Right on schedule: Time to go after those awful “price gougers”

posted at 4:01 pm on November 10, 2012 by Erika Johnsen

When allowed to function properly, the free market works very smoothly in bringing people the goods and services they want, in the amount that they want them, and for the price at which they value them. As much as people don’t like hearing it, the laws of supply and demand are no less vital in the event of an emergency — but politicians sure do love to rag on those greedy, profiteering businesses that jack up their prices in the event of a sudden supply shock or demand spike (a.k.a., “price gouging”). Anti-price gouging laws are a huge mistake that hurt the public at large, because all they accomplish is preventing the free market from doing what it does best: Quickly and efficiently adapting to conditions in a way that benefits everyone, and in an emergency especially, price gouging can save lives.

Predictably, of course, in the wake of Hurricane Sandy, so begins the outrageous outrage against those who had the audacity to raise prices on things like gasoline and lodging, via NBC:

New Jersey has filed lawsuits against eight businesses for allegedly gouging customers with exorbitant prices in the days after Superstorm Sandy roared ashore, the state’s attorney general said Friday.

The defendants, seven gas stations and a hotel, are accused of hiking their prices from 11 to 59 percent in the days after the storm. One gas station was charging as much as $5.50 a gallon, Attorney General Jeffrey S. Chiesa said. The hotel, a Howard Johnson Express in Parsippany, N.J., allegedly raised its room rates to $119 after the storm, up 32 percent from the top rate of $90 just prior to the storm.

“We have received no indication that these defendants faced costs that would have made these excessive price increases necessary or justifiable. One gas station even paid less per gallon for a shipment of fuel after the storm than it had paid before the storm,” Chiesa said in a statement.

“Justifiable”? “Excessive”? “Exorbitant”? Excuse me, but how is it that any government possesses the all-encompassing knowledge to determine what is and is not an “exorbitant” price? Competition is a much more accurate and efficient regulator than any government can ever be, and perhaps if lawmakers and bureaucrats were wise enough to let the market do its thing, their citizens would be better off.

Lee Doren illustrates a great example with bottled water in the video I’ve posted below, so I’ll flesh this out using the example of hotel lodging. Let’s say you live in an apartment with a few friends in a seaside-town, and you know a big hurricane is coming. You also know that your street is prone to serious flooding and your power will probably go out, so you decide to go check into a hotel in a more inland location for a few days. You batten down the hatches and get the hell out of dodge, but when you arrive at the hotel you planned on, you find that the price of rooms is more expensive than you’d banked on. So, you reevaluate: Maybe you and your friends decide to squeeze into one room instead of paying for two, or maybe you think, well, I do have a friend we could crash with who lives even farther inland if we just drive a bit more. So now, you’re taking up zero or one hotel room whereas you might’ve taken two without the hotel’s “price gouging” — meaning there are more rooms available for the people who come along who might really have no other option.

In a nutshell, price gouging incentivizes people to take only what they really need to survive, meaning that a greater amount of people will be able to get the necessary supplies instead of arriving at the store to find rows of empty shelves. What’s more, high prices can incentivize suppliers to bring more of the sought-after goods into the affected areas.

Ever eager to assume that political intervention is superior to market solutions in allocating resources, New Jersey is currently rationing gasoline in certain areas, which isn’t having much effect on mitigating the shortages and the waiting lines. But, as Holman Jenkins writes in the WSJ, maybe we should all hug a price gouger:

Gas stations post the most visible price in the economy, and are target No. 1 for politicians looking for innocent entrepreneurs to scapegoat. One Florida station owner during Katrina told investigators the universal truth of all gas station owners: He raised prices because he had “too many customers” and was running out of fuel. For his honesty and good sense, he was slapped with the state of Florida’s first gouging subpoena.

… In the aftermath of this week’s storm, how long before the Northeast’s refiners and fuel distributors are back in action? Gasoline may well be in short supply for days or weeks. Nothing would be as therapeutic to the public interest as letting retail prices rise to $5 or $6 or whatever might help motorists make better decisions about whether to fill up or not.

Crackdowns on gouging are plausible only because the advantages of not prosecuting price gougers belong to the category of the unseen—the public can’t see the supplies that would be available but for price-gouging laws. A good statewide New Jersey gasoline panic might correct that myopia, at least for a while.


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