0:00

NPR. This

0:12

is the indicator from planet money. I'm

0:14

Patty Hirsch. And I'm Whelan Wang.

0:16

After more than two years of pandemic, a

0:18

supply chain crisis and a war in

0:20

Europe, supply shocks have become commonplace

0:22

in the global economy. With those supply

0:25

shocks, of course, come shortages and

0:27

rising prices. And more often

0:29

than

0:29

not, outraged accusations of

0:32

price gauging. Price gouging.

0:35

When someone takes advantage of a shortage

0:37

of supply to jack up prices to

0:39

unfair levels, we've been hearing a

0:41

lot about price gouging lately, as the cost

0:43

of everything from eggs to gasoline has

0:45

been going

0:45

up.

0:46

In the case of those two commodities in particular,

0:48

prices have been going up so much and

0:51

making consumers hile with so much

0:53

pain that legislators have been getting

0:55

involved. Families across

0:57

the country are struggling to keep

0:59

up with rising gas prices. That's

1:02

Democratic representative Katie Porter

1:04

of California. In Orange County, California,

1:06

the price of gas is nearly six dollars

1:09

a gallon. And the price has gone

1:11

up two dollars a gallon

1:13

in just one

1:15

year. These corporations are

1:17

making record profits.

1:20

California's governor Gavin Newsom has

1:22

called for a price gouging penalty to

1:24

be imposed on oil companies. Meanwhile

1:27

in Rhode Island, senator Jack Reed has demanded

1:29

an inquiry into the possibility of gouging

1:31

in the egg

1:31

market. But what actually is priceguiding?

1:34

When does it happen? And who gets to decide

1:36

who's beenguiding and how they should be punished?

1:39

This is a slippery topic. But

1:41

today, we're gonna take a stab at

1:43

explaining why price gouging is so

1:45

hard to define. And why many economists

1:48

refused to even use the term. That's

1:50

coming up after the break.

1:55

Support for NPR comes from m

1:57

files, the smarter way to work. Get

1:59

everyone on the same page. Overcome

2:01

content collaboration obstacles effortlessly.

2:04

With an innovative metadata driven document

2:06

management platform that helps you efficiently

2:08

and securely find, share, and

2:10

collaborate with key stakeholders in real

2:13

time. Find out how a global leader

2:15

in information management can help your company

2:17

today. Visit m dash files

2:19

dot com to schedule a demo today.

2:22

We've all beenguidged, and we know

2:24

it when it happens. You've beenguidged. Right,

2:26

Whelan? I don't know if this totally counts,

2:28

but I'm still not over the amount I

2:30

paid for, you know, like a souvenir light

2:32

at Wanda at Disney on ice

2:34

thing. That's so mad about it.

2:37

I was like, how can it cost as much for a piece

2:39

of plastic? I know how you feel. It's kinda like

2:41

at the airport. You know, you got those retailers that sell

2:43

bottles of water for five bucks. The

2:45

same bottle that costs less than a dollar at a supermarket

2:48

just a half mile away. I mean, that's

2:50

price guiding. Right? No. don't think

2:52

so. That kill joy is Amy

2:54

Smith. She is an economist, of course,

2:56

and advanced economic solutions, consultancy.

2:59

I mean, there's other ways to get

3:01

water at the airport without having to pay for

3:03

that. You just make sure you bring a bottle with you

3:05

that's empty. You go through TSA, and

3:08

then you fill it up. So that's the consumer

3:10

decision you just made. You're like, okay. Well, I just

3:12

want a bottle of water. And if

3:14

you did wanna spend the extra five

3:16

bucks, then you just take an empty bottle with you.

3:18

I know, but it just feels terrible

3:21

because you know that they don't

3:23

have to charge that much for that

3:25

water. They're only doing it because they can.

3:27

I know. And that's the thing about priceguiding. It's

3:29

kind of in the eye of the beholder or

3:31

the guy g if you

3:32

prefer. I think it's more emotion

3:35

based perhaps. I think

3:37

the initial emotion is like Well,

3:39

that sucks or that's

3:41

bad or you know what I mean? That

3:45

suck is not very economic. I don't know

3:47

that price gouging is a specific

3:50

economic term. I don't specifically remember

3:52

talking about that relative

3:54

to, you know, any of my economic classes.

3:57

So, no, price gouging is not an economic

4:00

term. In fact, a large proportion,

4:02

maybe even most economists say that

4:04

price gouging isn't a thing at

4:06

all. Price gouging from

4:08

an economist standpoint, the opinion

4:11

is it it couldn't exist because it's

4:13

really all about supply and demand. I mean, you

4:15

just go back to your economics

4:18

101. Right? If there's less

4:21

of a good, then

4:23

you gotta increase the price in order

4:25

to rationalize

4:26

demand. In other words, the argument goes,

4:28

it's not price gauging. It's the market.

4:31

If demand is super high and supply

4:33

is super

4:34

low, then prices are going to rise

4:36

just as night follows day. To

4:38

say hurricane hits the Gulf Coast,

4:41

there might be an issue with

4:43

sending in products like

4:45

toilet paper or plywood

4:47

or something to that

4:48

effect, and that would drive prices because

4:50

the demand on something like that is high.

4:53

While supply continues to dwindle.

4:55

Now, I know what you're thinking. If there's a natural

4:58

disaster and people really need toilet

5:00

paper or plywood, and a retailer

5:02

charges a lot more for those things. That's

5:04

kind of unethical or maybe even

5:06

immoral. Yes. This is where economics 102

5:08

comes in. And we learn about the power of a

5:10

monopoly, which occurs when a company

5:13

likes any viable competition and can

5:15

keep prices

5:15

high. Which is kind of what it feels like

5:18

at the airport sometimes. But a hardline

5:20

economist might argue that it's not good for

5:22

the economy, not good for anyone. In fact,

5:24

to forbid retailers from increasing

5:26

prices. Goods often cost more in

5:28

a store because the retailer's supplier is

5:30

charging more and all the store owner is

5:32

doing is passing along those

5:34

costs. Natural disasters can be

5:36

an existential threat to businesses as

5:38

well as to the people who need what they sell.

5:40

You might see said business owners say,

5:42

well, you know what? We're running low on on

5:45

x, but I know I'm not gonna sell

5:47

y because it's not needed right now.

5:49

So if I increase x because we're

5:52

low in

5:52

supply, that'll help me make

5:54

up the difference in the margins that I'm not making

5:56

on y. Amy says that she is

5:58

not in that camp of economists who refused

6:00

to admit that price gouging exists at

6:03

all. She's felt gouged herself

6:05

on occasion. Like at the beginning of the pandemic,

6:07

when retailers of face masks and hand

6:09

sanitizer took advantage of price

6:12

shocks and supply shortages to increase

6:14

prices to eye wateringly unfair

6:16

levels. And you would go on an

6:18

Internet outlet or something

6:20

like that, and you would see, oh, my gosh, that's

6:24

I would pay that for gallon of hand sanitizer,

6:26

not for a pint of hand sanitizers.

6:29

The

6:29

problem, Amy, says, is that price gouging

6:31

is hard to define. And at what point

6:33

did that Internet retailer's price go from merely

6:36

high to an outright

6:37

gauge? Price gouging is highly

6:40

subjective concept. High subjective.

6:42

Well, for starters, just look at that word

6:44

guide. Yes. The dictionary definition

6:47

is to make a groove whole or indentation

6:49

with a sharp tool or blade. Ouch.

6:51

Yeah. It's a pretty aggressive verb that

6:53

implies someone doing injury to someone

6:55

else. There is a judgment inherent

6:57

there. Yeah. And who judges? Not economists,

7:00

not the retailer. Not even the buyer.

7:02

Okay. The buyer might judge. But it's the

7:04

government that decides what priceguiding

7:07

actually is. And not the federal

7:09

government by the

7:09

way. Each state has different laws

7:12

on the books related to price

7:14

fixing or price gouging or any any

7:16

of that. You certainly wanna protect

7:18

consumers from, you know,

7:21

being taken advantage of, but then

7:23

you also hope that the consumer is

7:26

making a rational decision as

7:28

well. Every state has different laws

7:30

on price gouging if they have laws at all.

7:32

Which means that in some parts of the US,

7:34

price gouging doesn't exist. And where it

7:36

does exist, it has variety of definitions.

7:39

In some states, retailers are allowed to pass

7:41

on wholesalers costs, and in others,

7:43

they're not. It's a random metric of

7:45

guidance that uses words like exorbitant,

7:48

ex excessive and unconscionable with

7:50

regard to pricing without defining

7:52

what those terms actually

7:53

mean. New England, this kind of reminds me

7:56

of what Supreme Court Justice Potter stuart

7:58

said about pornography.

8:00

I know it when I see it. Yeah. Like

8:02

when you're buying concert tickets and you see what the

8:04

fees are at the end and you're like, That is

8:06

obscene. That's when you

8:07

know. Yeah. The fact is that price gouging

8:09

laws and therefore the definition of price

8:11

gouging are driven by politics, not

8:14

economics. And by the way, although

8:16

most of the politicians complaining about

8:18

price gouging right now or democrats,

8:20

this is actually a bipartisan issue.

8:23

Guiding laws have been passed by both parties

8:25

in response to public pressure.

8:27

Gauging legislation usually follows an

8:29

outcry by the public after an event

8:31

like a natural disaster or a pandemic

8:33

during which prices have risen sharply.

8:36

Seven states, for example, passed laws in

8:38

two thousand one and two thousand two, in response

8:40

to consumer complaints of price increases

8:43

following the September the eleventh two thousand

8:45

one terror

8:45

attacks. And this is why right now

8:47

you have a Rhode Island senator demanding an

8:49

inquiry into egg prices and the California

8:52

governor urging price gouging penalties

8:54

on oil companies. Lawmakers in

8:56

those states have been deluged with complaints

8:58

about corporations charging

9:00

exorbitant, excessive prices

9:02

for eggs and gasoline over the last

9:04

year. The egg gaijin question has

9:06

just gone to the Federal Trade Commission. The

9:08

California gasoline gauging initiative

9:10

just made it to the state senate. Politicians

9:13

will now try to untangle that old knot

9:15

between economics and ethics. The

9:17

same one that the philosopher Plato wrestled

9:19

within his republic more than two thousand

9:21

years

9:22

ago. So this latest attempt to

9:24

define priceguiding, It

9:26

might take a wee while. This

9:28

episode was produced by Corey Bridges of engineer

9:31

from Katherine Silva. Ciéfores, check the

9:33

facts. Vlaser's senior producer, Kaiden

9:35

Cannon edits the show, and the indicator is production

9:37

of NPR.

9:41

From Jerrymandered House District's two

9:44

million dollar bribery scandals, there

9:46

is no shortage of segment in Ohio

9:48

politics. Each week, we cover the top stories

9:51

and the shrewd political moves in the

9:53

state. Listen to the Snolly gossip

9:55

pod AWSU public media,

9:57

part of the NPR network.