like me instead of people with a mostly full tank. And that’s exactly the kind of world that price signals will send us into. If the price had been allowed to rise, someone who already had three-quarters of a tank of gas might have thought, “It’s not worth filling the rest of the way at this price, I’m just going to go out now and go refuel when the price rises.” we are on the road for a few hours. Any person making a decision like that would leave so much more gas for people in a situation like mine, where it was truly a “now-or-never” scenario. I would have happily paid a few extra dollars per gallon to ensure I could fill my tank, rather than run a serious risk of being stranded next to a gas station that advertised a “fair” price next to their empty gasoline supplies.

Fortunately it didn’t come to that; eventually I was able to get to the front of the line and fill the tank. I also noticed that the flow of gas coming out of the pump was slower and weaker than I have ever experienced before or since. I was lucky: if I had left an hour later that morning, there was a good chance there would be no gas left at all and I would have been stuck in a hurricane heading towards me. And I wouldn’t have felt protected or cared for at all by the laws that stopped gas prices from rising. John Cochrane was grateful for the high prices he had to pay – and I was deeply saddened by the low prices I had to pay.