Coronavirus

Price-Gouging Laws Will Do More Harm Than Good During the Coronavirus Pandemic

High prices for sought-after goods cause temporary pain, but not as much as government efforts to "help" frustrated consumers.

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In response to surging prices for items that Americans are snapping up to deal with the COVID-19 pandemic, politicians themselves are peddling policies that will prove expensive for the people they're ostensibly supposed to help.

For instance, New York State Sen. Brad Hoylman (D-Manhattan) wants to punish "price gouging," Texas Attorney General Ken Paxton has asked state residents to rat-out vendors who charge what their goods are worth, and Arizona Attorney General Mark Brnovich is fretting over his powerlessness to prosecute suppliers who respond to market demand. It's all framed in cuddly language about protecting the public, but that's exactly who such government intrusions hurt.

The first problem is that, for as common as accusations of "price gouging" are, the term has no fixed meaning. Asked when rising prices cross the line to become criminal, New York Attorney General Letitia James told NPR, "there's no definitive answer to that question, but you know it when you see it."

Vagueness is the order of the day for many states. Someincluding Alabama, Florida, and Maineforbid selling at an "unconscionable" price. Idaho and Texas ban sales at an "exorbitant or excessive price." And New York splits the difference with restrictions on "unconscionably excessive price" increases during an emergency, according to FindLaw. New York's Sen. Hoylman would "establish that an 'unconscionable excessive price' is a price greater than 10% higher than before a public health emergency began" (because that's as good a number as any, I guess, and the definition already used in neighboring New Jersey).

As you might imagine, there are problems inherent in pulling numbers and words out of the ether to mandate a legally permissible price for goods that are flying off the shelves because of rising demand, restricted supply, or both.

"Among economists, price gouging … simply reflects the emotional response non-economists have to rapid price increases," write Antony Davies, associate professor of economics at Duquesne University and James Harrigan, managing director of the Center for the Philosophy of Freedom at the University of Arizona, in a recent column. "What politicians and other anti-price gouging proponents would have you believe is that we can have what we want, at the price we want, simply by passing a law."

Laws can't change the market conditions that drive prices up. Prices for hand sanitizer, face masks, and easily stored food are rising right now not because sellers are mean, but because demand is rising relative to the immediately available supply.

Those rising prices tell consumers that what they want is now more valuable than before and should probably be used more sparingly or be replaced by something else, if possible. It also tells manufacturers and distributors that they should increase production, and where they should send the goodsif they're allowed to.

"The higher the price of hand sanitizer rises, the more incentive entrepreneurs have to divert shipments from where they are needed less to where they are needed more," Davies and Harrigan add. "The higher the price of surgical masks, the more incentive manufacturers have to work around the clock to make more, and to feed them into the supply lines."

Sure enough, GOJO industries is "operating around the clock" to produce hand sanitizer, 3M has "ramped up production" of respirators, and many other companies are responding to the messages they're getting from the market. Allowed time, goods will get to where they're needed, and prices will drop as supply meets demand.

But if Hoylman's bill passes, prices for hand sanitizer won't be allowed to rise more than 10 percent in New York even as they match the market rate in Arizona, which has no price controls. That sends a strong signal to distributors to ship the available supply to the Grand Canyon State rather than the Empire State. It also distorts incentives to manufacturers that could make more hand sanitizer or newly enter the market to meet surging demand.

Well, anti-gouging price caps don't entirely block market signals; black markets inevitably arise to meet demand. But illegal deals hidden from public view aren't as effective as open markets at signaling to manufacturers and distributors.

"A fact always missed by proponents of price caps is that black-market prices are higher than the unregulated market prices would be," commented Donald J. Boudreaux, professor of economics at George Mason University, in 2005. "The reason is that unregulated market prices—being visible and legal—will stimulate a larger inflow of supplies than will black-market prices."

In some cases, anti-price gouging efforts actively separate buyers from sellers lest somebody agree to pay an "unconscionable" price.

"Companies, pressured by growing criticism from regulators and customers, cracked down" on so-called price gouging by vendors selling much-sought products to customers preparing for the pandemic, The New York Times reported last week. "The attorney general's offices in California, Washington and New York are all investigating price gouging related to the coronavirus."

As a result of the pressure, Amazon restricted sales of popular items by third-party vendors, while eBay banned them outright. That left many buyers unable to purchase what they wanted at any price, no matter that sellers have stockpiles of the items waiting to be shipped.

Using the law to drive apart willing buyers and eager sellers is not just counter-productive, it's immoral. It threatens people with fines and imprisonment if they make mutually agreeable deals that politicians don't like.

"Price gouging is not inherently coercive, and if it is exploitative at all it is so in a way which makes it difficult to see why it is wrong (or, at least, more wrong than the actions of those who do nothing to help victims of emergencies)," wrote Matt Zwolinski, professor of philosophy at the University of San Diego in a 2008 paper for Business Ethics Quarterly. "Moreover, price gouging can serve morally admirable goals by promoting an efficient allocation of scarce and needed resources, and by creating economic signals which will lead to increases in the supply of needed goods available to desperate populations."

Which is to say, unless Brad Hoylman, Ken Paxton, and Mark Brnovich are laboring in their basements to crank out face masks to satisfy rising demand, they have no standing for the insults they fling at vendors who actually provide the things to the public. Posturing about what sought-after goods and services should cost in some world of the imagination does nothing in the midst of a crisis to increase their availability.

As economists repeatedly note, rising prices are unpleasant and unpopular, but they aren't the problem; the real problem is that demand is rising faster than supply. Rising prices cause temporary pain while telling suppliers that more is needed. Price-gouging laws, by contrast, falsely tell the public that politicians are watching out for them even as they extend shortages and the resulting pain.

Crises like the COVID-19 pandemic come and go, but "price-gouging" laws demonstrate that intrusive politicians are a recurring plague.

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NEXT: Dear Dr. Fauci: My neighbors stopped self-isolating and are now stumbling slowly down the street. They're not practicing social distancing, and not looking very good. What should I do? I am washing my hands often with soap and hot water.

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  1. Why would I sell thousands of bullets from my stockpile to people who cannot get them now, if I cannot make some extra money on them because I planned ahead and stockpiled when others snickered?

    It’s still the law of supply and demand even in these times of manufactured hysteria.

    1. Never sell your ammunition; you cannot shoot currency.
      If absolutely necessary, trade for food.

      1. If you have ammo and your neighbor doesn’t, you don’t need to trade for a damn thing.

        1. That’s what I was thinking. I was also thinking that’s how you get The Postman.

      2. I have more than I can ever use. I would sell my older stock. Ammo doesnt last forever. Or I might not and certainly dont plan to during this hysteria. Just an example.

        1. Plus, I have the equipment to reload most ammo except .50cal and shotguns.

          I just would love to recoup some money by charging $3-5 a bullet.

          1. In a true emergency scenario, $3-5 per bullet (or its equivalent value) is FAR from gouging.

    2. Essentially, if you own something that someone else wants and you refuse to sell to them, you are effectively setting your price infinitely high. Isn’t this the ultimate price-gouging? Price-gouging laws make it mandatory for you to give your possessions to others at prices they find acceptable (possibly based on a market for another time and place). Anything else is price-gouging.

      1. On a site like DailyKos.com you, seriously, would have had to put a /s tag at the end of your comment or most of their readership would have ‘recommended’ the comment because it was “insightful”, not “funny” or “sarcastic”.

  2. I do think it’s funny that no matter what Lefties are trying to peddle on their Propaganda outlets, most Americans are working within societal rules and taking steps to not fuck over their fellow Americans in this time of manufactured hysteria.

    NATIONALISM!

  3. How hard is it to add some dye to the manufacturing process? Sure, our regular masks are 4 dollars for a three-pack, but these are our special Easter-egg colored masks and they’re 20 bucks each. Same thing on the retail end with a sticker or a stamp – we’re all sold out of our regular packs of toilet paper, but have you seen our special limited edition collector’s version for only a few dollars more?

  4. People are panic buying out of uncertainty. So markets aren’t operating normally. What France has done is require a prescription to get a mask and put items like sanitizer behind the counter and limit the number sold per person. Having a dude buy up $17,000 worth a hand sanitizer and wipes in his area prevent everyone else from buying these items. I went to the grocery store and all produce, meat and many other items were also gone. I am fortunate to have the money that I was able to order produce and other items that I could not find at the local Giant from Whole Foods online. I ended up with yellow bell peppers instead of green ones, but at least I was able to get some produce. This is not normal. It is the uncertainty that is driving this and we need better information.

    1. Markets are operating normally.

      The media started a hysterical panic, so Americans are buying up what they think are important.

      The abnormal part is price controls that prevent supply.

      Why would I risk my life getting supplies to stores when I cannot charge more for that risk? Fuck that. I will sit home with all my horded supplies and wait for the apocalypse.

      1. Your 3rd point contradicts your 1st, and your 4th point contradicts your 2nd.
        And no, you’re not smart enough to write allegorically, so net-result: derp.

        1. poor unreason sock trolls. So derp they articulate how they are derp.

  5. So the panic now extends to avoiding virtual-gatherings like Reason Roundup?

    “Internet bill would force tech firms to keep inappropriate content from children”
    […]
    “WASHINGTON — Parents no longer have to worry only about whether their children are seeking out violent or harmful content on the internet. Increasingly, the inappropriate content is finding the children, through features like auto-play videos and push alerts that coax users to spend more time glued to the screen.
    Digital safety advocates say that’s why they are pushing Congress to pass a bill requiring app and website developers to stop using these “manipulative” tactics with users younger than 16…”
    https://www.sfchronicle.com/politics/article/Internet-bill-would-force-tech-firms-to-keep-15132994.php?cmpid=gsa-sfgate-result

    Isn’t it wonderful that congress can pass a law and bad things will just stop?

    1. Perhaps they should make it illegal to infect anyone with the virus…

  6. There is a difference between these two scenarios:

    1. Purchasing a local supply of generators and driving them to a hurricane devastated area to sell at x times their retail cost. (the net affect is to increase supply that would not otherwise have existed)

    2. Purchasing all the generators in a 100 mile radius of the target city just prior to a hurricane. Then selling them at x times their retail cost. (the net affect is to f**k your neighbors)

    Libertarians should not choose this crises (manufactured or not) as a hill to die on.

    1. Couldn’t agree more. This is not the hill to die on.

    2. The difference is irrelevant; using force to screw with the market *always* makes things worse.

      1. The market must be protected at all costs. Humans not so much???

    3. As long as information and product are still allowed to travel, no, there’s not really a difference between those two scenarios.

      Continue your logic in scenario 2. You think you’ve cornered the market in generators but you haven’t. By buying all the generators in the 100 mile radius, you’ve already sent price signals to others outside the area. ‘Generators are in demand!’ Even before you raise the price and begin reselling your generators, other potential sellers have seen and begun reacting to the demand by queuing up more generators from outside the 100 mile radius.

      You will probably make a modest initial profit off your hoarded supplies but you also run a very significant risk that you will be stuck with excess inventory as the competitors come in and the prices fall. Historically, the odds are quite good that once you account for transaction and holding costs, you will net lose money on the deal. Hoarding is generally a poor business strategy.

      1. Your scenario assumes someone is interested in establishing a long term business, as opposed to reaping maximum short term profits regardless of impact. Yes, once supply chains catch up to demand, equilibrium will slide back down. However the short term consequences have already been felt by the prospective consumers.

        1. No, my scenario does not make any such assumption. My scenario assumes only that information and product can still travel. Your “gouger” in scenario 2 wants to make a short-term profit. History shows that he will almost certainly fail. The very act of attempting to corner the market will send signals to competitors. And those signals will actually lead the pricing signals of scenario 1.

          Again, your “gouger” may make a modest initial profit but once you account for transaction and holding costs, the odds are high that he will lose money on his purchases.

          1. Let me clarify that it also depends on scale. If you’re only going to buy one generator and sell it at 2x cost, your transaction and hold costs will be low and your odds of getting stuck with the generator are small. But your profits will be small, too.

            Try to scale that up to a thousand generators and you might sell the first few at 2x cost but prices will drop as competitors quickly come in and there’s a good chance you’ll be stuck with a fair chunk of that thousand unsold at the end of the disaster. Plus you’re out the interest and opportunity cost of keeping that much cash tied up in inventory.

            If this were a profitable business model, established-but-transient stores (think Halloween USA) would already be exploiting the niche. There’s a reason they’re not.

            1. I get what you’re saying but I question how quickly the “competitors” can establish a supply chain during a panic crisis. Yes, after a month or so I’m sure generators would be flowing in without a problem. And the hoarders, if they hadn’t sold everything already, would be forced to reduce their prices. However, that doesn’t help grandma who needed it to power her central oxygen supply right away (or at least once her portable supply ran out).
              I think that we’re arguing apples to oranges though. My original point wasn’t to argue against scarcity’s positive impact on a free market, but rather the optics of defending any and all price gouging as beneficial.

              1. Look at historical experience. When the government stays out of the way, the competitors establish their alternative supply chain within days.

                I’ll concede that some people think the optics look bad. What I think you’re missing is that by paying any attention to the optics at all, you’re making the problem worse. Even in your worst-case scenario, the hoarders and gougers send price signals that quickly defeat their attempts to manipulate the market. Attempts to shut them down have the effect of blocking signals and ultimately (and perhaps counter-intuitively) make those strategies more likely, not less.

                1. Well said Rossami… your points are exactly correct.

  7. Like the old joke about the customer at the butcher saying the shop across the street is half the price, and will the butcher match their price? The butcher replies, “well why don’t you buy from them?” The customer says “they are out of beef”. The butcher says “Oh, when I am out of beef I sell it for a quarter of this price.”

  8. https://nypost.com/2020/03/15/tennessee-stops-hoarding-bros-from-selling-almost-18k-bottles-of-hand-sanitizer/
    These 2 frickin idiots are the reason. Although many Karens are involved these two just hosed an entire region trying to play.

    1. Price controls and gouging laws are stupid.

      If I was these guys and the Lefties in Tennessee tried to come after me for buying 18k bottles of hand sanitizer, I would set it all on fire so nobody gets any of it.

      When this hysteria dies down, if these guys could not sell 18k bottles they would be stuck with a product nobody wants for that price.

      1. “If I was these guys and the Lefties in Tennessee tried to come after me for buying 18k bottles of hand sanitizer, I would set it all on fire so nobody gets any of it.”

        A smart person would either agree to sell It back to their community at cost, or donate it to avoid community retribution.

  9. I went to my grocery store over the weekend to discover that several sections had nothing left but empty shelves. For a moment I thought I had been teleported through time and space to the Soviet Union,

    Then I heard people speaking in English, and realized this was all the fault of capitalist dogs, hoarders, kulaks, and wreckers.

    1. Mostly panicky people who were not at all prepared to be stuck at home for 2 days let alone for two weeks.

  10. Attitudes like this are why Libertarianism will never be more than “sour grapes”.

    Dipshit, fill your boots.

    1. Polished leather, calf height?

      1. You get so scaredy thinking about your false narrative.

        1. Whatever you say, stormfag.

  11. This article ignores the basic fact, that when price gouging is allowed, it encourages people to hoard, thereby creating the very demand that is being exploited. If everyone was legitimately afraid of price gouging, the people who drive all over clearing out all the supply in order to price gouge would not do so and the supply would much more closely match demand.

    1. If I go to the store and hand sanitizer is $10 a bottle because “price gouging” is allowed, I won’t be buying all 100 bottles to hoard it. I am going to make a careful decision based on what my real need is, lets say 3 bottles… and my purchase is $30. Leaving 97 for others who may also really need it.

      If I get there and its just $2 a bottle, well let’s go for 10… I can put some in the basement to use later, and who knows, maybe this virus stays around longer than I expect. That leaves just 90.

      If I get there and Bernie Sanders has a program in place to make hand sanitizer affordable to illegals without jobs and students without jobs getting free educations, etc… and the stuff is 10 cents a bottle. I take a $10 and buy them all. The stuff really is good for cleaning up the epoxy that I use in my shop when I build surf boards.

      “Price gouging” discourages hoarding. Forcing no increase in price messes up the ability of the market to get a needed product to the people who really need it. Socialistic pricing, completely shuts down the market and creates huge shortages…

      1. Thing is, your greedy behaviour demonstrates why regulations are required.

        Your absolute disdain for others validates communism.

        You live comfortably with all the benefits of organized civilization while you undermine it for your own narcissism.

  12. “The first problem is that, for as common as accusations of ‘price gouging’ are, the term has no fixed meaning.”

    Actually, the first problem – with this article – is that it was clearly written by someone with zero experience in consumer law. (Which, as it so happens, is one of my specialties.) Otherwise, the author would presumably know these laws aren’t materializing out of nowhere, and have in most cases been on the books for decades. Further, “price gouging” *does* have a fixed meaning both under the codes and case law of each state – or at least as “fixed” as it can get in a field in which no absolutes exist. (Yes, “I know it when I see it” is a “fixed” term, within this context at least.)

    “Vagueness is the order of the day for many states.”

    …as it is in most areas of the law, much of which dates back to the days of British common law. We don’t have all that many specifics on price-gouging if only because we have so relatively little cases on the subject.

    Here’s one from my time working at the Texas Attorney General’s consumer protection division: a small-town motel owner about an hour outside of Houston tripled his nightly rates when the city got hit with a mandatory hurricane evacuation order. In practice, it’s only these extremely obvious abuses of the public trust that result in actual *prosecution* for price-gouging, which basically negates the point of this column.

    “As you might imagine, there are problems inherent in pulling numbers and words out of the ether to mandate a legally permissible price for goods that are flying off the shelves because of rising demand, restricted supply, or both.”

    Not so much. I realize many people are under the misimpression that the American court system actually *prosecutes* cases like these, but as is typically the reality, they only do so when it’s extremely obvious and certain to result in a conviction.

    1. “Among economists, price gouging … simply reflects the emotional response non-economists have to rapid price increases.”

      …and among lawyers, price gouging can only exist when a state’s governor has formally declared a state of emergency; and only exist in the specific *counties* in which an emergency has been declared. As it so happens, that means all of them at present.

      “The attorney general’s offices in California, Washington and New York are all investigating price gouging related to the coronavirus.”

      …which is a) standard and b) unlikely to result in many, if any, prosecutions.

      “‘Price gouging is not inherently coercive, and if it is exploitative at all it is so in a way which makes it difficult to see why it is wrong (or, at least, more wrong than the actions of those who do nothing to help victims of emergencies),’ wrote Matt Zwolinski, professor of philosophy at the University of San Diego in a 2008 paper for Business Ethics Quarterly.”

      Damn. The only supporting quote y’all could find was a 12-year-old snippet from a middling journal at a middling university written by a philosophy professor? Seriously? Speaking as someone who’s actually *seen* such cases: they’re definitely coercive (“sleep in my motel for $500 a night or spend the night in your car”), as well as legally discernible from failure to aid in an emergency (which is nearly always allowable, even if it results in someone’s death, as long as an aid worker didn’t *contribute* to the victim’s state of emergency).

      While I don’t generally support excessive regulation, price-gouging laws are in place for the same reason as those specific to usury: despite being “vague” in one context, they *do* cause tangible harm to society as a whole. Which is the point of having laws in the first place.

    2. What were the AG’s standards for determining whether a price increase during a disaster was exorbitant or excessive?

  13. Libertarians are soulless greed mongers.

    1. Libertarians are intelligent profiteers who know how to sell a product at a price that maximizes the benefit of that product to society.

      The people who put restrictions on market pricing seem to prefer to see demand outstrip supply so that people needing products get nothing when they find empty shelves in stores.

  14. The article conflates laws with web platform policies. Sites like Amazon and eBay have fair price policies and can do whatever they like to violators. If you disagree with those policies, market and sell from your own website. If you a buyer who can’t find something on Amazon, learn to use Google.

    As per the black-and-white approach (either keep prices low and fixed or let them go out of control), it’s a false dichotomy. The first scenario creates shortages when demand is higher than supply (for example, in times of panic and hoarding). The second one makes essential goods unaffordable. They coexist and enforce each other for a lasting effect. Soviet economics, anyone?

    1. When prices are not allowed to rise in times of panic (when demand is higher than supply as you say) then you suggest that essential goods become unaffordable.

      Say at $2 per bottle there is demand for 1000 bottles of hand sanitizer. Say there are 600 bottles available. They sell out and people needing sanitizer find none. Even if they were willing to pay $100 each, they get no essential product.

      Say at the Price gouging level of $10 each there is demand for 500 bottles. Every person wanting it gets it. Maybe there is a person who cannot afford $10. Maybe he can find someone to give him $10 to buy a bottle. At least that essential product will be there when he needs it. …and the seller seeing that demand for his product at $10 is lower than supply, would be willing to drop the price to get the last 100 bottles sold, as long as the price is above cost he will happily make a profit.

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  16. What about instances of irrational hoarding, or even more so of profiteering? Such instances seem to be unnatural disequilibreums, ones which extend beyond the bounds of a free and fair marketplace and cause needless pain to those shut out of the (unnaturally) curtailed supply. I have no argument with ‘natural’ sellers reacting to market demand by raising their prices, even exorbitantly if that’s what the natural supply/demand imbalance dictates. But hoarders and profiteers strike me as mal-participants in the natural and fair market order and their impacts prompt me to at least entertain the idea that temporary(!) controls could/should(?) be imposed on markets experiencing that behavior. I’m a free-marketer to be sure but there’s something about these scenarios, as with antitrust, which warp markets unfairly and thus demand legal remedy. Mixed feelings on this to be sure..

  17. I don’t believe in anti-gouging laws… But I do think it can get excessive at times, in certain situations. The reality is every mask company is ALREADY at max production, and nobody is going to open a new mask factory a week from now just to try to profit from this short term disaster.

    So while I don’t think the market signals are going to do much in this particular situation, they DO in many other situations, like the generator scenario often used. I’m still fine with letting people gouge away though, as the alternative hurts freedom, and doesn’t change things much anyway.

  18. I got found this article via your Facebook page. I reposted it on my Facebook page, and about 6 other libertarian pages. Facebook took them all down. They said it was spam. Face book REALLY needs some competition.

  19. Baloney

    Scalpers of product serve no market purpose

    they are not buying product and distributing to underserved areas, they are buying out stores and marking it up for no reason

    manufacturers do not increase their prices for no reason

    price gougers show how the market is broken, not how it is functioning

  20. During a pandemic, it is illegal to super inflate essentials necessary for survival. However, an economics law called supply and demand, could deter individuals from purchasing more essentials than necessary. Placing purchase limits on the quantity of essential products individuals can buy would also ensure others have the essentials for continued survival and deter profiteers from price gauging. Below is my viewpoint on supply and demand during a pandemic.

    https://www.myviewpointon.org/blog/supply-and-demand-during-a-pandemic

  21. During a pandemic, it is illegal to super inflate essentials necessary for survival. However, an economics law called supply and demand, could deter individuals from purchasing more essentials than necessary. Placing purchase limits on the quantity of essential products individuals can buy would also ensure others have the essentials for continued survival and deter profiteers from price gauging. Below is my viewpoint on supply and demand during a pandemic.

    https://www.myviewpointon.org/blog/supply-and-demand-during-a-pandemic

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