If Only Other Stores Could Have Raised Toilet Paper Prices
Buyer happy with $1.75 per roll from convenience store versus 32 cents and no rolls at big stores
Michigan resident Brandon Borke found his toilet paper.
Toilet paper has become a scarce commodity from coast to coast, with stores sold out and anxiety growing. Borke used his search for the product to illustrate a lesson in how price controls are the wrong prescription for temporary shortages caused by panic-induced spikes in demand.
Borke went on Facebook to describe his search for toilet paper, which took him to six stores, none of which had any for sale. Eventually, his fortunes changed, however.
“I filled up my car at a gas station on my way home. I joked with the cashier, ‘I don’t suppose you have toilet paper?’” Borke wrote. “He calmly replied, ‘Of course we do.’ I was dumbfounded.”
Borke said he wondered how a small gas station still had an incredibly well-stocked section of toilet paper.
Then he saw why: It was priced at $1.75 per roll.
“Here is the crazy thing; as someone who only needed a few rolls, I was happy to pay the high price,” Borke wrote. “In fact, the high price of these rolls of toilet paper discouraging unnecessary hoarding was the only reason there was any for me to buy at all.”
“This IS NOT price gouging,” Borke continued. “This IS an example of market prices. It is one thing to talk about economics and the free market in theory. This. Is. Real. Life.”
Economists call it “the rationing effect of prices.” People tend to buy less of something when it costs more.
Borke posted a picture of the four double rolls of toilet paper he bought for $6.99, or a $1.75 per roll.
Still-circulating advertisements from Menards feature 12 double rolls of toilet paper for just $3.82, or 32 cents per roll. This was the price that held before the pandemic received widespread attention in the U.S. But it meant nothing because for several days, the stores had none of the product at any price.
The ads have since been updated offering the same low price, however, Menards is telling customers: “Unfortunately, the vendor is unable to supply this item at this time. Please check back again in the future.”
If Menards had sought to slow the run on the product by raising prices such as that gas station, it may have run afoul of a campaign by Michigan Attorney General Dana Nessel to seek out and punish what she describes as price gouging. A March 23 announcement from her department reported that she had assigned a team of special agents to gather information on consumer complaints of price gouging.
“Our objective is to make sure business owners are following the laws Michigan has in place to protect consumers, and public awareness of price-gouging can offer valuable support in our efforts to keep companies honest,” Nessel said in a press release. “If that can be accomplished without legal action, then that is a path we will pursue. But if stores continue to disregard the rules and raise their prices beyond justifiable amounts, then we will hold them accountable.”
The attorney general also urges consumers “to purchase what they need, and to not buy in large amounts — or at prices — that are based on fear.”
Also, Gov. Gretchen Whitmer issued a March 22 executive order that states "no business or person can sell products grossly in excess of the purchase price at which they bought the product." The state has ordered products "cannot be sold or offered at a price that’s more than 20 percent higher than what it was listed as of March 9, 2020 – unless the seller can justify the higher price due to an increase in the cost of bringing the product to market."
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
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Reporting or Promoting?
Why transparency of business subsidy programs shouldn’t be controlled by administrators
The state’s economic development program administrators have a new report out on their work from October 2018 to September 2019. It is a useful report that tells people about what business subsidies the state has offered and some of what has happened as a result. But the reporting is blended with self promotion by administrators of these programs and demonstrates why the Legislature needs to demand more transparency.
The biggest problem is that, despite the length of the report, there is no simple summary of how much taxpayers spent and what was achieved over the year. Instead, we get broad overstatements like this:
For example, part of the 215 projects likely include Michigan Business Development Program deals, and there is data from tables in the report on what happens after these agreements are signed. Some projects go as planned. The majority have not. In fact, 288 of the state’s 494 deals fell short of expectations, so 58% of deals did not pan out as planned. Not everything goes wrong — 27% of projects exceeded employment projections, too. Nevertheless, this demonstrates that the deals state officials make don’t often happen as planned and fall short more often than they exceed expectations.
(This assessment excludes deals after September 2018 since businesses may not have had time to invest, hire and report back to the state for this report.)
Claims in the report that these corporate handouts increased state revenue by $4 billion are also exaggerated. The economy — at least until the coronavirus epidemic — has been up. It’s not up by $4 billion in the past year, let alone because the state gave out money to select companies.
The claim made in the report comes from economic modeling on state deals that assume that every deal goes as planned, add benefits from ancillary economic activity, ignore all related costs from these programs, and assume that businesses would have done nothing if they were not handed a subsidy. They also include gains from their estimated future economic effects, which is partly why the number is so large.
The program administrators continue to confuse job growth with jobs moving around the state. They promote their efforts to assist Detroit automakers, for example, and highlight the projects with them that they claim will create over 11,000 jobs.
There is a reason to be skeptical of the claim. The number of auto and auto part manufacturing jobs in Michigan has been stagnant since 2015 and is still just a little more than half of the peak levels in 2000. The auto job creation probably won’t show as an increase in the auto jobs data. That’s in addition to the basic problem that announced deals often fall short of expectations.
It’s possible that without state actions the auto industry might be consolidating, and state efforts could encourage that consolidation in Michigan. This is not the claim made by administrators, but it’s worth considering. Michigan’s share of national auto jobs, however, has been the same since the end of the recession, so even if the unstated claim is a sign of state efforts, it also hasn’t shown up in the data.
When it comes to reporting on the programs instead of their promotional work, the report still maintains the same problems in previous reports. There’s a lot of data, but it released six months after the period it covered ended. Timeliness of reporting has been a concern we’ve recommended improving since 2005.
It still leans heavy on reporting what is offered and less so on what happens afterwards, an issue we highlighted in 2009. Some of the basics of reporting on projects — what was awarded, what was received, and the jobs and investment that actually happen in projects — remain absent, something we noted in 2016.
To their credit, the report seems to reflect a number of concerns raised by the state’s auditor general’s reviews of their performance. In addition, newer programs tend to have actual performance information available more than older programs.
Perhaps the state ought to reconsider having administrators compile reports about their own performance. Good Jobs First, an advocacy group skeptical of business subsidies, found that all states could improve their economic development transparency but ranked states based on what they provided. Illinois was the leader of providing people with useful information about its select subsidy deals. But Illinois’s transparency comes not from the programs’ administrators, but instead is provided by people outside of the direct administration of the programs.
It’s understandable that our economic developers want to promote their efforts. But taxpayers deserve transparency over the programs, and that requires reporting about what administrators are planned to do, what they actually did and what happened as a result; warts and all.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
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