Government Barriers to Private Solutions

"Price gouging-like spinach-may be unappealing at first bite but it's good for everyone in the long run."

|

Rescued individuals from the Kelliwood subdivision in Houston are brought in by boat by volunteer rescue workers
Bob Owen/ZUMA Press/Newscom

Americans are witnessing the power of private individuals and businesses to solve pressing problems stemming from Hurricane Harvey. From the boaters and monster truck drivers engaged in search and rescue operations to local stores opening their facilities to displaced families, there's no shortage of examples of private individuals and businesses stepping in to assist Houston in its recovery.

It's a good thing the private sector didn't wait for the Federal Emergency Management Agency to do all the work, because the government would have been unable to handle everything on its own. It's true of many disasters. Recall the tremendous support during the Katrina disaster of 2005. The American people stood on their own as an example of endurance and generosity—even more remarkable than the federal, state and local governments' responses.

Rather than dwell on government failure, it's more inspiring to remember how people and communities came together during Katrina to solve pressing and immediate problems. In their 2015 book, "How We Came Back: Voices from Post-Katrina New Orleans," Nona and Virgil Storr and Emily Chamlee-Wright detail the many ways "individuals and communities found hope and help in the immensely generous philanthropic contributions of informal networks of voluntary social action, such as religious organizations, as well as in established nonprofits."

You would think government officials might learn not to interfere with private-sector rescue efforts, regardless of the perceived motivation. Unfortunately, there's a certain kind of help that the government is always stupidly turning away. Enterprising individuals and businesses are being warned away from helping fill supply gaps by Texas Attorney General Ken Paxton, who finger-wagged that "the Office of the Attorney General has authority to prosecute any business that engages in price gouging after a disaster has been declared by the governor."

According to the government, "gouging" is selling something at the highest level that the market will bear regardless of production costs. By that definition, any increase in the price of a good or service in the face of a decrease in supply is gouging. However, raising prices of goods and services to the highest level the market will bear is not only what entrepreneurs do on a daily basis but also the mechanism that gives people access to a supply of goods they wouldn't otherwise have access to.

This is particularly important during a disaster. As the Cato Institute's Peter Van Doren and Jerry Taylor wrote in 2003, "gougers are sending an important signal to market actors that something is scarce and that profits are available to those who produce or sell that something. Gouging thus sets off an economic chain reaction that ultimately remedies the shortages that led to the gouging in the first place. Without such signals, we'd never know how to efficiently invest our resources. Moreover, we'd have no idea what to conserve. It's no exaggeration to state that, without such price signals, our economy would look like Cuba's."

Sadly, this lesson is totally lost when it's needed the most, and gougers are promptly labeled "immoral." What is immoral, however, is the prolonged scarcity of, say, food or gas that inevitably follows the government's condemning gouging. Consider John Shepperson, who, after Hurricane Katrina, rented a U-Haul, bought 19 generators in Kentucky and drove them to Mississippi, where there was greater need. He did this because he thought that he could sell the generators for twice as much as he paid, because people really needed them.

Unfortunately for him and his potential buyers, he was arrested and spent four days in jail, and the generators were confiscated, causing people to stay in the dark. The experience also stopped those who were going to follow in Shepperson's footsteps by bringing more generators to New Orleans, which would have not only increased the number of people with power but also decreased the price of generators, as the supply would have increased with every new gouger!

The same is true in Houston, where the government's aggressive stance against market enterprise is certain to delay the recovery.

As Floridians prepare for Hurricane Irma, they should refuse to participate in their attorney general's misguided efforts to pre-emptively stop price gouging by setting up a hotline to denounce those who might want to benefit from the disaster. As Van Doren and Taylor aptly note, "price gouging—like spinach—may be unappealing at first bite but it's good for everyone in the long run."

COPYRIGHT 2017 CREATORS.COM

NEXT: Dad Teaches Kids to Ride the Bus. But CPS Says He Can Never Leave Them Alone, Ever.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Price-fixing works until you run out of the gougers’ generators.

  2. Articles like this remind me why I keep donating and subscribing to the magazine.

    1. John’s,
      Sadly, I fear that Reason is an entirely lost cause. What I take from each and every “catastrophe” and the inevitable gov’t response, like this subject, is that americans are by far conditioned for socialism. They support big government en masse every time there is a problem and the rational, intelligent conversation of why there should be no price controls is lost in the litany of idiotic cries for equality and fairness. The free market is further diminished and the gov’t and politicians have no concern nor understanding if its necessity.
      Our public school system and the vast swaths of leftists teachers have completed the brainwashing cycle for almost 3 generations of idiot sheep americans who are now compassionate dolts who think free markets and liberty is somehow an injustice. Obviously, even a cursory study of the successes of one over the other would be enough but I fear most amercians are too stupid to even consider counter thought.
      Daily, America proves Churchill correct: “the perfect argument against democracy is a five minute conversation with the average voter”

      I am starting to wonder if my money would not be better spent donating to IJ. At least they tackle existing injustices one at a time and actually make a difference immediately. Trying to reach the masses through Reason, which I applaud, seems to be an ever growing waste of time and resources.

      1. I play poker with three separate groups of guys. One game is mostly Democrats with one apolitical cynic and me, one game is mostly Republican with another capital-L Libertarian, and the other is a mix of mostly apolitical types. Sadly, based on brief conversations at the poker table, I have to agree with your assessment that, with respect the way markets work, Americans is so ignorant and illogical that they are conditioned for socialism. Even the other Libertarian condemned “price-gouging”, and a couple of the Republican geezers were planning on filing price-gouging complaints to the Texas Attorney General because gasoline prices were hiked by about 50 cents.

        De Rugy’s argument is really unassailable, but the minds of many Americans are impenetrable. They really do believe in their heart of hearts, against all evidence, that government can just pass a law and everything will be set aright when an epic catastrophe occurs.

        1. “Americans is so ignorant”

          I’m sorry, I could hardly let that one go…

          To put your argument another way… the science of economics is settled on the laws of supply and demand. Why does the government think they can alter natural or physical laws (science) with their own arbitrary legislation?

          1. Yeah, you caught a real goof.

            Why does the government think they can alter natural or physical laws (science) with their own arbitrary legislation?

            Thomas Sowell offers a pithy answer: “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.”

    2. “Articles like this remind me why I keep donating and subscribing to the magazine.”

      John’s, I couldn’t agree more. Nobody else that I’m aware of is looking at this particular issue from the angle of logic and, dare I say, reason.

      1. this conversation could have been the most valuable discussion to come out of these two storms but don’t worry, the mob will win at class warfare every time.

        economic reality be damned.

  3. Summary: Any time the government gets involved in transactions between two private parties, everyone is worse off for it.

    1. I’ve got your private party right here, written as I gently squeeze my crotchal area.

      Seriously, what is with the need to put the word ‘private’ in front of everything? What’s the difference between an individual and a private individual? Or a solution from a private solution?

      1. Thankfully this party doesn’t want to transact with your “private” party.

        My use of the word private is to further emphasize that these transactions which are deemed “gouging” are happening between non-government entities, and therefore shouldn’t be regulated by a government.

        1. The difference between and individual and a private individual in the united states is now an important distinction given that the government sees no validity in either one. I would say that an individual in the united states is a human worthy of suspicion that has very few rights and is subject to the whims of an all powerful central body of bureaucrats.

          A private individual is someone who needs further education on the previous rule set.

      2. mtrueman|9.7.17 @ 11:09AM|#
        “I’ve got your private party right here, written as I gently squeeze my crotchal area.”

        mtrueman|8.30.17 @ 1:42PM|#
        “Spouting nonsense is an end in itself.”
        You can look it up; trueman is nothing if not full of shit.

    2. the middle man, government, always wants his take

      or as I normally say

      The government does not like competition

      1. There’s not even really a “take” here for the government, at least not in the traditional monetary sense that I think you mean. One would presume that the hysteria over gouging is actually happening at the John Q. Public level, and the government is stepping in to solidify it’s position of power.

        I’m sure people don’t want to pay 2x or 3x the “normal” price of a good during times of crises, but that’s hardly something that the government should be involved with. Once the government implements a price ceiling and creates a scarcity of goods, what’s the next logical step? Will the government use force to compel someone to sell goods?

        1. Of course there is a take. FEMA will provide necessary water. They will also need more money because of all the water they had to give away. See, without the government, people would have literally died of thirst!

  4. efforts to pre-emptively stop price gouging by setting up a hotline to denounce those who might want to benefit from the disaster

    Jesus, I didn’t think it got worse but it does. Blood on your hands, Florida’s government.

    1. I’m the government and I’m here to help.

  5. What a great way to be SURE that there are no supplies available.

  6. Bottled water in Houston is going for 10 cents each.

    Well, except for the vans that drive by the flooded houses every couple hours giving it away for free to people working the clean up.

  7. This example kills me. I can understand the moral outrage if he had cornered the local market on generators but he was actively increasing the supply.

    Retails routinely marks goods up 3x over wholesale. Why is it wrong for him to mark it up 2x?

    Evil.

  8. It’s no exaggeration to state that, without such price signals, our economy would look like Cuba’s.

    Alas, that argument won’t work on leftists; they think our economy SHOULD look like Cuba’s.

  9. Price gouging may be immoral – but that’s between an individual and whatever deity they worship or philosophy the prescribe to. It’s not something that should be legislated.

    1. Is it immoral to load a trailer with 19 generators and sell them to people willing to engage in commerce of their own free will? The guy provided a value in transporting these generators, what price is he allowed to morally set on his labor?

      It’s immoral to lock up a person for four days who was intending to provide goods to people in need, and then confiscate the goods for (I assume) the police to use as they wanted. It’s immoral to enslave him to the state and take away his property and his labor.

      This is actually quite a Randian philosophy to say that everyone acts in their own selfish interest and society benefits from that. This guy was motivated by profits. Could you imagine how much the lives of people could have been improved if there were 20 other John Shepperson’s willing to do what he did? Imagine if there were 100’s of them!

      1. “Is it immoral to load a trailer with 19 generators and sell them to people willing to engage in commerce of their own free will?”

        By definition, a free transaction between competent individuals increases the wealth of mankind. It can not be otherwise; the party offering the good values the money more than the good, while the party offering the money values the good more than the money. The moment the transaction is complete, they are both better off than they were, as attested by their own actions.
        Now, one or both might wish the price were higher or lower, but that’s some much horseshit; stated, rather than revealed preference.
        So, yes, I’m pretty sure we can agree that increasing the wealth of mankind is without doubt moral.

  10. raising prices of goods and services to the highest level the market will bear is not only what entrepreneurs do on a daily basis but also the mechanism that gives people access to a supply of goods they wouldn’t otherwise have access to.

    Only for non-monetized goods/services. Monetized stuff is extremely price stable. But it doesn’t surprise me one whit that a Reason economist will be a total banking whore since the entire academic discipline is a bunch of fucking whores now. Never ask any questions about the price of money itself. Never question the status quo of the current money system. Pretend that everything in economics is nothing but a rationalization for what makes the current money system work as a pricing system too.

    1. Gee, JFree, that’s pretty imbecilic even for you:

      “Monetized stuff is extremely price stable.”

      Put simply, you’re full of shit. Price/demand shoves prices all over the map, and anyone with a secondary-school education should know that.

      1. Maybe.

        Or maybe you don’t know what monetized means

  11. Agreed, but that’s politix for you. You vote for these incompetents – you reap the benefits of their incompetence.

  12. Did you see Pam Biondi (Chief FL Law Enforcement Officer) the other day? She was on the “gouging” kick talking about the future recovery from Hurricane Irma. I used to think she was a “free market” type until that little tidbit — not any more.

Please to post comments

Comments are closed.