In The Bob Zadek Show’s treatment, a price signal is the information a market price carries about scarcity, risk and the alternative uses of a resource — and the incentive that moves suppliers to respond. The concept is invoked across episodes on healthcare, rent control, pandemic masks, price theory and airline bailouts, and in each the argument runs the same way: prices coordinate behavior that no planner could coordinate directly, and interference with prices breaks that coordination.
Prices as guides and incentives
Will Wilkinson tells Bob Zadek that he believes in prices and in free exchange, and that the heavily regulated healthcare system is a nightmare in large part because of that regulation. He argues that medical licensing restricts who may legally provide healthcare services and has an enormous effect on prices, and that if it were legal to sell an insurance policy whose cost reflected the buyer’s actuarial risk, the resulting signals would be preferable. Will Wilkinson: G.O.P. Should Embrace the Welfare State (2017)
Charlie Deist, in the rent-control episode, offers the show’s compact formulation: a price signal is a signal wrapped in an incentive, and if you take away the incentive you take away the supply. The Rent Control Bomb (2019)
Art Carden supplies the fullest statement of the idea. He tells Zadek that most people subscribe to a “producers are mean” theory of prices and an “employers are mean” theory of wages, believing the price of gas is set by how greedy gas station owners are when they wake up. Prices, he says, are the products of human action but not of human design — a phrase he attributes to Adam Ferguson, a contemporary of Adam Smith — and are unintended consequences of people pursuing their own interests. Carden calls prices indispensable guides that help us know whether we are stewarding our resources well or wastefully, and describes them to his students as informative but not decisive: there are things people would pay him a great deal to do that he would not do, murder for example. Prices nonetheless give the best estimate of the alternative uses of a resource, whether that resource is someone’s time, a pound of aluminum or an ounce of gold. Art Carden on Price Theory & Its Discontents (2022)
Zadek’s own framing in that episode is that a choice between competing uses of an hour cannot be made without knowing the price, and that the only way to decide is by price. He adds that no one gets to set a price unilaterally — a price is aspirational until someone is willing to pay it — and that when buyer and seller meet, both are better off. He invokes Adam Smith’s butcher and baker to argue that without greed, in his word, we would all die of starvation. Art Carden on Price Theory & Its Discontents (2022)
Price gouging and the unconscionable price
Zadek devotes a segment of the rent-control episode to the concept of alleged price gouging, which he says states and legislators are repealing the free market over. His central hypothetical is Hurricane Sandy: entrepreneurs bought up cases of bottled water and drove at great peril and expense into hard-hit areas, selling water at perhaps four or five times the usual price. The water, he notes, was bought up immediately — which in his reading means they were not overcharging but charging exactly the market price at that time and place. Were it not for those entrepreneurs, he says, the people who needed the water would not have gotten it, because the prospect of a thin margin would not justify the trip. He extends the point to hamburgers at airports, which cost more because the market is captive, and then to rents. His conclusion is that there is no unconscionable price, because if you charge something unconscionable nobody will buy it: the market tells you whether you are charging the right price, not government, and government cannot decide the price of anything. The Rent Control Bomb (2019)
Deist takes up the analogy and maps it onto housing: in this comparison the entrepreneurs bringing goods at a new price are housing developers, and rent control hurts the very people it tries to help in the same way a cap on the price of water, ice or other emergency goods would. The Rent Control Bomb (2019)
Carden is asked by Zadek to weave the evils of price-gouging regulation into his account of greed in a free market, which Zadek calls a profound misunderstanding that has public support but is destructive to the public the statutes try to protect. Art Carden on Price Theory & Its Discontents (2022)
Shortages, masks and the pandemic
Ryan Bourne, in the pandemic-policy episode, uses face masks as a case study in what an economist would have seen differently. Public health officials, he recalls, explicitly told people not to buy masks, in part because they feared that buying would use up a fixed supply needed by hospitals and nursing homes. An economist, Bourne says, would have replied that this may hold in the very short term, but that if demand takes off and politicians stay out of the market, the price of masks will rise and incentivize businesses to expand production, run overtime, invest in new machines and switch to mask production — and that this supply response is what was in fact observed over the longer term. Because officials treated the market as a zero-sum game, he argues, there were weeks in which people were told not to demand masks that would have worked better than walking around with no protection at all. Ryan Bourne on the Economic Fallacies of the Pandemic Policymakers (2021)
Zadek draws out the mechanism: if demand is suppressed by telling people not to buy, the market has nothing to respond to, prices do not rise, and manufacturers are not incentivized to devote capacity to masks. He adds an observation of his own — that he has found the concept of a shortage of any product to be nonexistent, since as supply falls the price rises and anyone willing to pay enough can outbid someone else. Ryan Bourne on the Economic Fallacies of the Pandemic Policymakers (2021)
Bailouts and the distorted signal
Veronique de Rugy, discussing airline bailouts, says the distortions run through the whole price system: intervention distorts the price signal that tells people whether something is risky or safe, whether it is worth investing, consuming, building or hiring. She notes that government does the same in the labor market and wages, and that the ultimate effect is to distort the essential signal that allows a complex economy of exporters, importers, consumers, producers, investors and stockholders to function. The True Cost of Airline Bailouts (2023)
Her larger concern is moral hazard. Airlines, she says, have learned that the government will step in, and can therefore tell shareholders and investors to invest because the cost of the next emergency will never be shouldered by the company. Individuals, too, have learned to expect a check in the mail in the next emergency, no questions asked, whether they work or not. De Rugy argues this corrupts corporate morals and changes behavior, and that it is one reason people are upset about capitalism: when people dislike cronyism they blame companies for being greedy rather than the government, which is the source of the bailout. The True Cost of Airline Bailouts (2023)
Zadek raises farming as a parallel ratchet: government socializes farmers’ losses through bailouts but does not take excess profits when times are good, and he notes that airlines coming off a decade of monumental profits could have bought insurance or set money aside but did not see the need because of the hope of a bailout. The True Cost of Airline Bailouts (2023)
Across episodes
The topic recurs across all five episodes without a change in position: Wilkinson in 2017 applies price reasoning to healthcare and insurance, Deist and Zadek in 2019 to rent control and price gouging, Bourne in 2021 to masks and pandemic supply, Carden in 2022 to price theory and greed, and de Rugy in 2023 to bailouts and moral hazard. Each speaker affirms that prices coordinate and that intervention distorts; the excerpts show no development or disagreement between the earlier and later treatments, only different applications.
What the sources do not cover
The excerpts do not state the outcome of any rent-control litigation, the name or content of any price-gouging statute, or the terms of the airline bailout legislation. They do not give the founding date or full text of any principle attributed to Adam Smith or Adam Ferguson beyond the phrases quoted above. Several segments break off mid-exchange — Zadek’s “Charlie,” at the end of the rent-control price-gouging section, and Carden’s and de Rugy’s closing remarks — and nothing after those points is reported here.