Prices Are Equalizers

Lynne Kiesling

Don Boudreaux has a post on prices as the great equalizer that’s is very important. After looking at two of the different ways of rationing stuff (queuing and family connections), Don points out that

One great advantage of rationing by market prices is that they reduce to a minimum the role of arbitrariness. Price are, in other words, a great equalizer. Anyone who is willing to pay the market price for a good or service is just as likely to get that good or service as is the sellerís mother, neighbor, or bowling buddy.

I would go even further to say that regulation provides another form of rationing (of course I would say that, I work on electricity!), and is prone to much, if not more, of the same arbitrariness and favor that these other non-price methods are.

This is one important reason why retail electricity prices are so important. Not only do they communicate information about preferences and costs better than any alternative rationing scheme, and therefore lead to outcomes closer to efficiency, but they also are not prone to the arbitrariness and capriciousness of rationing by queuing, political favor, or ability to influence regulation or legislation.


5 thoughts on “Prices Are Equalizers

  1. I have a neighbor that owns warehouses of winter goods, ice remover, wiper washer fluid, snow shovels and that type of item. He stores these goods throughout the Midwest.

    When bad weather strikes, he sells the items he has locally trucks more items into the affected area. His margins are very good, and he never must discount.

    Building this type of network provides profit for my neighbor, and keeps windshields clean. Makes me wonder how this type of “profiteering” can be regarded as illegal, when the profit motive is what provides the goods in the first place.

    JBP

  2. Many long years ago (could have been the administration of John F. Kennedy) an economist (Not sure which one) wrote a column in Newsweek (OK maybe Time) in which he asked and answerd the question: “What is that economists economize?”

    His answer was love. Things that can be fairly priced and sold in the market place do have to draw on love for their allocation, which we can reserve for more important uses.

  3. NPR ran a story yesterday, highlighting Florida’s enforcement of laws against raising prices to meet market demand.

    NPR generally applauded the the enforcement, and commended Florida for arresting “criminals” acccused of pricing hotel rooms as $180 per night hotel rooms, and unlicensed roofers repairing roofs, rather than letting homes get soaked again.

    It would be shocking if someone at NPR actually were in favor of selling goods in exchange for cash rather than penalizing legitimate commmerce for providing demanded goods and services.

    JBP

  4. Education is needed of NPR producers maybe , but most locals even in liberal Arlington Virginia got the point when our neighborhood hardware store responded to a huge two day snowstorm by repackaging all purpose sand from 50 lb bags (at $3.98) into 5-lb ziplocks of “Traction Sand” ($5 each). You have to applaud that enterprise. And probably a few more people got home in their cars than if they had sold it in big bags. It was a learning experience for me.

  5. Education is needed of NPR producers maybe , but most locals even in liberal Arlington Virginia got the point when our neighborhood hardware store responded to a huge two day snowstorm by repackaging all purpose sand from 50 lb bags (at $3.98) into 5-lb ziplocks of “Traction Sand” ($5 each). You have to applaud that enterprise. And probably a few more people got home in their cars than if they had sold it in big bags. It was a learning experience for me.

Comments are closed.