Lynne Kiesling
Here are some links that caught my eye recently:
At Cheap Talk, Sandeep Baliga recounts a tale of the emergence of legal institutions in an underground economy on the south side of Chicago. This post prompted me to think hard this morning about whether it’s a misnomer to do as he does and call this an example of “Leviathan”, because under Hobbes’ unjustifiably (IMO) contractarian model of social order the parties agree to a monopoly on coercion … but the violating party in this case “… is not from the neighborhood and does not acknowledge the pastor’s authority.” So there is a monopoly on coercion in this back alley in Chicago, and the violating party is from outside the community. It’s not often that an anecdote in a blog post makes me think so carefully through Hobbes!
Many KP readers probably value Mike’s excellent analyses of the use and abuse of the economic non-concept of “price gouging”. Yesterday in the Freeman Steve Horwitz wrote a column on price gouging inspired by recent tornado cleanup efforts. One of his eloquent points is that “Prices, as I’ve discussed before, play two intertwined roles: They are knowledge wrapped in an incentive.” Anti-price-gouging laws subvert both knowledge and incentives, and lead to inefficiency and distortions in the form of delayed reconstruction. But the real punch of the column is the asymmetry of the price gouging argument; why do politicians rail against oil and gasoline price increases driven by increases in demand and in relative scarcity, while they do not rail against carpenter, plumber, electrician etc. price increases in the wake of tornadoes (or any natural disaster)? There is no substantive difference between the two situations, but Steve contends that “prejudice against profits” leads to calls for legislation in the former case but not the latter. A must-read column.
My friend SarahS is a Renaissance literary scholar and poet who hangs out with a lot of economists … and it shows! Check out her top-10 lines for hitting on an economist. My favorite (channeling my inner Coase): “I have a feeling you really understand the “nature of the firm.”” That assumes, though, that one would want to hit on an economist …
Lynne, I’ve got to train you (and Steve) to stop calling price gouging a non-concept, because it makes it sound like I’m studying nothing rather than something when I research price gouging. Just because the experience is subjective, doesn’t mean it isn’t real!
RE: “politicians rail against oil and gasoline price increases driven by increases in demand and in relative scarcity, while they do not rail against carpenter, plumber, electrician etc. price increases…”
This is easy to explain: oil and gasoline consumers are voters, carpenters and plumbers and electricians are votes, politicians are in favor of whatever consumers want to hear.
Why do consumers care about oil and gasoline prices and not carpenter/plumber/electrician wages? Consumers pay gasoline prices directly, and the price gouging experience comes for (some) consumers when they see a price increase for a good they feel they need when under some sort of stress. Businesses see higher wages, but business managers don’t typically moralize the price changes they see in the market.