09 November 2012

Fair prices

A good little observation from Mark Thoma at the Fiscal Times from an article about price gouging.

If income inequality is very low and monopoly power is largely absent, then most people can consume most goods and services if they are willing to sacrifice enough. In this case, people are tolerant of allowing prices to dictate who gets what.

But as inequality grows and people are priced out of markets, when there are more and more things that a large fraction of society cannot obtain no matter how much they are willing to give up, and as more and more people feel they are being taken advantage of by a system beholden to economic or political power, the support for the price allocation mechanism – the heart of capitalism – begins to erode.

It makes me think that laissez-faire fundamentalists tend to mistakenly imagine conditions of low income inequality.

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