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State AGs in Michael's Path Agree to Stop the Flow of Needed Goods

Price gouging is not the evil many officials make it out to be.

ZUMA Press/NewscomZUMA Press/NewscomWith 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.

Photo Credit: ZUMA Press/Newscom

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  • Fist of Etiquette||

    Like rain and high winds are going to make politicians suddenly economically literate.

  • esteve7||

    No matter how much logic and reason and facts you give people, they will never understand this concept because it 'feels wrong'

  • Sevo||

    "...unconscionable increases in prices..."

    As if that is intended to mean something

  • Rich||

    "Oh very well. 'Increases in prices that any reasonable person would view as unconscionable.'"

  • Microaggressor||

    How do we know forcing vulnerable people to endure shortages of basic necessities isn't their goal? How can you justify all those relief programs if people already have what they need?

  • SQRLSY One||

    Yes... "In doing so, they are inadvertently discouraging suppliers from bringing in the goods that storm victims need."

    Thereby increasing dependence on Government Almighty... So this is a FEATURE, not a bug!

    "The more THAT they suffer, the more that they NEED us "pubic servants" in Government Almighty, so BRING ON THE SUFFERING!!!! Multiply it be ten and twenty!"

  • LiborCon||

    Having everything you need in a crisis, when other people don't, is just selfish, there's an obvious need for anti-hoarding laws.

  • SQRLSY One||

    Yes! And having a sex partner when other folks are lonely, is greedy, so SHARE!!!

  • MatthewSlyfield||

    I enthusiastically second this motion.

  • Marcus Aurelius||

    Seems a bit sloppy to me.

  • sarcasmic||

    Government is so powerful it can repeal the basic laws of economics!

  • IceTrey||

    I'm from the government and I'm here to help.

  • MatthewSlyfield||

    Three lies for the price of one. :)

  • Zoidzilla||

    What free-market systems do is simply allocate a fixed supply of a product. In doing that, it communicates a message to people. High prices tell consumers "Use the available supply of bottled water for drinking only, not for frivolous purposes, and use it conservatively." It also tells entrepreneurs: Want to make a large amount of money quickly? Then buy water elsewhere for and bring it to the emergency area and sell it for more. You'll make a big profit.

  • Stephen Lathrop||

    You would think free market advocates would understand the free market well enough to look smarter than this. The free market is the instrument of logistical supply for everyone. That means it functions every day on a scale vastly larger than any resort to price-gouging opportunism can accomplish. Opportunists will not in any meaningful way ameliorate shortages after a hurricane.

    Normal free market activity can do that. It's set up to supply shortages in quantities that match the shortages, and to do so as promptly as possible, at predictable prices. The notable hazard which price gouging laws guard against, is that major suppliers might choose to raise prices opportunistically, to make extra profit on goods they would otherwise supply at lower prices in the normal course of business. That's what price gouging laws prevent, and the large scale public benefit of that vastly outweighs the very small loss from discouraging the one-shot opportunists discussed in this article.

  • sarcasmic||

    The free market is the instrument of logistical supply for everyone.

    And the way that instrument sends information around is with price signals. When demand goes up while supply goes down, prices go up. The instrument transmits those prices to places where supply is abundant, and people who are willing to trade profit for risk deliver the goods.

    When you don't allow prices go to up proportional to supply and demand, it is like cutting the nerves of the logistical supply instrument. The prices don't signal a need to alleviate a supply deficit, and shelves remain empty.

    The reality is that you have two choices: high prices or empty shelves. No amount of good intentions can change that.

  • Earth Skeptic||

    And price information can change human behavior for the better, at least for those who have memory spans longer than a squirrel. They might remember to stash some extra water and batteries in the closet before the next storm.

    Unless Stephen does not want people to learn to be smarter.

  • Stephen Lathrop||

    Thanks for the experience-free load of (grossly oversimplified) (and mistaken) Econ 10 pure theory.

    Start with the mistaken part. You know, don't you, that retail inventories have now been computerized for decades, right? So it is by no means just "price signals." It's also inventory signals. And either one will get the job done as well (or as badly) as the other in a hurricane disaster—where the impediment typically is going to be a combination of no signals, no logistical support, and no infrastructure—with heavy emphasis on the latter two. Because everyone already knows, without any signaling needed, that you are going to need a a thousand times more basic stuff for relief than opportunists are going to deliver.

    And of course there is the little problem of what happens if you don't control gouging, and a bunch of poor people get priced out of necessities while all the standby, everyday channels take advantage.

    Remember that scene in the movie, Patton, where the guy with a mule cart blocks the column? Patton's solution is to shoot the mule, dump the cart and the carcass off the bridge, and roll the column. You guys are rooting for the mule cart and the blocked column. You wouldn't do that if you had anything except empty theory to go on.

  • Stephen Lathrop||

    Whaa? Earth Skeptic, everybody who lives on the coast knows what happens in storms. I live on a coast where hurricanes come along from time to time, but they are the least of my town's big storm problems. Winter northeasters smash the place up better than any hurricane is ever likely to do. We make the national news for getting smashed up, time and again. And afterwards, every smashed-up house is going to be found full of bottled water and spare batteries. Because all the owners took off work two days before, to shop for what they would need. So long before the storms gets here, the retail shelves for necessities, for miles around, are going to be empty. Every time. And for some reason, no opportunists are ready then, to fill the gap.

    If the free market is so great at matching supply and demand, tell me why that happens. Why can't retailers do as good a job as their customers at predicting storm needs? What does the theory say about that? Why can't the opportunists do it?

  • Raspberry243||

    Please stop it with the word salad.

  • Stephen Lathrop||

    Not enough pure, empty theory for you?

  • BigT||

    So Reason isn't allowed to raise its price during the political conventions?

  • No Longer Amused||

    Why is it you always have to explain to people that "price gouging" isn't a real thing?

  • sarcasmic||

    Profiting from the needy is immoral, and that is why price gouging is illegal! In the wake of a natural disaster, basic needs like water and electricity should be free! People shouldn't have to pay for these things at all, let alone pay inflated prices to profiteers! It's disgusting! It's immoral! It's another example of why capitalism is evil!

  • Marcus Aurelius||

    Can I call Obama and Trump both natural disasters?

  • sarcasmic||

    They are disasters alright, but I'm not sure how natural they are.

  • Earth Skeptic||

    Let me run the "compassionate" logic out:

    1. In a disaster, people should get stuff for free.

    2. When life is even a little bit hard or disappointing, it signifies disaster.

    3. Free stuff forever.

  • prolefeed||

    My experience with state legislators "protecting" me from price "gouging" came during the last hurricane to hit Houston, flooding the city and taking out a bunch of oil refineries, causing a temporary crimp in gasoline supplies.

    Here in Austin, people heard about it on social media, and rushed to the gas stations to top up their tanks. Unable to raise prices more than about 40 cents a gallon without risking the wrath of state regulators, EVERY gas station in the city ran out over the course of the day. The last gas station standing, near where I live, didn't raise it's prices above about that 40 cent premium even when desperate people flocked to that station, and the station put handwritten signs on each pump accurately saying normal supplies would resume in a few days, and so pretty please only take what you need for the next few days.

    People responding to incentives, of course, all ignored the pleading and all filled their tanks to full with what had then become underpriced gasoline.

    If gas stations had been able to raise prices to $3 a gallon or more, pricing that reflected the temporary shortage would have given people pause, and enough would have said, eh, half to three quarters of a tank should last for a week if I'm careful, and everyone would have had enough gas to feel comfortable that they wouldn't run out.

  • DarrenM||

    It's fascinating how, during a disaster emergency with most of the power gone, the ATMs presumably still work.

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