Why $80 hand sanitizer is a good thing for the markets
I am not going to go full Gordon Gekko and tell you “greed is good” when it comes to price-gouging over coronavirus fears. Sometimes price-gouging is just wrong. When it comes to your family, neighbors and friends, you should be kind and generous. Just ask yourself, what would Fred Rogers do?
But when it comes to strangers, forget about Mister Rogers. Ask yourself, what would Gordon Gekko do? When it comes to strangers, price-gouging is good.
To see why, consider hand sanitizer, the sacred fluid that’s become the symbol of the COVID-19 threat. There’s only so much to go around, everyone wants to stockpile and so prices are going up — a lot. There were recent reports coming out of Manhattan that some stores were selling a 40-ounce bottle of sanitizer for $80.
But it turns out that hand sanitizer isn’t the only way to keep the virus from spreading. In fact, it may not even be the best way to keep things clean. The Centers for Disease Control and Prevention (CDC) recommends proper hand-washing with soap and water as your first and best defense. If you can’t find soap and water, fine, use sanitizer. Otherwise, remember what your mom told you and just wash your hands.
That’s the message people should hear. But in edgy times such as these, how do we get them to stop and listen? Easy. You make 2 ounces of sanitizer more expensive than 2 ounces of decent whiskey.
As far as the fictional Gordon Gekko of “Wall Street” fame and I are concerned, the store manager in midtown Manhattan selling $80 hand sanitizer is a hero. Sure, she could have kept the price the same. She might have even put up a sign next to the sanitizer with the CDC’s recommendation. And some people might have bothered to read it and then think about how much of the stuff they really needed. But let’s face it, most people would have grabbed an extra bottle “just in case.” If the store had done that, the shelves would be empty by noon and gallons of the stuff would be piled up right next to luxurious bathroom sinks in all those fashionable Upper West Side condos, where, to repeat it would be totally unnecessary.
Now, of course, none of us should be happy about this. If you can’t find soap and need hand sanitizer, you’d rather not spend the money. But the problem isn’t price-gouging; the problem is coronavirus. Letting the price system work to ration a scarce commodity doesn’t solve the problem, but it is a better way to deal with the problem than having a bunch of headline-hungry politicians try to punish people for setting up a system that would cause people to be careful about how they used a scarce and important product.
And while I’m encouraging selfishness, I should encourage another kind of price-gouging. You probably don’t need me to tell you this, but if you’re in the market to buy, it’s OK to exploit a desperate seller.
I have my eye on a couple of fun weekend trips. Both will require an airplane ride to a pleasant vacation spot. These tend to be places popular with the convention crowd — think Vegas and Orlando — and since these conventions are starting to cancel, the rates are becoming very reasonable. Actually, they’re dirt cheap, with airfares and hotel rooms costing maybe half the peak-season price. If it’s OK for someone to double the price of cleaning supplies, it’s OK for me to demand that the price of a hotel room be slashed by half.
Over the next few weeks, the economy is going to suffer stresses that we haven’t experienced before. I have no idea how bad things will get, and there’s certainly a chance that coronavirus will prove to be a nuisance and not a crisis. Let’s hope so. But this is not good. We need to use all of our tools to help us cope. And one of our most important tools is effective free markets.
Michael L. Davis, Ph.D., teaches economics and global strategy to graduate-level students at Cox School of Business at Southern Methodist University (SMU) in Dallas.