Economics 101 teaches that when particular goods gets scarcer and demand doesn't change, then the price for those goods will rise. This rule applies to both goods and services, but I will refer to both as “goods” in this section. In the real world, the rule of supply and demand is a half-truth. The price of the goods may not rise when a law prohibits sellers from charging more. But, if demand rises and the price can't rise, something else happens: A line forms. Instead of paying a higher price, purchasers have to wait a longer time to buy the goods.
This is Economics 101A - the “spend time or spend money” rule. It is well recognized in business circles. It is the root of the proverb “Time is Money”. Yet, there are many, many people who don't sense this relationship. These are people who see waiting in line as a “free” activity, not a tradeoff against spending money. And some of these people are the people who get upset when a seller offers goods at higher prices. They get upset because they would rather wait in line and pay less; they feel that those willing to pay more and sell for more are being unfair. It's unfair because if the other person buys the good, the waiters have nothing left to wait for.
Oddly, those who buy at a higher price seem unable to justify their action at an emotional level. They aren't willing to say, strongly, “Paying a higher price for a shorter wait is my right as a consumer!” And that is why anti-price-gouging legislation is easily enacted.
Here are two familiar examples of pricing policies changing to match changing circumstance:
Q: What do apartments in cities with strong rent control, plywood after a hurricane in Southeast US, and doctors who do elective surgery in the UK all have in common?
A: First, they are in limited supply, and second, the people of the community who want these things have decided they would rather wait a longer time to get them, and not pay higher prices to get them sooner.
Q: What do Hanna Montana concert tickets sold by scalpers, gasoline sold in US gas stations, and food sold in US supermarkets have in common?
A: First, they are in limited supply, and second, the people of the community who want these things have decided they would rather have shorter lines and “pay the going rate” for them.
Higher prices or longer lines? This is an economic tradeoff that all of us face every day, but many people don't recognize that they are making such a choice.
These kinds of price changes enflame passions. If you don't like prices rising when goods are in short supply, you call it price gouging. If you do like it, you call it market pricing or surge pricing. This 10 Jan 14 NY Times article, “Is Uber’s Surge-Pricing an Example of High-Tech Gouging?” by Annie Lowrey, is a 2010's example of the heat that surrounds this issue. Should Uber customers pay more if there is high demand? Or should they endure longer waits for their turn?
The root thinking of this issue is “circumstances pricing” - how much to charge for waiting in line. Some people feel that waiting in line is expensive. “Time is money.” Other people feel that waiting in line is free. The waiting is a symbol of community solidarity - if you don't wait like everyone else does, you are line cutting and being a bad person.
When many people are faced with the higher price or longer line choice, they see a price gouging situation. Here is an example.
The Gulf States of America were hit with some spectacular hurricanes during the 2000's. One of the curious fallouts of this series of disasters was the legislatures of these Gulf States passed anti-price-gouging measures.
Some enterprising people were bringing construction supplies into those Southern states in the hurricanes’ aftermath and offering them for sale in informal markets at higher-than-normal prices. Some people bought the supplies, while other people got very upset that the supplies were being offered at what they thought were too high prices. The upset people got so upset that they talked to their governments and asked for laws saying that doing something like that was illegal. The governments listened to the upset people and passed anti-price-gouging laws.
I find these community reactions to this kind of price gouging to be very odd. The first oddity is that some people of the community didn't mind losing the freedom to pay higher prices and wait in shorter lines - they really wanted to wait in long lines and pay lower prices, and they were prescriptive - everyone should wait. The second oddity is that the people who did take advantage of the freedom - those who did buy at higher prices - didn't protest vigorously. They didn’t object to the laws being passed. They didn't even whimper a little. If they did, the anti-price- gouging laws would not have been passed. Why didn’t the buyers speak up?
This problem of pay-more-or-wait-longer is not limited to disasters. Seats for entertainment events can be either dross or diamonds. In 2007, for example, Kevin Fenderline rap concert tickets became famous because they couldn't be given away, while Hanna Montana teen rock concert tickets became famous because there were never enough.
As a result of this demand uncertainty, ticket reselling for entertainment events is a thriving business. It thrives, but some people don't like it, so in the US it has picked up the nickname of scalping. Scalping thrives because the primary ticket seller doesn't want to conduct an auction for tickets - they pick a price and offer the tickets for the picked price, no matter what the real demand is. But the reality is that ticket demand fluctuates widely between events, and over time for a given event. The ticket scalpers thrive by running the equivalent of the ticket auctions that the market demands, but the primary sellers choose not to conduct.
The odd part, again, is that many people have a deep emotional dislike for scalpers. They see them as parasites, not value-adders to the community. Why is this?
The heart of the bad emotion attached to paying more is that it feels like line cutting. The person who is willing to pay more has “cut” to the front of the line. To many members of the community this feels like betrayal, and they don’t like it. Interestingly, it often feels the same way to the person who is paying more. They feel like they are line cutting, too, and I suspect that is why they do not vigorously support their own actions. The result: anti-price-gouging laws get passed.
I suspect this difference in emotion about time and money is the result of deeply different thinking patterns in humans. These different thinking patterns are supported by humans surviving in different environments. Both ways of thinking are successful, but they are successful in different environments.
The thinking patterns we live with today evolved when man was still in the Stone Age (Neolithic Age). We need to look at how mankind lived then to see what thinking patterns were supported. For a Neolithic Age hunter, particularly an ambush hunter, patience is a virtue. This means the normal activities of hunting relied on brain wiring to facilitate being still and doing nothing but waiting for prey to come within catching range. In such a circumstance, time is not money - waiting is free.
So, for a Neolithic human ambush hunter, time was free. And Neolithic ambush hunters did well. But this is not so for a Neolithic gatherer. For a gatherer, time is money. The more time one spent foraging, the larger the larder got. The thinking of a successful gatherer emphasized keeping busy.
Since both of these lifestyles - hunting and gathering - were successful all through Neolithic times, humans have evolved brains that think both ways.
The Grasshopper and The Ant fable is built partly on this difference in lifestyle and thinking between hunters and gatherers. The grasshopper is an ambush hunter, and the ant (and the story teller) is a gatherer.
The Agricultural Age and the Civilized Age are new environments. They date only five thousand years - only 250 generations of humans. In the Agricultural Age and Industrial Age environments, the success scale tips decisively in favor of time is money thinking. But the instinctive thinking hasn’t kept up. The ambush hunter thinking style is still alive and well.
Now let's look at where these differences show up.
Capitalists are about time-is-money. They like quick resolution of problems. This means they support auction pricing when that is a quick solution to finding the right price for something.
Socialists are about equal access to the productivity of the community. Equality is more important than efficiency. The fallout of this thinking is that waiting in line is more comfortable than paying an uncertain and higher price.
Americans in cars don't like to spend time waiting at the pump, so they tolerate gasoline prices that vary from day to day. The free waiting instinct intrudes here in a different way: Whenever prices are rising, the community and the media complain loudly about rising prices and greedy oil companies. When prices are falling, you hear the crickets chirping (as in, silence), not cheering.
In some American communities - generally urban, east coast and often socially/politically progressive - the community has decided that landlords have an inherent unfair advantage in landlord-tenant relations. In response these communities have set up elaborate rent control regulations and bureaucracies. The instinct supporting this is a pay or wait theme, with rent control interventions supporting the waiting side.
The above three examples are a snapshot of how deciding between paying and waiting makes big changes in how business is conducted.
This evolution of two successful ways of thinking is why we now have issues when we are dealing with situations that trade time and money. Some humans have deep-rooted thinking patterns that say time is free, while other humans have deep-rooted patterns that say time is money.
In the Civilized environment, the time is money people rule the day at the logical level, but at the emotional level, the time is free people still have powerful arguments in their favor and many things get handled their way.