Price controls

Laws Against 'Gouging' Are Simplistic and Wrong

So-called price gouging helps send important signals to buyers and sellers.

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Washed up among the wreckage of Hurricane Harvey is an old debate: Price Gouging—Heinous Crime or Useful Tool?

When a natural disaster like Harvey monkeywrenches the normal operations of daily life, basic necessities suddenly become scarce, and merchants often start charging much more for them. In Texas, The Washington Post reported last week, "One station sold gas for a whopping $20 a gallon. A hotel reportedly charged guests more than twice the normal rate. One business sold bottles of water for a staggering $99 per case—more than 10 times some of the prices seen online."

On first impression this seems downright evil: greedy businesses taking advantage of desperate people to line their own pockets. There oughtta be a law against it!

There is. Texas has a law against price gouging. So does Virginia. So do many other states. But as economists point out time and again, jacking up prices in an emergency actually serves socially useful purposes.

For starters, it prevents hoarding. A husband and father who doesn't know how long his town will be without gasoline or drinking water might be inclined to buy as much as he can haul away. If several people do that, supplies run out quickly.

That's exactly what happened nine years ago during Hurricane Ike. "Area and state consumers were in what can only be described as panic buying Friday as gasoline prices spiked," according to press accounts from Tennessee. WSLS in Roanoke, Va., reported that gasoline stations ran dry because the hurricane had "put people into a frenzy."

On the other hand, a consumer who would buy 10 cases of water at $10 per case is likely to buy much less at $100 a case—thereby leaving more for others. This is the market's extremely efficient way of rationing scarce goods.

Even those sharply critical of price gouging concede the correctness of such observations. The Los Angeles Times' Michael Hiltzik, for instance, acknowledges that the "textbook economics" of price-gouging are "irreproachable." But he and others still find it objectionable.

They find it objectionable, first, because they consider price spikes morally wrong. Behind the objection lies an unspoken assumption: that there must be some morally correct price for a consumer good, independent of the wishes of the person selling it. Yet a merchant has no moral obligation to sell his goods in the first place. A grocer who closes his store so he can evacuate the city is not breaking any cosmic moral laws, for instance. And if a merchant has no moral duty to sell something at all, then it makes little sense to say he has a duty to sell it at a certain price.

Price-gouging critics also find the practice objectionable because they think it won't really work.

Economists point out that high prices are signals not just to consumers ("buy less"), but also to providers ("supply more"). The latter signal efficiently helps with re-supply efforts. But some people don't believe that. "The notion that the free market can somehow redress the extreme disruption of supply and demand that occurs during a disaster," Hiltzik claims, "is exactly wrong." Only government can do that, he says.

This will come as news to people who have been receiving help from the Red Cross and countless other volunteer organizations that ship supplies into stricken areas after every disaster. (They are part of the free market, too: They simply price their goods at zero.)

It also will come as a surprise to anyone who has been living in Richmond for a while. In 2003, Hurricane Isabel struck the region—toppling thousands of trees, knocking out power across vast sections of the state, destroying homes, and killing more than 30 people. It was the most expensive disaster in the state's history.

And look what happened. Generators "have come and gone unpredictably at local stores," the Times-Dispatch reported on September 27, but "they have remained in stock all week in the classified ads. And they're still selling." Jessika Simmons said she still had four left—because she bought 18 in North Carolina to sell in Richmond.

Another Times-Dispatch story reported on Jack and Kim Sheperson, who "drove more than 10 hours from Marion County, Ky., to make a little money. They were selling chain saws for $300 and generators for $650 to $1,000."

That same story quoted Bill Bellamy, who "said he stopped at a Home Depot yesterday morning to find a man from Buffalo, N.Y., who was selling generators from his truck."

" 'He wanted $1,245 for a 4,000-watt generator. It's a rip-off, ' (Bellamy) said. 'That type of generator would sell for about $549. I passed,' the Henrico County resident said. 'But now I wish I paid.' "

For every complex problem, H.L. Mencken once said, there is an answer that is clear, simple, and wrong. He wasn't referring to laws against price gouging—but he sure could have been.

This column originally appeared at the Richmond Times-Dispatch.

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  1. People’s reactions to price gouging is a good indicator whether they understand basic economics.

    1. that and the minimum wage

    2. Not to mention the moral implications packaged into those pricing signals.

      People should be willing to die to get generators into Houston (or Miami assuming Irmagerd stays the course) at cost.

    3. Some people understand economics, but it doesn’t matter to them.

  2. The Los Angeles Times’ Michael Hiltzik, for instance, acknowledges that the “textbook economics” of price-gouging are “irreproachable.” But he and others still find it objectionable.

    Feelz. What can you do.

    1. Facts?! Facts?1
      Baah!

    2. Sympathetic masturbation?

  3. Area and state consumers were in what can only be described as panic buying

    And right now, days before Hurricane Irma is anywhere near America’s wang, gas stations all over Florida are allegedly running out of gas. Letting economically illiterate individuals set policy seemed like such a great idea at the time…

    1. Would you rather see empty shelves or get gouged?

      1. Would you rather see empty shelves or get gouged?

        It seems somewhat axiomatic if I willingly trade my money for goods and services by definition I am better off (regardless of the prices). “Gouging” belongs in the lexicographic dumpster along with “fairness”.

  4. All insightful snark aside, I really do believe people would rather see empty shelves than see a single can of sterno on the shelf for $20.

    1. Shared misery is the hallmark of a government controlled economy.

      1. And just like any society ruled by “altruism”, the Top. Men. sure as hell won’t go without.

    2. So instead of seeing it on the shelf for $20, some bloodsucking speculator will offer it on the street for $20. Progress.

      1. Correction: The ‘bloodsucking speculator’ will offer it on the street for $50. There’s a markup for any black market, and that doesn’t go away just because it’s also an emergency.

        1. The final price is always determined by the one holding the gun. for the man with the gun everything is free for him

    3. I really do believe people would rather see empty shelves than see a single can of sterno on the shelf for $20.

      Crab mentality eases reality through the progressive conscience like a laxative.

    4. There is a study I’ve heard referenced on how a disturbingly high percentage of leftists quite explicitly would prefer a street where everyone’s home was of equal value to a street where everyone’s homes were worth more than the first street, but there was a pronounced gap in between the best and worst houses

      Regardless though, in the age of social media, the shaming effect probably depresses prices anyway. There’s definitely a limit to what you can get away with before someone posts it online and the media picks up on it. That may not be a good thing either

      1. Yep, the most basic economic ignorance grounded in “equality”.

        A number of studies of US family incomes show that over the past 20 or 30 or 50 years, the median and mean incomes have increased, the threshold for the bottom 10% has increased, and the number of people in poverty has decreased (despite cut-offs for some measures of poverty actually increasing). These all measure dollars (and with values adjusted for inflation). Beyond that, the buying power of those dollars has also increased, so that standards of living have gone up even more.

        But what gets some people all panties-bunched-up is that the spread between richest and poorest has also increased. Thus the US economy, and the usual villains, are inherently immoral and evil.

  5. The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics. – Thomas Sowell

    Supply, meet your old pal, Demand.

  6. As I said in the comments on an earlier post by John Stossel about this, price “gouging” laws are about pure envy and nothing more than that.

    People don’t think it’s “fair” that someone else would be able to get something they cannot because the other person is better able to afford it so they would rather that everyone be equally miserable and do without. That is the sentiment that the politicians play to when they pass price “gouging” laws.


  7. This will come as news to people who have been receiving help from the Red Cross and countless other volunteer organizations that ship supplies into stricken areas after every disaster. (They are part of the free market, too: They simply price their goods at zero.)

    My fianc? works for Red Cross, and she’s been pulling at least 15 hour shifts helping out with the disaster. If those ‘morally superior’ jerkweeds feel like it they can donate their time, money, labor, or straight up goods to people instead of demanding the government step in.

    Voluntarism > Authoritarianism.

    That said, Texas is one of the states that should ‘know better’ than to pass price gouging laws but then again never underestimate the stupidity of Austin. They aren’t weird, they’re just autistic.

    1. I’m on the autism spectrum, as is my entire family, and I’m a voluntarist. The rest of my family is a cross-section of American political and religious beliefs.

      Perhaps devote a little more thought to the things you say, ere you say them.

    2. Texas should execute it’s progressives.

      1. The USA should execute people who want to execute people.

  8. I think we saw a pretty good example of that here in San Antonio. Right before the storm, gas was around $2.15-2.20. Around the middle of last week, gas had gone up to $2.40 or so (at least in my part of town). Considering he circumstances, that didn’t seem like that big a jump. As it happens, gas stations began running out of gas and those that had it were inundated with long lines (some stretching for blocks). Government and industry officials tried to explain there was no shortage, but to no avail. They also urged people to skip buying gas if they didn’t need it. I’ve heard that there was a lot of hoarding (even one story of people filling up garbage cans with gas – don’t know if it’s true, but it sounds nuts to me). I didn’t get a chance to get gas myself until today – for $2.65 a gallon, at a place that was selling for $2.39 just the other day (if one could stand being in line for a very long time, with engine idling).

    So, I’m wondering if the Texas anti-price gouging law had anything to do with this? To what extent? Serious question. Seems that maybe the market would have found a fair price point that would have discouraged hoarding and increased availability, but maybe I’m off base…

    1. For all the hand-wringing about the Texas price gouging law, if anyone actually ends up being prosecuted for it there is reason to suspect that a Supreme Court challenge would be inevitable as the statute itself appears incredibly subjective and vague.

      At least as far as this current disaster, I can’t think of a single case where someone has actually been prosecuted even though the AG’s office has indeed stated that there are ‘numerous’ reports of price gouging on fuel even while none of those appear to have been acted upon.

      The reason for that is probably that:

      A) The sellers are able to justify higher prices in court, if they should need to,

      B) The government wants the statue as a deterrent, but really doesn’t intend to actually prosecute based upon it because they know the statute itself is weak.

    2. “even one story of people filling up garbage cans with gas – don’t know if it’s true, but it sounds nuts to me”

      Garbage cans were used in this episode of “It’s Always Sunny in Philadelphia’, and it may have been based on a true story;

      http://brobible.files.wordpres…..arsjsd.jpg

      1. Yikes! I love the, um, original spelling on their sign. 🙂

      2. A Chech and Chong movie had them using a trash can to steal gas.

        That said with a few refineries not functioning due to the storm prices are going to go up for the rest of the country how is that not price gauging as well, and proof that laws against it are useless because of demand and even cost of repairs

    3. Gasoline price volatility occurs because there isn’t storage slack in the system. The biggest storage capacity by far is vehicle gas tanks. Filling the gas tank is the first thing that most people do, so moving that part of the storage system from partial to full empties the other storage. And since we’ve also eliminated about half the US’ refineries over the last 35 years, the supply side of the system is now more vulnerable to anything that shuts down refineries in a particular area. So price signals now have to be more extreme to induce a)refineries to switch more to gasoline than other products and b)ship it to area A rather than B and c)force station owners to risk the spot market rather than contracted delivery.

      This is just the cost of going purely to bank money and a just-in-time system for everything – rather than monetizing commodities and having that inventory already there somewhere.

    4. It would have made people stop and think about filling up their tank, as opposed to getting enough to get to work, and it would have stopped all the people filling up 5 gallon home depot buckets and 250 gallon water tanks. That said if I was a gas station owner I would have stood outside with a pistol on my hip daring anyone to try and get any more gas than would fit in their gas tank in order to increase my customer interaction. The private market works better than government anytime.

  9. “Price Gouging”
    Like “hate crime”, a character string with no objective definition.
    I would suspect anyone charged with price gouging could get off by pointing out that it is impossible to have mens rea, as ‘gouging’ has no definition. Say a case of water in a storm free economy sells for five dollars. Now global warming causes a huge hurricane, and everyone knows it is coming. At what price will ‘gouging’ come into play? Six dollars, probably not, but a seller cannot know for sure. Twenty dollars, maybe, maybe not, but a seller cannot know for sure. Two hundred dollars, probably, but maybe not, a seller cannot know for sure. So how will a prosecutor convince a jury that the seller intended to break the law?
    (I know, get 12 democrats – – – )

    The sad part is that the only safe thing to do in a state with price gouging laws, is to lock the doors and drink the water yourself.

  10. Prices in NH went up 30 cents in a few days and no hurricane here. I guess I was a victim of the market efficiently allocating a scarce resource aka price gouging. Who do I sue?

    1. Ditto for WA State.

      1. There’s a way around any arbitrary law anyway. Right before the eclipse, many of the stations along the way were gauging but they would leave the regular price on the pump, take your cash inside up to $4 a gallon and then input the number of gallons to be pumped so that everything looked kosher.

  11. An old Russian fable tells of two poor peasants ? Boris, who had a goat, and Ivan, who didn’t. One day, Ivan came upon a strange-looking lamp; when he rubbed it, a genie appeared. She told him that she could grant him just one wish, but it could be anything he wanted.

    Ivan said, “I want that Boris’ goat should die.”

  12. That type of generator would sell for about $549 WHEN THERE IS NO HURRICANE!

  13. What’s the solution? If you live where there’s a high chance of a big storm hitting, buy a generator and a couple of gas cans during the off season. Keep the cans filled and every couple of months, empty them into your car’s tank then refill the cans with fresh gas. Better would be to use the gas from the cans in alternate months.

    Got trees on your property? Buy a chainsaw! One with a 4-cycle engine so it can use the gas from your cans. The saw can sit on a shelf in your garage for years, but it’ll be there if you need it.

    Sta-Bil in the generator and chainsaw fuel. Fill up with Sta-Bil treated gas when you buy them then empty their tanks for long term storage.

    Same deal with bottled water. Three and a half cases. Regularly drink from one and when it gets down to 50%, buy another so you have three full cases to use if you don’t have city water or you can’t pump from your well.

    Remember the “Seven P Principle”. Proper Prior Preparation Prevents Piss-Poor Performance.

    1. I’m always amazed at the number of houses that have plywood stacked up after a hurricane and then just have to buy more for the next one. It doesn’t take much room to store plywood.

      I had a friend show a picture of an empty store saying that Houstonians are prepared. I told her if they were prepared, the shelves would be full but she didn’t get it. Preparation happens before hand not as a crisis descends.

  14. I live in a town that was supposed to be one of the hot spots for the eclipse. The TV news kept talking it up that up to 50,000 people could show up here. Scared away so many that it was only around 10~12 kilopeople. Some who stopped here were headed for Madras or Prineville, OR but decided here was just as good when they saw the aerial videos of thousands of vehicles clogging Prineville.

    The grocery store brought in a massive stock of bottled water and was selling it cheap. Some enterprising folks also brought in loads of water and didn’t sell much, if any, at high prices. The store is still selling down their water overstock. They had refrigerated semi trailers of food on site but apparently didn’t have to unload due to the non-appearance of the massive crowd.

    The lack of water sales were helped by the uncharacteristically cooler (as if low 90’s is ‘cooler) temperatures here for late August.

    Most of the restaurants did have their biggest weekend they’ll ever have but aside from that the impact of the eclipse crossing here wasn’t much more than the annual festival the 3rd full week of June.

  15. There is a war on against greed-stoked Glowball Warming. Houston is simply the victim of war profiteers. But a popular religious conservative drafted a final solution back in 1920:
    12. Considering the enormous sacrifices of property and blood which every war demands from a people, personal enrichment because of war has to be seen as a crime against the people. We therefore demand complete confiscation of all war profits.
    Civil asset-forfeiture confiscation is STILL the preferred looter solution to all problems real or imaginary, and is preserved by both the Dems and GO-Pee in their 2016 platforms.

    1. What the HELL are you talking about?

  16. Help! I was gouged. Somebody do something. Next time I desperately need something that’s priced higher than I usually pay, I want someone to punish the seller for giving me a choice I wouldn’t have had. It’s all that greedy seller’s fault that I was trapped into a “no-win” choice. If I didn’t pay too much, I would suffer greatly. If I did pay, I would suffer less, but still feel bad. So, I want the choice taken away from me, even if I suffer more, overall.

    Oh, wait, I meant I want the seller to charge a price based on my estimate of what’s fair, regardless of the seller’s situation. If he suffers, that’s his problem not mine and I don’t want to think about it. I just want my way, my feelings to be put before economic realities, and govt. should do that for me, but not for the seller. If a business gets “special” treatment, e.g., a monopoly, that’s wrong, unfair. Why should businesspersons get an advantage when they are in the minority? In our democracy the majority is king and the king gets his way, even at the expense of property rights or commerce. That’s what “worked” in the USSR for 74 years, until it didn’t.

  17. So, if politicians are so against gouging why don’t they pass rationing laws so the Joe Sixpack doesn’t come in and buy out all the water in a store? Perhaps once politicians understand that Joe Sixpack’s purchase screws several other families they will wake up and create a complex serious of rationing laws that law enforcement can enforce during catastrophes. Of course municipalities would have to hire more officers, but it would be worth every penny.

    Wait a minute .. I think free market gouging is simpler. I better be careful I am not turning into a liberal.

  18. The argument makes sense for generators. Hardly ever would you need to buy a generator today to avoid death; if you can afford a generator at all, you can probably afford some interim solution for today, and buy the generator once the price comes down.

    But you need to drink some water today, and if the only safe water you can find costs $100 and you don’t have that much money, your choice today is between immediate death and potentially fatal sickness.

    Property rights are an artificial creation which we maintain because, within limits, they benefit people in general. But there are limits, and one of them applies here. In an emergency, where people’s lives are at stake, no one should be allowed to hoard water, and that applies to stores as well as individuals.

  19. The argument makes sense for generators. Hardly ever would you need to buy a generator today to avoid death; if you can afford a generator at all, you can probably afford some interim solution for today, and buy the generator once the price comes down.

    But you need to drink some water today, and if the only safe water you can find costs $100 and you don’t have that much money, your choice today is between immediate death and potentially fatal sickness.

    Property rights are an artificial creation which we maintain because, within limits, they benefit people in general. But there are limits, and one of them applies here. In an emergency, where people’s lives are at stake, no one should be allowed to hoard water, and that applies to stores as well as individuals.

  20. isn’t it a little simplistic to claim that someone would by more cases of anything if the price was $10 a case and far less is it was $100, leaving more for everyone or, at least, the everyones who could afford to pay $100 a case. With supplies as necessary as water why would not a cap on the number of cases work just as well to keep supplies available without depriving poor people of access. Merchants could do that on their own without regulations but then their profits would be lower.

    1. “Merchants could do that on their own without regulations but then their profits would be lower.”

      Yeah, how ’bout that?

    2. “why would not a cap on the number of cases work just as well to keep supplies available without depriving poor people of access”

      Because if there were enough to go around, *they wouldn’t be raising prices*.

      And if there isn’t enough to go around, then yeah, the rich are gonna be the ones who get what’s left. “Rich only” is no worse than “Whoever shows up first only”. Welcome to the difference between a Market and a Commons.

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