Rationing protects the poor?

Economics Economics Questions
1

Stumbled upon this argument and got stuck:

When there is a shortage, prices on a free market rise accordingly to signal high demand as compared to low supply which victimizes poor customers since rich buyers could simply buy up all the reserves until the crisis is over. In some cases, e.g. drinking water production, this would severely endanger the well-being of the poor. Thus, government must ration these important products should they be in short supply, to ensure the survival of poor citizens.

Any ideas? Thanks in advance.

2

“When there is a shortage…”

I think you know where to go from there.

3

No, unfortunately not. Shortages may well occur in a free market situation, caused by natural disasters or human miscalculation. It takes a while to correct them, meanwhile prices for goods in high demand will remain high. Poor folks may thus lose access to them.

4

That’s a supply shock, not a shortage. Poor folks will lose access to them in the same proportion as all other folks.

5

Isn’t it possible, however, that a shortage may follow a supply shock?

Suppose, for example, that city X is dependent on drinking water from 100 miles away, they have no water resources of their own. The water pumping facility that delivers to city X suddenly goes 90% out of work. 10% of the former amount can still be pumped into the city, but logically, prices for water will skyrocket. While poor people will now be barely able to afford water, rich folks would still be able to wash their car which causes prices to climb even higher, making water unaccessible for an ever increasing number of people.

Prices might stabilize again 2 weeks later, but what to do in the meantime?

6

If people wash their cars at 10 times the regular cost, it is because they have a very good reason to.

7

The answer to that is simple. Under an anarchy, the wealthy may be able to buy up all of the, say, potable water, but they had better be able to pay for substantial security as well. And hope that they can get security guards that aren’t related to anyone who is dying because you hoarded all of a necessary resource. And that those security forces are both extremely loyal and/or you can afford to pay them comparably to what they could resell the resource for…

In other words, it’s all very well to buy it, but you’d better be able to keep it, too. Mobs of enraged, desperate people can be rather ugly.

8

That is not really a defense of the market.

9

It appears to be some attempt to justify violence; why not just come out and say “government good; rationing fine”?

10

How does that follow?

-Jon

11

The problem you may be having is that the word “shortage” in economics means something different than the colloquial usage. A shortage is this situation:

http://livingeconomics.org/images/glossary/shortage.gif

At price P3, we have a shortage. It can only happen if there is a price ceiling which prevents prices from rising to bring us to P2, which is equilibrium.

What you are referring to is scarcity, and the difficulties regarding that. I’m sure that you believe that the free market is what best handles the problem of scarcity in other markets, but you (likely) have a problem thinking of essential goods (such as water) in the same way as basketballs. Remember, though, that everyone makes choices and tradeoffs. If the price of water rises, then people will reduce consumption in other things to pay for water - this is the case simply due to the fact that water is so essential to live. Likely, if necessary and possible, people will not only forgo current consumption of other goods via shifting their current buying habits, but would also be willing to reduce future consumption in order to stay alive - namely, they would be willing to go into debt in order to buy water if needed (and possible, which is an issue of the availability of credit and their individual reputation regarding the repayment of loans).

This means that the use of water for drinking will be very highly valued in a time of intense scarcity. Since the market always directs resources to the highest valued uses, this means that unless a rich person is so rich as to not only be able to afford extra water but also prefers to wash his car over the large sum of money he has to pay for it, or gives up by not selling it, then he will not wash his car. If someone is that rich or values a clean car so highly, then it would be done, and we cannot rightly object to it from a utility standpoint because we cannot make interpersonal comparisons of utility. However, it is most likely that water will be directed towards mostly drinking purposes in times of extreme scarcity.

Now, as to a situation of such extreme scarcity that not everyone can possibly be provided for in terms of drinking water, it makes no sense for any egalitarianism about the distribution of water. After all, why should those who have saved and been the most productive be less worthy vis a vis those who haven’t?

The one thing that is also important to remember, always, is that the free market reduces scarcity in all cases. It is what will make these disasters short-lived or more mild. The government slows down recovery and often makes the disaster worse.

12

Rationing protects neither the poor or rich. Rationing is simply following the preferences of bureaucrats instead of market participants. It is not

When things become suddenly scarce it is the rise in price that gives suppliers incentive to bring more of the scarce good OR A SUBSTITUTE into the market and it is the same rise in price that gives consumers the incentive to economize or find substitutes. For example several people in New Orleans lived off of water in their swimming pools. Also people find new suppliers from wells and what not as the price rises.

As for the rich buying up all the available supply I can think of three reasons or processes that stop that:

  1. Suppliers ration the amount of product instead of raising prices to keep customers happy. They will take steps to give as many customers as possible an equal chance to purchase the underpriced good.

  2. The rich normally do not like to part with their money and will economize their behavior as well.

  3. People normally have good will and help one another much more effectively than the rationers. They tend to share things.

13

Rationing…

I will forgo all theory and just tell you my appalling daily experiences.

The Venezuelan government decided that goods must be cheap because inflation is too high.

So whole milk was regulated at a maximum price of a few bolivars. No one wants to produce milk any more. Farmers killed their cows for meat. New cows had to be imported by the government. Some of them died in the sea. Corruption in customs made lots of fresh milk get rotten. etc. etc. etc.

Meantime, it was possible to find ultra UHT condensed evaporated milk at hundreds of bolivars a box of a few mililiters. And the children of course cannot wait to get nourished.

Similar stories for rice, beans, bread, etc., etc.

Rationing is government intervention at its worst.

14

Yes, I’m a statist. I just come here to get up in all y’alls’ grill.

In any case, whether justified or not, economic power is just like any other power; it trumps some forms of power and is trumped by others. Is it such a controvertial statement to say that, if you are going to hoard in a time of extreme scarcity, you need a way to protect your hoard?

If I sound unsympathetic to one who will store more than he needs at present, just in case, while others who need food now starve, that is because I am. You are using economic power to kill people in the name of easing your mind. Well, your economic power can always be trumped by sheer violence.

Trust a bunch of economists (read, nerds who had their lunch money stolen) to have a hatred of violence even outside of what it earns. You really think a person ought to stand by while his family starves because a rich but feeble man buys up all the food before the physically stronger can get any? What world do you live in? Combined with the number of atheists here, the attitude is simply stunning.

The acknowledgement that violence is a tool and power which can be used in certain extreme circumstances does not constitute an advocacy of statism or even anti-market principles. Again and again I see people on this board admit their hypocricy in this matter, clinging to ideals they know would be meaningless in terms of their own actions when push comes to shove. Pathetic.

15

How would they ration them? Buy them up and distribute them? Why do you need government for that, why not just have a rich person do it? Just like a wealthy businessman can take things and hoard them, the government could simply buy up all the supply and save it for their officials.

Or would the government seize controll of the supply and distribute it? Maybe they would nationalize the business? Do they expect this to solve the shortage? Because it wont.

16

Why not just live in the jungle? I mean, there such a process is automatic.

-Jon

17

Hypocrisy does not invalidate a principle, nor does proposing hypotheticals which have yet to happen. You may see it as meaningless to be just in every circumstance, but to call other’s weak because you put personal well being before righteousness is foolish.

18

YOU put your personal well being before “righteousness”, you have admitted such yourself. I am just honest about it. I don’t claim to follow a principle I know I wouldn’t practice. I don’t put righteousness before my personal well-being; I believe that in such circumstances, there is no contradiction between them.

Hypocrisy is actually not the right word for it. Hypocrisy is you claiming that you shouldn’t and you wouldn’t, right up to the point that you do it. You claim that you shouln’t, but that you would. I’m not even sure what to call that. Deliberately evil, I guess. Yes, indeed, that is the ticket, EVIL. You PLAN to do something you believe to be wrong should the situation arise. I don’t know that I’ve ever encountered such an openly evil group of people before. It’s fascinating, really.

19

Look, dude, in a just world, that is, a world where wealth is gained justly, nobody would have the ability to corner the market on a surplus of necessities anyway. It’s too off-topic for here, but there’s just no way that people who make as much and only as much as the value they personally produce will ever get so GD wealthy, ooh look a commie blah blah maybe I’ll start another thread if I feel like it.

20

Yes, but I dont consider those I would take from “weak”.

That’s is baseless. You dont know you wouldn’t practice it, you just have a feeling you value personal well being over principle. Until you actually violate that principle, nothing can be said. And whether or not you practice it does not determine whether you follow it. You can consider yourself following a principle and simply fail to meet it’s conditions.

Well, at least as far as protestantism goes (I’m not that familiar with catholicism so I don’t know their ideas on this) most consider themselves evil to some level. It’s part of “coming short to the glory of God”.