'Price Gouging' Is Supply and Demand at Work, Even in a Polar Vortex

Price signals ultimately mean more supplies for disaster-struck areas.


Jim West/ZUMA Press/Newscom

The so-called polar vortex has many parts of the nation in its icy grip this week, with some areas experiencing temperatures well below zero degrees Fahrenheit. Unsurprisingly, one state government is sending out a misguided warning against "price gouging."

"Michigan energy providers should heed this warning: Those who take advantage of consumers will be held accountable," Michigan Attorney General Dana Nessel says in a statement. "A state of emergency does not make it open season on Michigan's most vulnerable residents." She particularly singles out propane providers, noting that 320,000 households in the state "use propane as their primary heating fuel."

From a legal perspective, Nessel is correct. The 1976 Michigan Consumer Protection Act prohibits companies from "charging the consumer a price that is grossly in excess of the price at which similar property or services are sold."

And her motives appear to be pure. "We don't want anyone to be taken advantage of," Nessel spokesperson Kelly Rossman-McKinney tells WKAR. "We're not expecting companies to take advantage of residents, especially vulnerable residents, but we are saying, 'Hey, we are watching. We are listening and we are prepared to act should that occur.'"

These sorts of warnings are relatively common in times of extreme weather. Price-gouging laws went into effect in North and South Carolina last September ahead of Hurricane Florence. Prior to Hurricane Michael in October, officials in Florida, Alabama, Oklahoma, and Georgia issues warning companies who might be tempted to charge more. California Attorney General Xavier Becerra did the same in November as wildfires ravaged parts of his state.

But these laws and warnings usually do more harm than good. When prices go up during a natural disaster or polar vortex, that's usually a sign of supply and demand at work.

Rising prices during times like these tell suppliers which goods people need the most, so they can balance the potential profits against the risks of providing those goods. As Reason's Katherine Mangu-Ward put it in 2017:

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 especially true of propane prices. While natural gas comes through a pipeline and electric heating systems are, well, electric, homes heated by propane need it to be delivered on a regular basis. In times of extreme cold, propane is in the same category of supplies as water and batteries: There's a certain amount of risk in sending out propane trucks to areas that need it. So-called "price gouging" lets propane providers measure those risks against greater possible rewards.

Higher prices are also a deterrent against hoarding, particularly in the days leading up to a disaster. To be on the safe side, many consumers are inclined to buy more than enough of whatever they think they'll need. The more expensive the propane is, the more is available for everyone else.

As Jerry Taylor and Peter Van Doren once said, "Price gouging—like spinach—may be unappealing at first bite but it's good for everyone in the long run."