Reason Interviews

Michael Munger Says 'Price Gouging' Gives Us Information We Need

Such laws end up causing more shortages than they solve, especially during a crisis.

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As the COVID-19 pandemic prompted shoppers to clear supermarkets of toilet paper, rice, and canned vegetables, Matt and Noah Colvin loaded up a U-Haul with all the hand sanitizer and antibacterial wipes they could find, then attempted to resell the goods on Amazon at a massive markup. Soon after, the online retailing giant banned the practice, state attorneys general started cracking down, and the Colvins were shamed into donating the items.

But is so-called price gouging always a bad thing? Reason's Nick Gillespie spoke via Zoom with Michael C. Munger, who teaches economics, political science, and public policy at Duke University, about what happens when governments mandate that the prices of scarce goods be kept down. Munger says such laws end up causing more shortages than they solve, especially during a crisis.

Q: You are an unapologetic defender of price gouging. Can you explain why?

A: It's not clear that I would defend price gouging in all instances. Much of what we call "price gouging" is a guy telling an elderly person, "This tree in your yard is going to fall down. We'll cut it for you for $300" and then [giving him or her] a bill for $2,000. Much of what is enforced as price gouging is, in fact, fraud.

So let's take out fraud and recognize that we're in a circumstance of really great scarcity, and let's think about what the price mechanism does. If the price of something goes up and there's a shortage, three great things happen: The first is that consumers buy less. They look at that price and they say, "You know, somebody else must need this more than I do," and so they leave some for the person behind them. The second thing is that producers try to find ways to make more. And the third thing is that entrepreneurs try to find ways to make substitutes.

Q: But people were like, "There is a good chance we're going to be told not to leave our houses again. There is a good chance that trucks are not going to be replenishing grocery store shelves. We went to buy toilet paper because we don't know the next time we'll be able to." What are consumers supposed to substitute for toilet paper? And how long does it take a place that makes computer paper to switch over to making toilet paper?

A: The premise of your question is: Suppose you're in a situation where the things that I've talked about are unlikely to be able to happen. If this is really all that we're going to have [of something], and we're trying to allocate a scarce resource among a bunch of people who want it, then it seems like a pretty good objection [to price gouging] that only rich people can buy it. If there's a circumstance where this really is all there is, I can see an argument for some other mechanism for rationing.

On the other hand, you can still go to the grocery store. And if you've been to the grocery store lately, at least in Raleigh, where I live, there's plenty of toilet paper.

Q: What were your first thoughts when you heard government officials saying, "We have to impose price controls immediately." 

A: I think from a political perspective it was a genius move, because they can't do anything that actually helps [fight] the virus or [provide] access to health care. They don't have enough testing kits. They screwed this up. What they can do is say, "We're going to protect people against price gouging."

My own senator, Sen. Thom Tillis, told me to my face, "I'm a libertarian." Yet Thom Tillis has introduced a piece of federal legislation to outlaw price gouging. Not only does that ignore the 10th Amendment, it also ignores the fact that not all states are equally affected by this. Some states really are desperate for some of these items. High prices say, "Bring it here. We need it more than you do."

Q: From a libertarian perspective, what is the role of the federal government in a situation like this pandemic? 

A: We're going to be able to talk about this for the rest of my life in class. I don't know the answer to your question.

Q: Come Christmastime, where do you think we'll be as an economy? 

A: We're going to test a lot of the theories that Keynesians have about ways to try to spur the economy. We may see a big increase in the rate of growth of the money supply. We may see a bunch of fiscal policy. And we're probably going to get one or more of those things wrong. So: a big increase in debt or a big increase in inflation.

This interview has been condensed and edited for style and clarity. For a podcast version, subscribe to The Reason Interview With Nick Gillespie.

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  2. One concern I have about price gouging is the possibility of triggering a riot by adding stress to an already stressful situation. On the other hand I am tempted to say “let the seller beware.” If you run into a scene and agitate individuals in a state of duress, you are responsible for the negative consequences to your person or property.

    1. You mean like cops murdering people should be responsible for their actions? Great, let’s add “starting a riot” to that cop’s charges, and while we’re at it, arrest those other three cops as well, those cops shooting pepperballs at people on their front porch, and otherwise triggering riots.

      Oh wait, you only mean the small people.

  3. The problem here is that you are applying reason to what is a universal, emotional response that is perhaps based on instinct from when humans lived in bands. There will continue to be anti-gouging laws because people have a disgusted reaction to gouging, even if that reaction is counterproductive to relieving a shortage.

    1. That’s why God made only ten commandments and most of them have to do with taking shit that doesn’t belong to you or wanting to take shit that doesn’t belong to you. The first commandment is that there’s only one God, and it ain’t you. We all face the temptation of playing God, thinking we know better how the world should be arranged, but God tells us when people get to thinking that way they need to be told to go to Hell.

      1. Right but that shit’s all fake.

      2. I think you mean Fifteen Commandments

  4. I appreciate the take, but in a world increasingly dominated by demands for “fairness and equity in all things” as a right, it sounds quaint and borders on naive.

    1. No more naive than demands for fairness and equity in all things in a world dominated by reality

  5. But people were like, “…”

    I guess Valley Girl cant is what passes for serious journalism these days. Do better, Nick.

  6. To me it seems straight forward. If I own it I can sell it at any price I wish. I have a 2018 Subaru and I want $1,000,000 for it. No need to riot; just don’t buy it.

    1. “How DARE you!”

    2. You speak American – yet, too many Americans speak communism and think everything is every-bodies by gangster (Gov) vote.

      They’ve sold their own souls to the [WE] foundation of communism.

  7. The information in pricing, and the lessons to be learned from short term increases in prices (aka “gouging”), are only useful if the average person can remember. Yes, after the hurricane and power outage, generators were in short supply and cost more. So maybe buy a generator now when prices are low?

    But the average human memory function is not much better than that of a squirrel, so the lessons have no potential value.

    1. I wish we had price gouging to help accurately determine market values. Without accurate market prices, I overstocked and now I have all this worthless toilet paper in my apartment and don’t know what to do with it!

    2. You’ve totally misunderstood the point. “Remembering” is not required.

      1. Of course remembering is required. Otherwise why notice the price increase? And why have any influence on if and when to buy something without remembering (and projecting) how prices change?

        Unless you live in the moment–like a squirrel.

    3. It’s because most of these people are not thinkers, they’re NPCs. This is compounded by them never being taught anything about realistic economics…

  8. The information it gives you is that individuals can be evil greedy bastards if you let them.

    1. evil greedy bastards

      You mean like breaking into a store, stripping it bare, and setting it on fire?

    2. “The information it gives you is that individuals can be evil greedy bastards if you let them.”

      While this post informs anyone reading it that people can be fucking ignoramuses.

      1. I’m always greedy, and evil occasionally when it happens to benefit me so to be.

  9. “Price gouging” is a leftard-invented name for a condition which does not exist.

    1. Agree! My I paid $0.10 for my Superman #1 comic. I want to sell it for $0.20! A 100% markup! Price gouging! 🙂

  10. re: “What are consumers supposed to substitute for toilet paper?”

    Jeepers, what ever did people do before the invention of toilet paper? (Which, by the way, was not until the late 19th century in Europe.) Do you suppose that maybe they:
    – used scraps of cloth or sponge which were regularly washed (like those who use cloth diapers still do)?
    – installed a bidet (an 18th century invention – still a historical late-arriving luxury)?
    – used a flexible shower head to mimic a bidet temporarily?
    – grabbed some leaves from the backyard (like many a camper and most of the rest of the world)?

    re: “How long does it take a place that makes computer paper to switch over to making toilet paper?”

    A couple days. Maybe less. You just change the ratio of fiber to water in the slurry you feed into your presses and then tweak the pressure and tension on the manufacturing line. Skip the coating and slicing steps but maybe ship it to someone who’s got spare capacity on a re-roller to get it onto consumer-sized rolls. Granted, it won’t necessarily be good toilet paper. It will be inconsistent, unscented, probably scratchy and who knows what color. But if the price is right, it will get something usable onto the shelves.

  11. What office is this guy running for?

    (Can’t listen to the podcast right now, but the picture credit says he’s running for something.)

  12. There is no such thing as price gouging, there is only supply and demand. If we’d allowed the market to work there would not have been shortages of toilet paper, hand sanitizer, masks, etc. They certainly would have gone way up in price, at least for a little while. And that price increase would have substantially mitigated the hoarding problem, thus alleviating some shortages, and thus putting back pressure on prices. If prices stayed high then manufacturers would have jump on the chance for fat profits and increased the supply.

  13. Upvote article.

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