for those of you with little background in economics or who forgot theirs, we have this principle called elasticity of demand. its the degree to which demand responds to changes in price.
if demand essentially remains the same irrespective of drastic increases in price the commodity is said to be totally inelastic.
a monopoly of one company over a necessary good can artificially impose demand inelasticity by setting the price as high as they damn well please and if people want the product by golly they'll pay for it.
Cigarettes, as brits and aussies found out from taxing the shit out of them, have a very low elasticity. the addiction is powerful enough to drive many smokers to purchase the same amounts as always even when prices get as high as 16 dollars a pack.
A more relevant commodity for discussion is Gasoline and Petroleum more generally, the products my previous post dealt with, which have a very low elasticity. That is to say our transportation infrastructure and economy are so heavily dependent upon them that demand will remain fairly stable or decrease only ever so slightly, to the point where in a situation where price rises too fast, we risk economic collapse.
The most outstanding example of what should come under discussion is the pharmaceutical industry, specifically prescription drugs and the healthcare economy more generally. the cost of prescription drugs is almost totally inelastic. demand does not respond to market forces, and nor does price. This is largely due to the necessary middlemen in the equation, most notably physicians but also insurance companies. where neither of these exist, as in over the counter drugs, prices respond to normal market forces. this is why drug companies will fight tooth and nail against the FDA changing their prescription drugs to over the counter classifications. This is a significant part of what accounts for the skyrocketing cost of healthcare worldwide. these skyrocketing costs, like the consistently rising costs of oil, threaten to eventually collapse the economy.
So the question to the political community on this issue regards government involvement in the economy. does the government not have a responsibility to correct for market failures of this sort (i.e. situations in which exceptional circumstances dictate that the market does not in any way shape or form in this instance behave the way it is supposed to) in a capitalist system to keep the market operating smoothly in the first place? Particularly in instances like these where such failings act as a metal bar thrown into the cogwheel machinery of a self-sustaining free market based economy?
Does the government not have a responsibility to acknowledge observable and consistent trends and anticipate their inevitable outcomes and plan accordingly? Does the government not have a responsibility to head of emerging crises before they become catastrophes?
Does the government not have a responsibility to stop individual entities which are acting against the public good, even if that means defiling the sacred cow and directly intervening in the market? Basic social contract theory as I understand it.
Most importantly, just how does a government go about doing this without merely causing more problems? How does a government respect the integrity of a free market system and solve the problem without upsetting the balance of market forces?
I personally like the idea of making price gauging illegal, assuming it is done properly, and preferably in tandem with a number of other measures as the situation warrants. It holds the potential to counterbalance the effect of those exceptional factors that confound the proper functioning of the market in the first place, but yet does NOT involve price ceilings (take note, lordbrand) or other artificial measures that disrupt the proper equilibrium of market forces.
more concrete suggestions like this one are most appreciated (pick your commodity if necessary). I'll give you an e-cookie if you dont spout off stupid partisan talking points and actually come up with some original ideas.
an xpost from politicsforum