Price gouging is back in the news thanks to Hurricane Sandra. Citizen cry-babies have been reporting price increases for gasoline, cabs, hotel rooms, electrical generators and other necessities to the state governments which in turn have mobilized to enforce anti-price gouging laws.
Politicians are falling over one another to grandstand on the issue. New Jersey governor Chris Christie threatens: “We will not hesitate to impose the strictest penalties on profiteers who, in direct violation of our consumer protection laws, seek to capitalize on the misfortune of others in the midst of a crisis and recovery period,”
Price-gouging laws make it a crime for a merchant to raise the price of needed goods or services during shortages caused by emergency conditions. Everybody seems to love these laws.
Take the example of a city paralyzed by a monster ice storm. If I can make it to the corner hardware store—hoping to buy some ice melt—I will most likely discover an empty pallet and a sign announcing “Ice Melt $4.” Sold out. I only need one bag and would gladly pay $10 for it, but that cannot happen. If it did, the store owner would be ex-posed to criminal liability for price gouging.
Anti-price gouging laws do nothing to ensure that we can buy essential goods when we need them most. On the contrary, such price controls guarantee that we will not have enough of what we need. We could re-christen these anti-price gouging statutes as “Let’s-run-out-of-everything-as-fast-as-we-can-when-we-need-it-most” laws. These laws seem to have no purpose except: 1) to soothe the feelings of angry citizens who feel that a greedy merchant has taken advantage of them; and 2) to provide a prosecutor or attor-ney general a platform from which he can pose as champion of the consumer.
If a disaster strikes, and water, gasoline and food can-not be sold for significantly higher prices, stores sales will be brisk as everyone buys more than they need. Then—as in the case of the ice melt—none will be left to buy at any price. In addition, it is unlikely anyone will rush to ship in essential supplies when the government has removed the profit incentive.
In his book The Church and the Market, Thomas Woods gives the example of a hotel manager who raises his room prices during an emergency. The high price may cause a family to rent one room instead of two, or cause two poorer families to double up. If such “price gouging” were allowed, the hotel could provide shelter for many additional people in an emergency. True enough, the hotel owner gets the payoff, but should that be a crime when it was his self-interest that put everybody under a roof?
Greed—the excessive desire for riches—is a sin, but who but the greedy man himself is harmed by it? A greedy person may become wealthy simply by serving his customers well, perhaps by having plenty of ice melt available after a storm. Unless the greedy merchant cheats or steals, however, he harms no one but himself.
Worse than a seller’s greed is the consumer envy that motivates anti-price gouging laws. While greed certainly harms the greedy, envy is worse. It is envy that does no one any good. Three of the ten commandments forbid envy. St. John Chrysostom taught that “envy arms us against one another.” The book of Wisdom declares, “through the devil’s envy death entered the world.”
Envy harms not only the envious, but when put into action, it harms the person who is envied. Envy never housed anyone, never fed anyone, never filled a gas tank. Anti-price gouging laws seem to spring from envy and hatred. How else to explain someone who would rather have no gas at $4 a gallon, than have all the gas they want at $6?
The repeal of price gouging laws would do more than help keep essential goods available during emergencies. A free market would also decrease the severity of shortages when they did occur. If merchants knew they could raise prices during shortages, more would take risks and stock up on the ice melt and snow shovels. With no prospect of a payoff, merchants play it safe and stock just what they are sure they can sell in a typical winter. If consumers knew prices could rise greatly during emergencies, many would be better prepared, further decreasing the demand in times of shortage.
If you wish to report price gouging to the authorities, click here.