Economists react differently than most people. Their critics often say things like, “Yes, that’s easy for you to say in your position, but surely you’d think differently if you were in the position of someone who had to go through it.” For example, economists don’t see so-called “price gouging” as a terrible insult, but that may simply be because they’ve never been the victim of it, and if they were, they’d think twice. But such critics shouldn’t be so sure. Economist John Cochran recently explained why his experience of being the victim of “price gouging” was a good one:
Uber’s surge pricing was an important lesson for me. I liked it. I could always rent a car if I really needed to, and I could see how much extra I was paying and decide if I needed it or not. I appreciated that Uber made it possible for me to pay other people to postpone their rides for a while, sending a loud message that drivers needed them more. But drivers reported that everyone else hated it and that they felt cheated.
Cochran also described how his mother became infuriated when he tried to find a hotel room in the middle of Woodstock II. They eventually found a room at a Super Motel 8, but it was significantly more expensive than the chain’s regular rate. Cochran tried to reassure his mother that the availability of the room at the higher price was a blessing.
I tried hard to explain, “If he had charged $50 or $100, that room would have been empty long ago and I would have been sleeping in my car tonight. Thank him and be grateful. He’s an immigrant struggling to make ends meet. I don’t need gifts from a guy who runs a Super 8 in upstate New York.” But she, a wonderful, smart, sensible, well-traveled woman that she is, wouldn’t buy it. I couldn’t convince her that it wasn’t terrible that the hotel owner was “taking advantage of us.”
My own experience comes from the other side of things – being in a situation where there was no “price gouging” and I wish there was.
This was in 2016. I had quit my job at the Medical University of South Carolina in Charleston and decided to move to Minnesota. Most of my belongings had been picked up by movers a few days before and I was planning to drive off that weekend. However, a few days before I was scheduled to leave, Hurricane Matthew was scheduled to make landfall in Charleston. So I decided to get up early the next morning and leave a few days earlier than originally planned.
When I woke up the next morning, I realized I had messed up. My gas tank was very low and nearing empty. I had a long drive ahead of me, so I needed to fill up. And even at 4:30 in the morning, there was a very long line in front of the pump at the nearby gas station as people were preparing to leave the area ahead of the hurricane. But the price of gas hadn’t changed at all. You don’t see price gouging here. That made me nervous.
Everyone needed gas, but not everyone needed it equally. Many of the people in that line, and those who had filled up a few days earlier and left, had tanks nearly full or almost full, but wanted to “fill up” before leaving. And there were people like me who had run out of gas in their gas tanks and couldn’t even make the 10-minute drive down the highway to the next gas station in town. In an ideal world, the remaining gas would go to people like me, not to people with nearly full tanks. And price signals tend to lead us to exactly that world. If prices had risen, someone who already had three-quarters of a tank of gas might have thought, “At this price, it’s not worth filling up the rest. I’ll just go out now and fill up in a few hours.” People who made that decision would leave more gas for people like me who were in a “now or never” situation. I would have gladly paid a few extra dollars per gallon for the assurance of being able to fill up, rather than taking the serious risk of being stranded next to a gas station advertising a “fair” price with an empty tank.
Fortunately, that did not happen, and I ended up getting to the front of the line and filling up. I also noticed that the flow of gas coming out of the pump was the slowest and weakest I have ever experienced or will ever experience. I was lucky. If I had left an hour later that morning, we very likely would have been out of gas and caught in the hurricane. And we would not have felt protected or looked after by laws that prevented gas prices from going up. John Cochran was grateful for the high price he had to pay, but I was very upset by the low price I had to pay.
