Price gouging in Haiti

Michael Giberson

Reports from Haiti suggest that prices for many useful and necessary goods have jumped considerably since the earthquake.  Candles, matches, ice, water, food items, bus trips from the capital, petrol, plastic sandals, charcoal, rice, sugar – the list of items now selling at dramatically higher prices seems endless.  Last week I suggested that claims of price gouging that were heard in Venezuela and Alaska were stretching the meaning of the term a bit, but if anything represents pure price gouging it is sharp price hikes on necessary items amid the current devastation in Haiti.

I don’t know whether or not Haitian law prohibits or limits price increases on necessary goods during emergencies, but surely the ethics of price gouging are the same in Haiti as in other places.  Consider some of the episodes that are described as price gouging in news articles.

  • Wall Street Journal: “The Hotel Oloffson, where many journalists are camped out, was charging up to $100 per night — for a mattress in the parking lot. A bottle of Gatorade at the hotel was going for seven dollars.”
  • New York Times: One vendor mentions was a Manouchka Wendiwou, described as “a vendor in La Saline who raised her candle prices by 60 percent and made no apology for charging what the market would bear.”  The article also notes that matches, foodstuffs, gasoline, and ice are showing dramatically higher prices in Haiti.
  • Philadelphia Inquirer: Mentions “price-gouging for gas and water” hampering relief efforts.
  • Boston Globe: “Price gouging was rampant at the main bus terminal. Fortune and others said the cost of a ticket out of town more than doubled since the quake hit. But it was a price that hundreds were willing to pay after nearly a week of living on the streets….”
  • Ottowa Citizen: “About 30 per cent of gas stations in Port-au-Prince have opened, and officials say there is no longer a fuel shortage. But prices have tripled from pre-earthquake levels.”

If price gouging is unethical, then we ought to condemn these reported behaviors right?

But I find it hard to condemn these actions, which generally appear to be pro-social commercial responses to abnormal social and economic conditions. Higher prices motivate more careful use of existing supplies as well as extraordinary efforts to secure additional supplies. Changing relative prices help guide the efforts of suppliers and merchants to the most vitally needed items. Both the incentive and information aspects of prices are critical to guiding decentralized responses to human needs in this rapidly changing situation.

The New York Times article observes that, “Haiti’s huge informal sector reacted faster to the quake than did established companies and banks. Outdoor markets like La Saline are already filled with goods from the countryside, including salt, cornmeal, fruits like mangoes and used clothing from the United States.”  How fast would that informal sector have reacted if the government felt an obligation to enforce some notion of anti-price gouging policy?

NOTE: Chris MacDonald discusses a bit of the ethics of price gouging in Haiti at his Business Ethics Blog.  See Business As Usual (plus Price Gouging) in Parts of Haiti.

Energy storage on the grid: transmission equipment or market participant? (Again)

Michael Giberson

In the wholesale power markets world, commercial energy storage concepts are commonly somewhat of an afterthought. None of the large regional wholesale power markets integrated into transmission operations put too much effort into thinking about energy storage as they developed their market rules.

A part of the problem is that the transmission system and the rules that surround it is set up to move power from generation sources to electrical loads. Grid-connected energy storage devices are something of a hybrid: sometimes act like generators – supplying power – and sometimes act like loads – consuming power. They don’t always fit neatly into traditional categories. Further mixing things up, energy storage can contribute greatly to system reliability, usually treated as a matter for transmission-system based coordination rather than market transaction.

But as commercial-scale energy storage begins to arrive on the scene it has become more important to sort through these issues.

I’m just quoting myself from a post of 14 months ago on the topic of integrating energy storage players into regional power markets.  At the time the case involved American Electric Power’s desire to add a battery storage system as part of a transmission system upgrade in Texas, and a request that the energy storage device be treated as transmission facilities (and therefore have costs recovered through regulated transmission rates) rather than as an energy market participant of some sort.  The PUC of Texas permitted AEP its battery-storage-system-as-transmission-facility.

Last week FERC took initial action on a similar request (link goes to decision; see also FERC news release).  Western Grid Development LLC has proposed installing energy storage devices on the CAISO-managed transmission system and seeks to have its system treated as transmission facilities. The comments and protests filed in response to the Western Grid raise the same concerns heard in the AEP/Texas case.  Some parties object that storage inherently involves participation in energy buying and selling and therefore the systems ought to be energy market participants; Western Grid states that any purchase or sale of energy would be incidental to operation of the system in support of the transmission grid, done only at the direction of CAISO, and net revenues – if any – would be refunded to transmission ratepayers.

In FERC’s decision, it agreed that the facilities could be treated as transmission equipment so long as they are built and operated as described by Western Grid, and so long as the CAISO approves the project as part of the ISO’s regional transmission planning process.  (CAISO, by the way, filed a strong protest in response to the Western Grid request, so I expect Western Grid will have much work to do to gets its project off the ground, even with this preliminary approval by FERC.)

FERC was clear that this decision is limited to Western Grid’s project as proposed and does not suggest any general position on the treatment of energy storage devices on the grid.  In fact no general position may be available, given, as FERC explains, “electricity storage devices …do not readily fit into only one of the traditional asset functions of generation, transmission or distribution. Under certain circumstances, storage devices can resemble any of these functions or even load. For this reason, the Commission has addressed the classification of energy storage devices on a case-by-case basis.”

By the way, a number of the key people involved in Western Grid are also working together on the Tres Amigas project though (I think) no official links exist between the two companies.

A private right of action on price gouging

Michael Giberson

One bill,, submitted to the New York State Assembly last year (but, so far as I can tell, not passed into law; ADDED: See status note below.), proposes to grant consumers a private right of action when they become victims of price gouging in times of emergency. Currently only the state’s Attorney General has authority to bring legal action against someone accused of violating the state’s price gouging law.

The bill’s sponsor suggests that “the threat of enforcement by the Attorney General is not serving as an adequate deterrent,” and implies allowing private rights of actions would help.  To that end, “the purpose of this bill is to grant citizens who are victims of illegal price gouging in times of emergency the right to directly sue the responsible party.” The proposal would allow a victim to sue to recover up to “actual damages” or $1000, whichever is greater, and give the court discretion to award a prevailing plaintiff up to $5000 and reasonable attorneys’ fees.

The bill does not specify who is considered a “victim” under the law.  I can imagine a few problems that may result.

The existing New York law on price gouging is in Section 396-r of the New York Code.  The law provides that during “any abnormal disruption of the market for consumer goods and services vital and necessary for the health, safety and welfare of consumers, no party within the chain of distribution of such consumer goods or services or both shall sell or offer to sell any such goods or services or both for an amount which represents an unconscionably excessive price.”  The law narrows the description of “abnormal disruption” to events resulting in a state of emergency declared by the governor, and otherwise tries to specify just what the law covers, but on the question of what makes a price too high, the law simply states: “Whether a price is unconscionably excessive is a question of law for the court,” and it offers a bit of guidance.

So here is one problem: One part of that guidance suggests a price could be unconscionably excessive if “the amount charged grossly exceeded the price at which the same or similar goods or services were readily obtainable by other consumers in the trade area.”  Therefore, the definition seems to apply in cases in which the “victim” incurs the hazard, i.e. could have purchased at other prices but chose to buy from a merchant offering the good or service for a much higher price. Why would a consumer do this? Well, under this proposal the consumer could file a private action by which he might rewarded as much as $1,000 damages plus up to a $5,000 penalty and reasonable attorneys’ fees because the consumer chose to pay the higher price.

More generally, which victims would qualify to seek compensation? While the consumer charged an amount grossly exceeding some reference price is typically seen as a price gouging victim, what about consumers that would have purchased the good or service but for the unconscionably excessive price at which it is offered? Surely they, too, are victims under the logic of price gouging.  Will they also be able to seek private rights of action and obtain a reward?  If not then the law protects consumers willing and able to pay the higher price, but not consumers who find themselves priced out of the market.  If the law permits these victims-without-receipts to file private suits of action, the potential liability of a business charging higher prices after an emergency can become very large and ill-defined.

Supporters of anti-price gouging legislation may say this is all fine.  The first case suggests that consumers may intentionally seek out merchants offering too-high prices with the intent of subsequently filing a price gouging claim, but that just means that more citizens are motivated to help deter price gouging, and that’s the point, right?  The second case, with a large and ill-documented class of consumers who would-have-but-didn’t-buy at the too-high price, by dramatically increasing the potential liability, similarly serves to help deter price gouging.  Again, that’s the point and what could be wrong?

Well, nothing in New York’s anti-price gouging law requires merchants to remain open for business during market disruptions associated with declared emergencies.  And if remaining open might expose the store to large but hard-to-define liabilities, the store’s owner might reasonably just close up shop.  Consumers, then, would be made worse off by the action of this “consumer protection” policy.

UPDATE: As indicated on the bill’s information page, in early February 2010 the Consumer Protection Committee of the State Senate approved the bill on an 8-2 vote and sent it to the Finance Committee.  An identical bill, A278A, passed the State Assembly last year.

Hey cooks! Use Bing for recipe searches

Lynne Kiesling

OK, so this is pretty cool and useful:

Today Bing, the relatively new search engine from Microsoft, launched a feature that lists recipes when users search for food items. Search “chicken,” for example, then click the “chicken recipes” tab, and Bing delivers chicken noodle soups and chicken schnitzels from major databases like Allrecipes, Delish, and bonappetit.com’s sister site, Epicurious.

The searches will also include calorie counts, photos, etc. Pretty nifty! And the competing search engine thing is very good too …

Tim Harford on Hahn-Passell and Regulation 2.0

Lynne Kiesling

Courtesy of Tim Harford’s blog at the Financial Times (which you should be following, or following via Twitter) is a link to this “Devils and Details” post from Bob Hahn’s and Peter Passell’s new blog, Regulation 2.0. Their comment and the links embedded in the post are worth considering on the topic of carbon policy:

In the beginning, economists touted emissions taxes and cap-and-trade systems as efficient, market-friendly methods for reducing pollution. The idea: put a price on pollution equal to the damage it caused or decide what level of emissions was acceptable to society as a whole, and then let businesses decide how to minimize the cost. The two approaches – put a price on emissions or put a limit their total quantity — were thought to be equivalent means to the same end.

Then came Martin Weitzman, a very clever economist from Harvard, who showed decades ago that the choice between the price and quantity approaches mattered a lot when policymakers weren’t certain what the costs and/or benefits of pollution control would be. And now Round Three: In a recent, provocative piece [Download Here], David Weisbach of the University of Chicago questions Weitzman’s conclusions. He concludes that the optimal approach may change if you make the (realistic) assumption that policymakers can alter course in response to new information.

And then there’s another factor to consider: the systems can be designed to look a lot like each other. For example, a cap-and-trade system with a “safety valve,’’ which effectively limits the maximum market price of emissions permits, in many respects mimics the impact of an emissions tax.

So where does that leave us on climate change policy? The key is not to get lost in the trees – any market-based system that rewards people and businesses for emitting less carbon would be a big step forward.

Their posts will focus on energy, environment, telecom, alcohol, financial, and other forms of regulation. I like the spirit of “Regulation 2.0″, because Regulation 1.0 is certainly obsolete in the areas I study, but inertia in adapting and evolving is very strong, and change comes too slowly.

Citizens United, competing free speech, and “associations of citizens”

Lynne Kiesling

I’ve spent the past several hours reading the Supreme Court’s opinion in Citizens United vs. the FEC; the document is available at the Supreme Court web site, and I encourage anyone who has an opinion about or interest in political expression and freedom of speech to read it. In other words, every American citizen, and our republic, would benefit from reading it and considering the ideas contained in it.

Like many others (such as Matt Welch and Will Wilkinson), I am stunned at and baffled by the misconceptions and the degree of deliberate misunderstanding of the provisions of the First Amendment that opponents of this decision are exhibiting (and that 4 jurists actually argued in favor of continuing to restrict freedom of speech and freedom of access to free speech). Even “right-wing” commentators like David Brooks oppose the decision (according to the comments I heard him make on NPR on Friday evening), and I think many opponents throughout the political spectrum are conflating, falsely, their desired concepts of speech and expression with their dislike of the outcome that is clearly divergent from their idealized notions of what a perfect polity would be.

Perhaps it is my innate cynicism, or it may be my universal disdain for politics and its inevitable cronyism that is seeing such high and visible expression these days, but I think that those who want barriers to corporate forms of political expression because of its injection of money into politics are naive in the extreme. Put another way, money has always influenced politics, and it always will, so comparing real-world politics to an idyllic, utopian republic is an exercise in futility. Wherever we use political institutions to decide outcomes that affect the well-being of any collection of individuals, those individuals are going to attempt to influence the processes leading to those outcomes. Even under BCRA restrictions on corporate political expression, lobbying, rent seeking, and money have continued to determine political outcomes. Government censorship of some speakers has not changed that, and has instead, as the Supreme Court’s decision puts it, censored political speech (pp. 38-39, pdf pp. 45-46):

The censorship we now confront is vast in its reach. The Government has “muffle[d] the voices that best represent the most significant segments of the economy.” McConnell, supra, at 257–258 (opinion of SCALIA, J.). And “the electorate [has been] deprived of information, knowledge and opinion vital to its function.” CIO, 335 U. S., at 144 (Rutledge, J., concurring in result). By suppressing the speech of manifold corporations, both for-profit and non-profit, the Government prevents their voices and viewpoints from reaching the public and advising voters on which persons or entities are hostile to their interests. Factions will necessarily form in our Republic, but the remedy of “destroying the liberty” of some factions is “worse than the disease.” The Federalist No. 10, p. 130 (B.Wright ed. 1961) (J. Madison). Factions should be checked by permitting them all to speak, see ibid., and by entrusting the people to judge what is true and what is false.

This decision makes it clear that what the First Amendment protects is speech, regardless of its content and regardless of the form of the speaker. That protection is essential to a healthy republic grounded in democratic processes, even if we disdain or distrust the speakers. As stated elsewhere in the decision (p. 24, pdf p. 31):

Quite apart from the purpose or effect of regulating content, moreover, the Government may commit a constitutional wrong when by law it identifies certain preferred speakers. By taking the right to speak from some and giving it to others, the Government deprives the disadvantaged person or class of the right to use speech to strive to establish worth, standing, and respect for the speaker’s voice. The Government may not by these means deprive the public of the right and privilege to determine for itself what speech and speakers are worthy of consideration. The First Amendment protects speech and speaker, and the ideas that flow from each.

One phrase that recurs frequently in the decision is “citizens and associations of citizens”. I find this phrase particularly meaningful, and to me it reflects the understanding that the American republic is grounded in individual rights, including both rights to free speech and rights to free association, including association with and within corporate entities. Those corporate entities are heterogeneous, from Exxon to the Sierra Club to the National Rifle Association to the AFL-CIO to Citizens United. The Constitution and this decision respect and protect the importance of the rights of individual citizens to determine for himself and herself what speakers and what forms of speech are important and material. By placing restrictions on the forms and/or sources of speech, the Government impinges that right, and that is a right that is at the core of individual autonomy and self-determination.

This line of thinking gets to where I think the opponents of this decision misunderstand and misinterpret it the most. The Constitution and the Bill of Rights exist to restrain government power. By definition, government has a monopoly on force and can exercise coercion more readily than other entities in society, including corporate entities (for-profit and non-profit). If a company pays to publish a book that advocates for a political candidate, as individual citizens we have the opportunity and the right to listen, to ignore, to publish a counter-argument; increasingly with the Internet more and more of us have the means to do so at much lower cost. Different speech, different speakers, different forms of speech all compete against each other in “the ‘open marketplace’ of ideas protected by the First Amendment” (p. 38, pdf p. 45). Money will always be a part of that dynamic. Only by having the freedom for all ideas to compete can we hope to restrain the venal and illicit intersection of money and politics that has disillusioned so many of us despite the existence of the BCRA restrictions.

The federal government, however, is a monopoly, and its exercise of force and coercion cannot be undermined or counteracted through an “open marketplace of ideas” in the ways described above. For that reason, to have any hope of a healthy republic, our default should be to restrain government power and coercion rather than restraining the speech of corporate entities, because corporate entities compete with each other, and with other types of speakers, in political speech. The government, on the other hand, faces no competition — it has a monopoly on the exercise of the sort of force and coercion that results in censorship when the First Amendment is not interpreted to protect all speech.

Others more knowledgeable than I have written intelligent comments on this decision, including law professor Larry Ribstein, Tim Lee, and law professor and former FEC Commissioner Brad Smith. I also like Ilya Somin’s argument for why corporate rights and property rights are part of the bundle of human rights, an interesting twist on interpreting this decision; he says that opponents to this decision are inaccurately conflating a right with the means of exercising a right (which is a more eloquent way of saying what I did above, or of saying that the First Amendment protects speech, not speakers).

Note also that the decision leaves intact requirements for information provision and disclosure, which do not abridge the First Amendment rights to freedom of speech among citizens and associations of citizens. Finally, I like Will’s closing comment so much that I’m just going to take it:

I see this ruling as vindicating the importance of equality of voice by protecting the rights of individuals and associations to speak out on behalf of their interests and values. Progressives clearly see the ruling primarily as some kind of corporate-empowerment initiative. But you can’t really take on Big Agra or Wall Street unless you can organize to speak out against the Chuck Grassleys and Chuck Schumers when it really counts.

The Founders were deeply skeptical of corporations

Michael Giberson

Many keystrokes this week have been devoted to praising or damning the Supreme Court decision in Citizens United v. Federal Election Commission.  I’m inclined to agree with the praisers, but others are more competent to address the legal and political issues addressed by the court.  I just want to pass along a useful bit of historical observation from Streetwise Professor:

Stevens noted that the Founders were deeply skeptical of corporations.  Indeed so. Scalia noted that there are so many corporations them today.  Also true.  The interesting question is how we got from A (Stevens) to B (Scalia).The story is told in the North, Wallis and Weingast natural state book Violence and Social Orders I’ve blogged about several times, mostly in the context of Russia.  The relevant chapter is primarily based on John Wallis’s work.  The basic story is that hostility to corporations–reflected very well in Adam Smith’s Wealth of Nations–was due to the fact that historically, English corporations were created by the crown, and were essentially very profitable favors provided to the politically connected.  They were, in NWW terms, part of the “closed order” of the natural state, in which access to certain contracting forms was limited to a select powerful few.  This animus towards corporations was inherited in the United States, but in the early years of the 19th century, state legislatures confronting issues associated with the financing of new infrastructure turned the corporate form into a prop of an open order system in which this contracting form was made available to all.  Rather than limit the right of incorporation to an elite, they made it available to everybody.  The system changed from one in which legislatures had to grant every incorporation, to one in which pretty much anybody could incorporate if they met a set of general, universally applicable requirements.  Hence, the proliferation of corporations.

Thus, Stevens was historically right, but his inference was wrong.  The kind of corporation that Adam Smith and the Founders detested was a quite different from the modern corporation that developed in the 19th century.  The name was the same, but the entire conceptual and legal basis for corporations old and new were completely different.  Indeed, almost inversions of one another. Indeed, the transformation of the corporation from a creation of the closed order to an essential element of the emerging open order explains the empirical phenomenon that Scalia cited.

I’ve been meaning to read the North, Wallis, and Weingast book since it was published, but haven’t yet secured a copy. Guess I ought to get to it.