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Thread: TIME: Post-Sandy Price Gouging: Economically Sound, Ethically Dubious

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    Default TIME: Post-Sandy Price Gouging: Economically Sound, Ethically Dubious

    In the wake of a calamity like Superstorm Sandy, is it fair for businesses — from corner bodegas to gas stations to car services — to jack up their prices, earning windfall profits off the desperation of their customers? There aren’t a lot of people who would answer yes to that question; in the midst of the devastation of Sandy, this sort of price gouging seems not only deeply unethical but almost, you might say, treasonous. One disgruntled consumer told CNBC.com’s John Carney he considered it a kind of “reverse looting.”

    So it was hardly surprising to hear New Jersey Governor Chris Christie issue a blunt warning to merchants that price gouging is illegal and brings harsh penalties. “During emergencies, New Jerseyans should look out for each other,” Christie said in a statement, “not seek to take advantage of each other.” New York Attorney General Eric T. Schneiderman issued a similarly stern warning.
    But there’s one group of people who don’t share the general distaste for disaster profiteering: economists. Why is that? Because what most people call price gouging is, to them, simply an example of the laws of supply and demand working as they should.
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  3. #2

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    I suppose both theories have their merit.

    I don't see that you should stiff someone simply because you can but then again raising a price in times when the distribution is disrupted can get the goods to those that value them the highest.

    This reminds me of stories from the days of the Mountain Men and the Indians. I've heard that in times of scarcity, or out of respect for each other, they would often split what they had with someone they crossed trails with.
    Last edited by Carson; 11-03-2012 at 11:23 PM.

  4. #3

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    If all businesses were gouging, no one would go without. People wouldn't buy 20 gallons of $15 gasoline or 523534 loaves of $10 bread.

  5. #4

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    [On October 27, as East Coast residents prepared for Hurricane Sandy, New Jersey Governor Chris Christie threatened "price gougers" with stiff penalties. As David Brown pointed out in Mises Daily on August 17, 2004, shortly after Hurricane Charley hit Florida, foul weather is when we need market prices the most. Capitalism needs more foul-weather friends, not fair-weather friends like Christie.]


    In the evening before Hurricane Charley hit central Florida, news anchors Bob Opsahl and Martie Salt of Orlando's Channel 9 complained that we "sure don't need" vendors to take advantage of the coming storm by raising their prices for urgently needed emergency supplies.

    In the days since the hurricane hit, many other reporters and public officials have voiced similar sentiments. There are laws against raising prices during a natural disaster. It's called "price gouging." The state's attorney general has assured Floridians that he's going to crack down on such. There's even a hotline you can call if you notice a store charging a higher price for an urgently needed good than you paid before demand for the good suddenly went through the roof. The penalties are stiff: up to $25,000 per day for multiple violations.

    But offering goods for sale is per se "taking advantage" of customers. Customers also "take advantage" of sellers. Both sides gain from the trade. In an unhampered market, the self-interest of vendors who supply urgently needed goods meshes beautifully with the self-interest of customers who urgently need these goods. In a market, we have price mechanisms to ensure that when there is any dramatic change in the supply of a good or the demand for a good, economic actors can respond accordingly, taking into account the new information and incentives. If that's rapacity, bring on the rapacity.

    Prices are how scarce goods get allocated in markets in accordance with actual conditions. When demand increases, prices go up, all other things being equal. It's not immoral. If orange groves are frozen over (or devastated by Hurricane Charley), leading to fewer oranges going to market, the price of oranges on the market is going to go up as a result of the lower supply. And if demand for a good suddenly lapses or supply of that good suddenly expands, prices will go down. Should lower prices be illegal too?

    In the same newscast, Salt and Opsahl reported that a local gas station had run out of gas and that the owner was hoping to receive more gas by midnight. Other central Florida stations have also run out of gas, especially in the days since the hurricane smacked our area. Power outages persist for many homes and businesses, and roads are blocked by trees, power lines, and chunks of roofs, so it is hard to obtain new supplies. Yet it's illegal for sellers of foodstuffs, water, ice, and gas to respond to the shortages and difficulty of restocking by raising their prices.

    If we expect customers to be able to get what they need in an emergency, when demand zooms vendors must be allowed and encouraged to increase their prices. Supplies are then more likely to be sustained, and the people who most urgently need a particular good will more likely be able to get it. That is especially important during an emergency. Price gouging saves lives.

    What would happen if prices were allowed to go up in defiance of the government?

    Well, let's consider ice. Before Charley hit, few in central Florida had stocked up on ice. It had looked like the storm was going to skirt our part of the state; on the day of landfall, however, it veered eastward, thwarting all the meteorological predictions. After Charley cut his swath through central Florida, hundreds of thousands of central Florida residents were unexpectedly deprived of electrical power and therefore of refrigeration. Hence the huge increase in demand for ice.

    Let us postulate that a small Orlando drug store has ten bags of ice in stock that, prior to the storm, it had been selling for $4.39 a bag. Of this stock it could normally expect to sell one or two bags a day. In the wake of Hurricane Charley, however, ten local residents show up at the store over the course of a day to buy ice. Most want to buy more than one bag.

    So what happens? If the price is kept at $4.39 a bag because the drugstore owner fears the wrath of State Attorney General Charlie Crist and the finger wagging of local news anchors, the first five people who want to buy ice might obtain the entire stock. The first person buys one bag, the second person buys four bags, the third buys two bags, the fourth buys two bags, and the fifth buys one bag. The last five people get no ice. Yet one or more of the last five applicants may need the ice more desperately than any of the first five.

    But suppose the store owner is operating in an unhampered market. Realizing that many more people than usual will now demand ice, and also realizing that with supply lines temporarily severed it will be difficult or impossible to bring in new supplies of ice for at least several days, he resorts to the expedient of raising the price to, say, $15.39 a bag.

    Now customers will act more economically with respect to the available supply. Now, the person who has $60 in his wallet, and who had been willing to pay $17 to buy four bags of ice, may be willing to pay for only one or two bags of ice (because he needs the balance of his ready cash for other immediate needs). Some of the persons seeking ice may decide that they have a large enough reserve of canned food in their homes that they don't need to worry about preserving the one pound of ground beef in their freezer. They may forgo the purchase of ice altogether, even if they can "afford" it in the sense that they have $20 bills in their wallets. Meanwhile, the stragglers who in the first scenario lacked any opportunity to purchase ice will now be able to.

    Note that even if the drug store owner guesses wrong about what the price of his ice should be, under this scenario vendors throughout central Florida would all be competing to find the right price to meet demand and maximize their profits. Thus, if the tenth person who shows up at the drugstore desperately needs ice and barely misses his chance to buy ice at the drugstore in our example, he still has a much better chance to obtain ice down the street at some other place that has a small reserve of ice.

    Indeed, under this second scenario—the market scenario—vendors are scrambling to make ice available and to advertise that availability by whatever means available to them given the lack of power. Vendors who would have stayed home until power was generally restored might now go to heroic lengths to keep their stores open and make their surviving stocks available to consumers.

    The "problem" of "price gouging" will not be cured by imposing rationing along with price controls, either. Rationing of price-controlled ice would still maintain an artificially low price for ice, so the day after the storm hits there would still be no economic incentive for ice vendors to scramble to keep ice available given limited supplies that cannot be immediately replenished. And while it is true that rationing might prevent the person casually purchasing four bags of ice from obtaining all four of those bags (at least from one store with a particularly diligent clerk), the rationing would also prevent the person who desperately needs four bags of ice from getting it.

    Nobody knows the local circumstances and needs of buyers and sellers better than individual buyers and sellers themselves. When allowed to respond to real demand and real supply, prices and profits communicate the information and incentives that people require to meet their needs economically given all the relevant circumstances. There is no substitute for the market. And we should not be surprised that command-and-control intervention in the market cannot duplicate what economic actors accomplish on their own if allowed to act in accordance with their own self-interest and knowledge of their own case.

    But we know all this already. We know that people lined up for gas in very long lines during the 1970s because the whole country was being treated as if it had been hit by a hurricane that was never going to go away. We also know that as soon as the price controls on gas were lifted, the long lines disappeared, as if a switch had been thrown restoring power to the whole economy.


    $20.00 $15.00

    One item in very short supply among the finger-wagging newscasters and public officials here in central Florida is an understanding of elementary economics. Maybe FEMA can fly in a few crates of Henry Hazlitt's Economics in One Lesson and drop them on Bob and Martie and all the other newscasters and public officials. This could be followed up with a boatload of George Reisman's Capitalism: A Treatise on Economics, which offers a wonderfully cogent and extensive explanation of prices and the effects of interference with prices. Some vintage Mises and Hayek would also be nice. But at least the Hazlitt.

    "Price gouging" is nothing more than charging what the market will bear. If that's immoral, then all market adjustment to changing circumstances is "immoral," and markets per se are immoral. But that is not the case. And I don't think a store owner who makes money by satisfying the urgent needs of his customers is immoral either. It is called making a living. And, in the wake of Hurricane Charley, surviving.
    http://mises.org/daily/1593/Price-Go...in-a-Hurricane

  6. #5

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    reverse looting???

    Oh yeah, I get it, it's the store owner's fault if they didn't put break proof glass and armed guards when they're closed after a disaster, that's why they invite looting.

    It's also the store owner's fault you didn't prepare, or there's more people who need it than just you, that's reverse looting.

    Entitlement logic FTW!

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    Great article!
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    So now it is abundantly clear that Christie is an economic idiot and believes in price fixing.

    It's a supply and demand issue. It is not price gouging.

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    I will try not to defend nor attack either price gouging or hoarding, but just make an observation. The same people in the government/media complex that want price gouging to be illegal, want hoarding to be illegal. In a free market price gouging prevents hoarding.

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    Price gouging during an emergency is immoral. And there is more to business than getting the best price for a product any given minute. Of course in the long run, supply and demand rule, and an open, competitive market will set the appropriate price. An emergency is a short term, temporary situation.

    Sure, if you run the local Quicky Mart, you could raise the price to whatever you could get from desperate people. But there's more to this world than economics. After the emergency is over, you may not have any return customers. As a matter of fact, if the customers are desperate or angry enough, your store may get burned to the ground, and in earlier times, you might get tarred and feathered and run out of town.
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    Quote Originally Posted by cordscords View Post
    http://mises.org/daily/1593/Price-Go...in-a-Hurricane

    So what happens? If the price is kept at $4.39 a bag because the drugstore owner fears the wrath of State Attorney General Charlie Crist and the finger wagging of local news anchors, the first five people who want to buy ice might obtain the entire stock. The first person buys one bag, the second person buys four bags, the third buys two bags, the fourth buys two bags, and the fifth buys one bag. The last five people get no ice. Yet one or more of the last five applicants may need the ice more desperately than any of the first five.
    The merchant could limit purchases to one bag per person.
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    I don't think price gougers should be praised. I think they cut there own throats. I'm just skeptical about making it illegal a long with hoarding. Should all that is immoral be illegal? Depends on who defines what is immoral. That worries me.

  13. #12

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    It is immoral to use the force of government to tell someone what they can and can't do with their property.
    If I own 50 gallons of fuels, i can sell it for whatever price i want. The consumer will decide if I fail or not on price.
    To use force to stop these transactions is the immorality.

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    Quote Originally Posted by Brian4Liberty View Post
    Price gouging during an emergency is immoral. And there is more to business than getting the best price for a product any given minute. Of course in the long run, supply and demand rule, and an open, competitive market will set the appropriate price. An emergency is a short term, temporary situation.

    Sure, if you run the local Quicky Mart, you could raise the price to whatever you could get from desperate people. But there's more to this world than economics. After the emergency is over, you may not have any return customers. As a matter of fact, if the customers are desperate or angry enough, your store may get burned to the ground, and in earlier times, you might get tarred and feathered and run out of town.
    Adultery is immoral as well, we do not need laws against that...

    But the rest of your response proves why price fixing is not necessary. It is up to the property owner to figure out the best price for them short & long term... sure you might make a pretty penny for a week during the storm, but if you lose all business after that wont help you much. The market will take care of people who prey on the public...

  15. #14

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    Quote Originally Posted by Brian4Liberty View Post
    The merchant could limit purchases to one bag per person.
    I doubt you would find anyone here argue that a merchant couldnt limit the purchases, what they say is that they shouldnt be forced to...

    As a merchant, my goal is to sell all my bags of ice, not to make sure that everyone gets a bag.... if I want to do that out of some sense of civic duty sure, but nobody should be forced to be "moral" as long as their actions do not infringe on anyone else's rights....

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    Quote Originally Posted by CT4Liberty View Post
    I doubt you would find anyone here argue that a merchant couldnt limit the purchases, what they say is that they shouldnt be forced to...
    Yeah, merchants do it all the time.

    As I think about it, it occurs to me that for a product where the demand far surpasses the supply over a long period of time, the product usually ends up being distributed in a crony manner. The products first go to people with some type of connection. True price discovery and supply and demand takes effect in the secondary market after the insiders get their first pick. Politics and economics intersect.
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    Quote Originally Posted by Henry Rogue View Post
    I don't think price gougers should be praised. I think they cut there own throats. I'm just skeptical about making it illegal a long with hoarding. Should all that is immoral be illegal? Depends on who defines what is immoral. That worries me.
    Quote Originally Posted by CT4Liberty View Post
    Adultery is immoral as well, we do not need laws against that...
    The less laws the better, and repealing the war on drugs is priority number one, IMHO.
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  18. #17

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    Quote Originally Posted by Brian4Liberty View Post
    The merchant could limit purchases to one bag per person.
    The problem is some need that ice more than others. What if one person wants that 1 bag of ice to keep his beer cold while another person needs 2 bags of ice to keep his insulin for his diabetic child cold, and 1 bag isn't enough?

    With price gouging, the person wanting his beer to be kept cold would probably not buy it because it's not worth $6 for a bag of ice (evil price gougers ). Meanwhile, $12 for 2 bags of ice for the guy with a diabetic child is more than worth it.

    Price fixing with limits also creates absolutely no monetary incentive for increased allocation of resources to the high demand disaster area.

  19. #18

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    The concept of price gouging is a false one - location and time are valid factors in a price. High prices tell the market "bring more stuff here", solving the imbalance between supply and demand faster than any other paradigm can reliably achieve.
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    Neighbor knocks on door: "Can I borrow a cup of sugar, we're making a cake."
    You: "Well, the grocery stores are still empty due to the hurricane, so that sugar is very valuable right now. I'll sell you a cup for $50."
    Neighbor: "Lol. Seriously?"
    You: "Yeah, that is how supply and demand works. We will never discover the true price if I don't charge you $50. And if I don't charge you that much, the stores and the free market will never know that more sugar is needed. Where else are you going to get sugar right now?"
    Neighbor: "OK then. ... Oh by the way, tell your wife that if you come over tonight for the BBQ that my wife invited you guys over for, the charge is $1000 a plate, dessert not included."
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    Quote Originally Posted by thoughtomator View Post
    The concept of price gouging is a false one - location and time are valid factors in a price. High prices tell the market "bring more stuff here", solving the imbalance between supply and demand faster than any other paradigm can reliably achieve.
    A grocery store or gas station won't restock as soon as they can?
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    Quote Originally Posted by Bohner View Post
    With price gouging, the person wanting his beer to be kept cold would probably not buy it because it's not worth $6 for a bag of ice (evil price gougers ). Meanwhile, $12 for 2 bags of ice for the guy with a diabetic child is more than worth it.
    It's for the children?

    You severely underestimate the ability and desire of beer drinkers for a cold beer. (Assuming it is very hot outside and the power is off). Now the person with the child could explain their need as opposed to the beer drinker's need, but that would be counter to the laws of economics. It would be the option, or rather, the responsibility of the beer drinker to outbid the person with the child. Otherwise, more ice may never show up.

    Once again, there is no inconsistency in being opposed to price gouging, and also opposed to price fixing laws. Likewise, one can be opposed to drug use, and opposed to the war on drugs at the same time.
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    The Politics of Price Gouging: It's OK for Unions, Gas Station Owners Not So Much
    http://reason.com/blog/2012/11/05/th...ing-its-ok-for

    Gas station owners can't raise prices, which might actually encourage more gas suppliers to make the extra effort to bring in a bigger supply. Meanwhile, the city does nothing to stop the shaking down of electricians who traveled hundreds of miles to pitch in and help because it might screw with union supremacy in a ravaged city.
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    price gouging, intellectual property, witchcraft, boogeyman, santa clause, what do these have in common, they don't exist.
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    Quote Originally Posted by Brian4Liberty View Post
    A grocery store or gas station won't restock as soon as they can?
    So, you are nominating yourself to freely supply diesel generators to all the stations that are without power? Perhaps if suppliers were able to recoup the costs of preparing for disasters, there would not be such severe shortage during disasters. Nah, thats just crazy free market talk.
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    Price gouging certainly is not ethical nor is it smart business practice. However, I do not necessarily believe it should be illegal. Look at all the resources nationwide diverted towards programs, agencies and bureaucrats in charge of policing price gouging.

    Stores attempting to capitalize on human desperation and natural disaster by looking for dramatically increased profit margins risk many potential long-term consequences.

    If there was a gas station or other store I knew engaged in price gouging, I would go out of my way not to give them business and would tell anyone who would listen to do the same.

    On the other hand, stores who deal fairly with customers during times of crisis and may even choose to accept lower profit margins or forgo profits entirely during the time may be rewarded with lifelong loyalty from their customer base.

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    Quote Originally Posted by LibForestPaul View Post
    So, you are nominating yourself to freely supply diesel generators to all the stations that are without power? Perhaps if suppliers were able to recoup the costs of preparing for disasters, there would not be such severe shortage during disasters. Nah, thats just crazy free market talk.
    Obviously they will need power to use their pumps, thus the "as soon as they can" caveat. If they have generators, or a pumping truck, or another means of pumping, they could start selling even before the electricity comes back on. And of course an owner could charge more to cover the lease or rental of additional equipment if the power was out long enough to make it worthwhile. That would not be categorized as gouging.
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  28. #27

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    Quote Originally Posted by Brian4Liberty View Post
    It's for the children?

    You severely underestimate the ability and desire of beer drinkers for a cold beer. (Assuming it is very hot outside and the power is off). Now the person with the child could explain their need as opposed to the beer drinker's need, but that would be counter to the laws of economics. It would be the option, or rather, the responsibility of the beer drinker to outbid the person with the child. Otherwise, more ice may never show up.

    Once again, there is no inconsistency in being opposed to price gouging, and also opposed to price fixing laws. Likewise, one can be opposed to drug use, and opposed to the war on drugs at the same time.
    As a beer drinker myself, I have my limits as to how much I would pay for ice. And my limit would certainly be much less than if I had a diabetic child who required refrigerated insulin.

    Which is the point, the people who need the products more will always be willing to pay more. So during a time of shortages, the products will usually go to the people who need them the most. If ice were $2 a bag, I'd probably buy 3 bags for my 24 of beer. At $8 a bag, I'd probably either buy only one bag, or decide fuck it and drink my beer warm.
    Last edited by Bohner; 11-05-2012 at 08:56 PM.

  29. #28

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    Quote Originally Posted by Brian4Liberty View Post
    Price gouging during an emergency is immoral. And there is more to business than getting the best price for a product any given minute. Of course in the long run, supply and demand rule, and an open, competitive market will set the appropriate price. An emergency is a short term, temporary situation.

    Sure, if you run the local Quicky Mart, you could raise the price to whatever you could get from desperate people. But there's more to this world than economics. After the emergency is over, you may not have any return customers. As a matter of fact, if the customers are desperate or angry enough, your store may get burned to the ground, and in earlier times, you might get tarred and feathered and run out of town.
    Whatever prices exist are the result of pre-existing demand & supply situation, so even if businesses voluntarily hold prices down then that means they are hindering the market-information about supply & demand, which is going to lead to greater price-spikes upwards because prices & profits are the mechanism thru which supply & demand dynamics is communicated so if they are held up then market wouldn't know that the supply & demand dynamics have changed, supply wouldn't increase in line with increased demand; in fact, this would merely postpone the inevitable price-spike but the longer the market-information is held up, the more people will feel the heat, that is, even the people that have nothing to do with the disaster will later on end up having to pay much more than they would have had the "price-gouging" occurred earlier so by holding down prices, there'd be an indirect wealth-transfer from those not affected by disaster to those who are affected by it, similar to the one that occurs when government socializes the cost of helping out disaster-hit areas.

    Whenever market-prices are hindered, whether voluntarily or by force, the results will be the same, both situations will bear the same negative consequences. It only impedes market-information & prolongs the time required for producers to see the market cues thru increased prices & profits to go out there & arrange more capital to buy labor & other stuff necessary to increase production & supply.

    It's like believing that instead of government forcibly redistributing wealth, people should voluntarily redistribute wealth, well, that would still have the same ill-effects of destruction of wealth because those whose labor is less productive are consuming more than they are helping produce. Therefore, one would always want those more productive (whose labor is in short supply) to have more so that others try to increase their productivity & increase the supply of the labor which is more productive & thereby help increase total real wealth (aka goods & services) in the economy, which benefits everyone.
    There is enormous inertia — a tyranny of the status quo — in private and especially governmental arrangements. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable
    - Milton Friedman

  30. #29

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    Quote Originally Posted by W_BRANDON View Post
    Price gouging certainly is not ethical nor is it smart business practice. However, I do not necessarily believe it should be illegal. Look at all the resources nationwide diverted towards programs, agencies and bureaucrats in charge of policing price gouging.

    Stores attempting to capitalize on human desperation and natural disaster by looking for dramatically increased profit margins risk many potential long-term consequences.

    If there was a gas station or other store I knew engaged in price gouging, I would go out of my way not to give them business and would tell anyone who would listen to do the same.

    On the other hand, stores who deal fairly with customers during times of crisis and may even choose to accept lower profit margins or forgo profits entirely during the time may be rewarded with lifelong loyalty from their customer base.
    Support of price controls is support of shortages, starvation, suffering, and death.
    Quote Originally Posted by Ron Paul
    Perhaps the most important lesson from Obamacare is that while liberty is lost incrementally, it cannot be regained incrementally. The federal leviathan continues its steady growth; sometimes boldly and sometimes quietly. Obamacare is just the latest example, but make no mistake: the statists are winning. So advocates of liberty must reject incremental approaches and fight boldly for bedrock principles.
    The epitome of libertarian populism

  31. #30

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    There is no such thing as gouging.
    >>>>>>Become a Precinct Committeeman<<<<<<
    http://becomeapc.com/

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