Neglecting Prices Is a Big Analytical Error
In an interesting story about the logistics of baby formula shipments, the Wall Street Journal quotes a reflection from a freight broker executive (see Paul Page, “Baby-Formula Shipments Come With High Security to Deter Cargo Thieves,” May 28, 2022). The reflection is interesting because it points to a confused view:
During the Covid-19 pandemic, items favored by thieves included the paper goods and cleaning supplies that were in high demand and hard to find. “We were seeing things like hand sanitizers and masks targeted,” Mr. Bowyer said. “It wasn’t about the price of the product but the scarcity of it. And that’s something we are seeing now with the anxiety of parents who are looking for formula.”
It was (and now is for baby formula) about the price of the product and not merely its scarcity. The only reason reason why thieves were interested in PPE was the price they could get for it on the black market. The government-capped legal price would not have motivated thieves more than they incentivized legit producers. The market-clearing price is the result of both scarcity and demand, that is, supply and demand, or, expressed in another way, a result of demand relative to scarcity. A four-leaf clover is also scarce but its price is very low (if at all positive) because the demand for it is also very low (if it exists at all). Mr. Bowyer correctly hints at demand in his last sentence.
The price of baby formula motivates thieves because increased scarcity and continuing demand have pushed it up. (It’s the same when copper prices increase on world markets and thefts of copper wire jump.) The big difference between PPE during the pandemic-related states of emergency and the current market for baby formula is that there are currently no government price controls on the latter. This explains why, in baby formulas, there is little if any black market other that what may be fueled by possible theft. Note that as much as theft is a real crime, black markets by themselves are a very useful outlet for voluntary transactions when prevented by price controls or other government interference.
When trying to understand the economy and society, neglecting prices is a big analytical error.