Michael Munger on John Locke, Prices, and Hurricane Sandy

Episode Summary

Executive Summary: Russ Roberts and Mike Munger use Hurricane Sandy shortages to argue that price gouging laws worsen scarcity by blocking market signals, rationing, and supply responses. They then examine John Locke’s little-known essay on selling, showing Locke’s nuanced view: charging the market price is just in ordinary markets, but exploiting a buyer’s desperation can be morally wrong when it exceeds one’s own fair valuation.

Main Topics: Sandy shortages and anti-gouging laws (Priority: 5/5): They discuss gasoline and power shortages after Hurricane Sandy, arguing that legal limits on price increases prevented prices from clearing markets and intensified scarcity, queues, and confusion. Prices as rationing devices (Priority: 5/5): The conversation emphasizes that higher prices allocate scarce goods efficiently by encouraging conservation, leaving supplies for others, and inducing buyers to become sellers. John Locke on market price and justice (Priority: 5/5): They analyze Locke’s short essay 'Venditi,' where Locke argues that selling at the market price is just when prices reflect ordinary market conditions and transactions are not based on fraud or force. Locke’s anti-exploitation cases (Priority: 5/5): Using examples of a horse, grain, and an anchor, Locke distinguishes fair market exchange from morally suspect exploitation of a buyer’s necessity or distress. Secondary markets and supply response (Priority: 4/5): They argue that attempts to suppress high prices often fail because resale markets, imports, and new supply would otherwise emerge; preventing price increases blocks these responses. Morality, economics, and the role of economists (Priority: 4/5): The hosts suggest economists should not ignore moral arguments; Locke’s framework shows economics and ethics can jointly explain why some prices are fair and others exploitative.

Key Arguments: Price gouging laws do not eliminate scarcity; they convert dollar prices into queues, delays, and confusion, often making access worse for those most in need. When prices are allowed to rise during emergencies, they ration scarce gasoline and encourage people to take only what they need, preserving supplies for others. Locke’s view is that the just price is the ordinary market price at the time and place of sale, not a historical price or a distant price. In cases of desperate need, charging more than one’s own fair willingness-to-accept can be morally wrong even if the buyer is willing to pay it. High prices can induce supply responses, including resale, transport from other regions, generators enabling pump operation, and buyer-to-seller conversions. Anti-gouging laws can unintentionally create black markets and block ordinary reallocations that would have moved goods to higher-value users. Locke’s essay shows a sophisticated early understanding of competition, arbitrage, opportunity cost, and time-and-place specificity in markets.

Data Points: Podcast date: November 5th, 2012 - Introduction to the episode and Sandy aftermath discussion Christie gas purchase limit: 5 gallons - Governor Christie’s rationing approach during the fuel shortage New Jersey price cap threshold: 10% - Mentioned as the statutory limit on price increases during a disaster North Carolina gouging benchmark: 5% - Munger jokes that 'unreasonably excessive' effectively means 5% in practice Free gasoline distribution sites: 5 spots - New York’s giveaway of gasoline during the shortage Generator output equivalence: 400 homes - A generator used for marathon coverage was said to power or light roughly 400 homes

Pivotal Quotes: "High prices actually lead me, because of my self-interest, to act what a moral person would do" — Mike Munger: Explaining why scarcity prices ration gasoline more fairly than queues "Whosoever keeps to that in whatever he sells, I think is free from cheat, extortion, oppression, or any guilt" — Mike Munger quoting John Locke: Summarizing Locke’s claim that the market price at the time and place of sale is just "You have to look into your heart and see what you'd part with it, what you'd pay to part with it" — Mike Munger: Describing Locke’s view that a seller should not exploit a desperate buyer beyond the seller’s own fair valuation

Implications: The episode argues that emergency price controls can worsen shortages and that fairness in markets depends on context, not fixed moral outrage at high prices. Locke offers a framework for distinguishing ordinary market pricing from exploitation.