[Disclaimer: The follow article is a fictional account of a persuasive argument and should not be construed as an assertion of facts although written in the first person.]
My nuke pills, commonly known as potassium iodide, have been languishing unloved in my emergency supplies for years since I bought them for about $5.99 each. They expire next month. I would like to have donated them to a charity that would get them to people in Japan who so badly need them.
But potassium iodide is only available by prescription in Japan and I am not interested in engaging in the international smuggling of controlled substances.
So I did the next best thing: I just sold them for $99.99 apiece representing a net realized gain of approximately 1,500%. One of my best investments yet. But with the nuke pill market's backwardation more severe than the silver backwardation why would I sell them?
[pullquote]The price, where a producer and consumer meet in negotiations, is an extremely valuable, even vital, tool.[/pullquote]PRICE GOUGING DEFINITION
Price gouging has a nasty connotation. This is mostly due to the true cause of shortages, governments, attempting to spread disinformation about how markets work. For example, the Florida Division of Consumer Services asserts:
In the wake of natural disaster, essentials -- such as food, ice generators, lanterns, lumber, etc. -- may be in short supply. Charging exorbitant or excessive prices for these and other necessities following a disaster is not only unethical, it's illegal.
Under Sections 501.160 and 501.205 Florida Statutes, it is illegal to charge unconscionable prices for goods or services following a declared state of emergency.
Individuals or businesses found guilty of price-gouging could face fines up to $1,000 per violation.
HOW AND WHY VOLUNTARY TRADE WORKS
If I own potassium iodide pills there are two mutually exclusive ways for you to acquire them. One option is for me to voluntarily sell or gift you the pills. The other option is for you to steal or rob the pills from me.
Trade works because everyone has different preferences, talents, abilities, competitive advantages, knowledge and desires. For example, Mozart had different talents than Einstein.
The baker and the painter are each able to perform work the other values and when they engage in a voluntary trade then it implies that the baker derives more value from what the painter offers than from his bread. Because the baker is better at baking than the painter and because the painter is better at painting than the baker therefore when a trade is voluntarily concluded then both the painter and baker are better off which raises the standard of living for both. Even nations have comparative advantages.
However, when property is either stolen or robbed then only one party benefits to the detriment of another party. This type of parasitic behavior does not encourage additional productive activities. In fact, it decreases wealth by requiring the aggrieved party to expend additional resources on protection which ultimately gets passed on to legitimate moral consumers in the form of higher prices.
It should be noted that since governments are force and force is violence they are by nature parasitic in this stealing and robbing way. And they have the nerve to call a party to a purely voluntary transaction unethical. Thus, the Florida division should probably be named something a little more accurate like the Florida Division of Victimizer Services.
THE VALUABLE NATURE OF THE PRICE
The price, where a producer and consumer meet in negotiations, is an extremely valuable, even vital, tool. It helps the baker know whether he should produce 5 loaves or 500. Because the baker is also a consumer therefore a price is communicated by the baker to the farmer about whether he should plant one acre or 100 acres of wheat.
And so on through the increasingly complex economy with people being able to build up considerable comparative advantages by learning such disciplines as xenotransplantation, mechanical engineering, robotics, proctology, hematology or biomedical gerontology. It is through the price that individuals, all acting according to their own dictates, decide how to allocate their time, talents and capital to meet the needs and desires of each other.
When the pricing mechanism is immorally interfered with by the use of aggression then individuals are hindered in their ability to know how much demand exists for a particular good or service. Misallocation of wealth happens which results in its destruction and a lowering of living standards for society.
When a price control is implemented through the use of force then it leads to shortages which are often used as an excuse to implement rationing. In the modern world with such technological advances there is a sole cause for all the starvation and shortages: governments.
For example, there always seems to be a shortage of blood, particularly the rarer kinds, for transfusions. But there are billions of able-bodied adults who could voluntarily agree to sell their blood. Theoretically there should never be a shortage of blood as it should merely be a function of price. But instead many governments have implemented price controls. In exchange for about an hour of one's time and getting stuck with a needle, sometimes multiple times, the most you can receive is a cookie. Sometimes a T-shirt and some warm fuzzies are thrown in.
The reasoning is that if people were able to legally sell their own blood, oh the irony to think one is free, then there would be a higher probability of contaimination in the blood supply. But that does not make any sense because the medical companies already perform extensive screenings of the blood supply.
The real issue is that a pint of blood goes for a couple hundred dollars. The government imposed price control serves at least two functions for those who make a profit selling blood: (1) reduction of raw material costs to zero and (2) decrease in supply.
But these types of violent interferences are not limited to necessities like food, water, potassium iodide or blood but are extended through licenses for hair cuts to medical services, are found in regulations limiting the type of light bulb or toilet you can buy and of particular interest to the bureaucrats is healthy food and why raw food recipes are going underground.
With potassium iodide pills available in Japan by prescription only; thus, even though many may have rationally prepared for this emergency the costumed criminal gangs made it illegal and threatened to violate offenders with fines or jail. As Rand Paul teased out during his Senatorial questioning; these bureaucrats found throughout the world are not pro-choice or pro-consumer but violent aggressors against freedom of choice and a primary cause for lower standards of living.
PRICE GOUGING ECONOMICS
How are producers supposed to know what consumers demand? Without the ability to charge what the market will bear it is impossible to find out. When that knowledge is buried or price discovery prevented then entreprnuers are unable to make calculated risks in hopes of profit. When entreprenuers fail to perform thier vital service of bringing goods and services to market then price gouging is not an issue. As the old saying from communist Russia goes, "Sausage is one ruble per link. But there is no sausage." Pretty soon the only noble profession left will be that of a smuggler.
As David Brown observed in Price Gouging Saves Lives:
"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.
[pullquote]Be prepared.[/pullquote]NUCLEAR FALLOUT ON THE WEST COAST
The jet streams show it is possible that the Japanese nuclear meltdowns could deliver nuclear fallout to California, Oregon, Washington and other states. At the end of the day, governments and bureaucrats do not care about your personal safety. They will lie, deceive, cover-up and exacerbate problems if they find it politically expedient.
No one cares as much about your health and well-being as you do. Therefore, you must take whatever precautions and actions you deem necessary and prudent.
So why did I sell my nuke pills? Sure, the 1500% gain was nice. But the real reason was because I wanted to make sure that particular good went to its highest and best use at this particular moment in time. How else would I know what that use was without a price signal?
In my opinion the probability of someone in California or Oregon needing the nuke pills within a month for a life saving purpose is extremely low; less than 1%.
Thus, I derive more value with the FRN$s than the counter-party to the trade. Plus, if needed I will just get on a plane and head down to La Estancia de Cafayate, which has a very favorable geographic location for nuclear fallout concerns, for their two events this month. I sure hope the counter-party to my nuke pill trade derives sufficient value from being prepared and I hope even more they never have to actually use the potassium iodide.
But even if they never do use them I bet having them in the hand relieves a lot of anxiety that comes from being unprepared! And if you are ever in a situation where there is a shortage of something know who to blame: governments.
DISCLOSURES: Long physical gold, silver, platinum, palladium and potassium iodide.