Is it wrong to take price advantage of someone who is over a barrel because of circumstances beyond their control? With one hurricane barely over and another one barreling in, that question is in the news. Should anyone charge $42 for a case of bottled water? How can an airline raise prices overnight on flights out of Miami from under $200 to over $1,200?
The other side of the question hit me personally last week as I picked up a dozen eggs in a full-service neighborhood grocery near my home. At only $1.29 for extra large, am I unjustly exploiting the Sparboes, the Minnesota family that has produced eggs for many decades? I know that at such a retail price, they cannot be getting enough to cover their production costs. What would medieval Catholic theologian Thomas Aquinas say about my casually taking advantage of them as I put two dozen into my basket at that price? Or John Calvin for that matter? Will St. Peter take me sharply to task on Judgement Day?
While intro economics texts all note that equity and efficiency are commonly applied to economic policies and institutions, economists themselves put about 99 percent of their effort into efficiency considerations. We pay precious little attention to equity or fairness or justice, call it what you will. We see philosophers, theologians and jurists as better equipped.
Note also that I grew up in a Dutch Calvinist theology that placed great emphasis on social justice, at least abstractly. And, despite some bigotry lingering from the 1500’s, we respected the way Catholic theology grappled with integrating Christian principles into culture and society. Moreover, on the specific morality of charging more for necessities during scarcity, there was no daylight between French lawyer John Calvin and Sicilian-born friar Thomas Aquinas. To both, charging $42 for a case of water would send some Best Buy manager in the direction of hell. (Best Buy quickly apologized for its store selling the water at such a high price).
I have been engaged professionally and personally with Latin America for 49 years, with time spent living in Brazil and Peru. And when my deeply devout Brazilian Catholic friend says, “Just-price theology has caused more death and suffering in Latin America than all multi-national corporations combined,” I think he hits the nail right on the head.
So it’s a knotty problem and not just for religious people.
Jews, Muslims, Buddhists and members of other religions agree with Christians that it is wrong for one human to exploit another. So do many people who don’t believe in any god. It is a near-universal ethical principle. But what is exploitation? No one has foolproof criteria.
It is human nature to identify injustice more quickly when one is harmed rather than helped by circumstance. Reader emails illustrate this.
A few years ago when a dozen eggs was $3.29 or more, I got many messages citing this as evidence of monopoly abuse of consumers or that the Consumer Price Index was rigged. But no one has written telling me that egg farmers are being exploited right now or that the CPI is overstating food costs.
My folders contain dozens of emails complaining that Social Security cost-of-living adjustments are inadequate. But, despite the fact that some people have ended up getting Social Security benefits amounting to 10 times the actuarial value of what they paid in, no one has ever commented to me about getting an overly-large check relative to what was paid in. Doubtful too that anyone has offered to refund the money to the government.
I once was hired as a “consulting expert” on a lawsuit pitting one Fortune 500 corporation against another. My fee was over four times the maximum USAID would pay me to consult with newly privatizing businesses in Bulgaria. Was I abusing the stockholders of the corporation that hired me? Should I have told the attorneys in their expensive suits and paneled offices that I could not accept so much?
George Romney, Mitt’s father and a devout Mormon, who headed American Motors in the 1960s, did just that, saying that it was unfair to shareholders and employees for him to be paid more than $365,000 a year despite the fact that GM and Ford CEOs earned many times that. Should St. Peter wave him through Pearly Gates while grilling me on my avarice?
A key problem is that prices signal information and motivate actions. Medieval theologians agreed that if a merchant had 10 ships and one sank in a storm, it would be sinful for him to charge higher prices for the merchandise on the remaining nine. God had willed that his ship sink. Raising prices on remaining goods attempted to transfer God’s wrath to others. This made sense in prevailing theology, but it also meant that there were fewer ships carrying useful goods. And the average price did have to be higher to keep merchants in business.
When a poor harvest created food shortages in Geneva, Calvin thundered against grain merchants who held stocks back awaiting a higher price. Their greed should be punished by confiscation and forced distribution. But if you prevent grain dealers from getting higher prices for stored grain, you eliminate incentives to build warehouses and to tie money up in inventories. Less grain is stored. Price fluctuations are greater and more people go hungry.
That seems obvious, but four centuries later in 1980s Peru, headlines screaming against “acaparamiento” (hoarding) were common, coupled with calls for strict punishment of such criminals and of anyone who violated price caps. So there was less storage, lower prices paid to peasants and less food for consumers.
During Brazil’s sundry inflations in the late 20th century, the perpetual hue and cry was against “remarcacao” or raising pricing of merchandise already in stores. Perpetrators were shamed and fined. With inflation running 10 percent a month, if you could not re-price your inventory when the government moved the index to which salaries and many other things were tied, then one could not even pay for the next shipment to restock. The lesson was to hold minimal inventories. But that meant constant shortages and waiting in lines. The poor suffered more than the rich, as they usually do.
Prices allocate available goods. Letting scarce water go to those wealthy enough to pay $42 may be unfair. Would it be more just to force the sale at pre-flood prices to those strong or fast enough to get in line first? Is limiting one case to a customer fairer than requiring cases to be opened and allotting 12 bottles per customer? Then why not six or two? Should the aged or those with infants have a right to go the head of any queue. Or is physical vulnerability irrelevant even though justice requires the merchant’s price be capped?
High demand for chainsaws and generators motivates entrepreneurs elsewhere to load up semis and drive to Florida or the Gulf Coast, where they will be sold off the tailgate at prices that make the venture worthwhile. Is it then just, a la Calvin, to require the local big box stores to sell their remaining inventory at pre-storm prices? Level the playing field by also regulating the guys arriving with semis of useful goods and you will have many fewer such semis.
It’s always amusing to see free-market Republicans like Texas Gov. Gregg Abbott suddenly champion government price regulation in the wake of a storm. It may be politically popular and, in a few circumstances, may be the least bad option, but perverse incentives still abound.
For some, the old chimera of central planners — the system is good, we just need to get the details right — remains seductive. What if we had a panel of sages from a Southern Baptist seminary and Wharton Business School to price everything? But the harsh reality is that resource allocation in the wake of a disaster always involves apparent injustices, however much we try to regulate them away.