With Hurricane Michael tearing through the Southeast this week, state attorneys general are predictably inveighing against price gouging. In doing so, they are inadvertently discouraging suppliers from bringing in the goods that storm victims need.
In many states, price gouging laws go into effect when the governor declares a state of emergency. Florida, for instance, "bans unconscionable increases in prices in the rental or sale of essential commodities," according to Attorney General Pam Bondi's office. Bondi told Fox Business Network that several gas stations have been caught "trying to jack their prices up." She also mentioned a convenience store that had raised the price of water. "We're not going to tolerate that," she warned.
Bondi has been on a crusade against price gouging for some time. After Hurricane Irma hit Florida last year, she said it was "sickening and disgusting" that vendors were "trying to trick people." She particularly took issue with reports of a $100 delivery charge for a case of water. But while Bondi is vocal about her distaste for price gouging, she is apparently not very good at fighting it; roughly three months after Irma hit, her office had settled just one price gouging case, despite thousands of complaints.
Other states in Michael's path are also pre-emptively condemning disaster-sensitive pricing. Alabama's price gouging law went into effect after Gov. Kate Ivey declared a state of emergency. "Alabamians should be cautious of those who would seek to prey upon them through crimes such as price gouging and home repair fraud," Attorney General Steve Marshall said in a statement. Vendors who don't listen can be fined up to $1,000 per violation.
In Oklahoma, it's illegal to raise prices by 10 percent or more when a state of emergency has been declared. Violators can face a $10,000 fine. Attorney General Mike Hunter says the statute is meant to "protect Oklahomans who are at their most vulnerable after a storm."
Georgia punishes price gougers with fines between $2,000 and $15,000. Georgia's "Consumer Protection Division is at work to protect [consumers] from scammers and price gougers," Attorney General Chris Carr said.
North Carolina is dealing with its second major storm in as many months. The state's attorney general, Josh Stein, received at least 500 complaints about price gouging after Hurricane Florence. The latest state of emergency signed by Gov. Roy Cooper, encompassing 66 counties, means the price gouging law is again in effect.
Overlooked amid all this outrage is the fact that price gouging laws do more harm than good. That's because when prices go up during a disaster, it's usually a sign of supply and demand at work.
Natural disasters spell scarcity for many goods and services. How, then, can consumers get the supplies they need? Capitalism, of course. Rising prices during disasters tell suppliers which goods people need most. Then they can balance the potential profits against the risks of providing those goods. As Reason Editor in Chief Katherine Mangu-Ward noted last year:
Many of the folks who take on the risk of heading into an unstable area do so because they are driven by the twin motivations of fellow-feeling and greed. These people are often the fastest and most effective at getting supplies where they are most needed, because that's also where they can get the best price. This is just as true for Walmart as it is for the guy who fills his pickup with Poland Spring and batteries.
The story of John Shepperson, as summarized last year by Reason TV's John Stossel, illustrates what happens when the government gets in the way. After Hurricane Katrina hit in 2005, Shepperson realized people needed generators. So he bought 19 of them and drove 600 miles in a rented U-Haul truck from his home in Kentucky to Mississippi. He started selling the generators for about twice what he had paid for them, only to be arrested. The unsold generators, meanwhile, went to waste.
Price gouging also acts as a deterrent against hoarding, particularly in the days leading up to a disaster. To be on the safe side, many consumers are probably inclined to buy more than enough of whatever they think they'll need. But the more expensive those goods are, the less they'll buy, meaning more will be available for everyone else.
Price gouging laws keep prices artificially low, so those in a position to help have no motivation to do so. While prices might stay low, there's no guarantee supplies will be adequate.
In a column last year on "government barriers to private solutions," Veronique de Rugy cited a 2003 commentary piece by the Cato Institute's Jerry Taylor and Peter Van Doren. More than 15 years later, one line from their piece stands out: "Price gouging—like spinach—may be unappealing at first bite, but it's good for everyone in the long run."
As Michael tears through the southeastern coast, state officials should hope their warnings against raising prices don't come back to haunt them.
Bonus link: Reason TV's Jim Epstein explained back in 2012 why keeping gas prices artificially low means nobody gets fuel.