Sen. Ed Markey is having a little trouble grasping this whole capitalism thing. The Massachusetts Democrat claims in a new letter to Amazon CEO Jeff Bezos that “corporate America has a responsibility to prevent profiteering,” which really isn’t the point at all. Making a profit is actually the exact function of a corporation.
The background here is the alleged “price gouging” on Amazon for face masks, hand sanitizers, and related products amid the rise of the coronavirus. Such a scenario is exactly the time, of course, when we want significant price rises in these items — because more people want them than there are enough products to sell. When demand rises above supply, price rises. (Yes, Markey, those first few pages of the Economics 101 textbook you apparently didn’t read are actually correct.) Far from an outrage, this is actually exactly what we want to happen.
The high prices will make sure that those who really want and need the supplies are the ones who get them, as those only somewhat interested in obtaining them will be put off. So, too, the higher prices will incentivize the factories that make supplies to run extra shifts and pay out overtime. This is the only way the shortage can be addressed.
We have actually tried other methods of allocating scarce goods. And we know now that prices operating in free markets are the only efficient way to undertake this task. Who gets what from a limited supply is best handled by who will pay the most.
Markey goes on to ask, “At what level is an item considered unfairly priced?” There is only one possible answer to that: the price which no one will pay. If someone will pay the price, then it’s fairly priced to them. If they didn’t think it was worth it, they wouldn’t buy it. The end.
The value of something is individually determined and cannot always be easily ascertained by observers in Washington, such as Markey. I, for example, place a negative value upon the “music” of Justin Bieber. Millions upon millions disagree with me and are willing to pay for his “music.”
The fair value of a product is what we, consumers, are willing to pay.
If boxes of face masks are $10, sure, I’ll have one. But if they’re $400, I’ll pass — only people in true need will pay that much. The result? I end up not using a face mask to feed my cat while a doctor does get one to treat sick patients.
This is the miracle of the price system. Or, as Markey would call it, “price gouging.” I say, all hail price gouging! And fie to the fools who would stop us using the only efficient allocation method we’ve got.
Of course, Markey might think the government could handle this all much better. He does support the “Green New Deal” after all. (Because political allocation of economic resources did such a great job in socialist countries during the 20th century, right?)
Here’s the funny bit: Markey spent $18 million to win his current Senate seat. (Roughly $7.5 million more than the average Senate seat winner that year.) A Democrat having to pay that much to win in Massachusetts? Well, it looks like we’ve just found our perfect example of something that’s actually overpriced.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
