Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Price Gouging Is Not Evil
I watched a clip on the news yesterday concerning price gouging. The Attorney General of North Carolina was telling us how many reports of gouging they were receiving, what the penalties are, and how they are going to prosecute gougers. This shows a lack of understanding about the role of prices in determining the most efficient use of scarce resources.
If during a crisis, prices are allowed to rise, people won’t horde as much. They will only buy what they really need. If prices aren’t allowed to rise, there will be shortages. People that need gas won’t get it, while others will have filled every gas can they can find, “just in case.”
The same applies to hotel rooms. Let’s say I am evacuating my family from the coast, and I have the choice between renting a hotel room a few hours away from home or driving an extra four hours to stay with a relative. If rooms are cheap, I will get a room, maybe even two, so the kids can have their own beds. This means there are fewer rooms for people who don’t have alternatives. They will have to sleep in their car (which is still back at the coast, because… no gas). If rooms are expensive, I am more likely to stay with the relative, and more rooms will be available to those that lack alternatives.
The best way to ensure scarce resources are used the best way is by allowing prices to fluctuate.
For those of you who complain about someone is taking advantage of the situation for profit, I have two questions: (1) If I sell gas at $10/gallon, but have a sign out front that states, “We are raising prices, so we don’t run out of gas. All profits over last week’s prices will be donated to hurricane relief”, would you be ok with that? (2) If you are fleeing from a hurricane, which would you rather have, gas at $10/gallon, or no gas?
Published in General
“Judge not,” would be a good governing philosophy here. We can’t know what’s in people’s heads. A good gas station owner and an evil one would do exactly the same thing in a disaster situation, even if for different reasons. The good one would do it to ensure that gasoline would be available for those that really need it.
The gas station owner who keeps his prices low in such a situation is not good, just self-righteous. He is the one who will get the positive press later.
There is also an upper limit to what the “gouger” can charge. Even in the middle of hurricane Katrina, a gas station wouldn’t be able to charge $1 million per gallon. No one would have that kind of money and the gas station wouldn’t make any money. And gasoline would still be unavailable to those who need it. Any gas station owner, moral or immoral, would keep his price down to the point where there are actual buyers.
We mustn’t forget that allowing “gouging” doesn’t prevent the gas station owner from making exceptions out of the goodness of his heart. He might decide to sell gas to a single mother for $3 even though his pumps are set to $10, but this wouldn’t be an option if his tanks were already emptied by soccer moms topping off their SUVs at $3/gal.
Likewise, the bubbas selling water in my earlier example might throw in an extra case for free for a hard-up family if the spirit moves them. Most of the bubbas I was raised around would probably do so.
Individual acts of charity are often crowded out by collective virtue signalling.
So higher prices have no impact on them. If they can’t afford gas at $3, the same is true at $10. However, when the gas is gone, no one can get it at any price. It is not a question of finding a system that works for everyone. It doesn’t exist. It is a question of what works best for most.
Good column on the subject (hat-tip, Instapundit):
https://www.carolinajournal.com/opinion-article/north-carolinas-anti-price-gouging-law-makes-things-worse-not-better/
Both Thomas Sowell and Walter Williams have written extensively on price gouging.
Don’t think anyone has claimed otherwise. Free markets have done nothing to make me thinner or give me a good personality.
There is no such thing as a magic fix for every problem.
Remember that free markets are the absence of something – not its presence. Free markets are the absence of government interference in the economy, 99 percent of which is harmful.
That is why free markets become even more important in bad times, like natural disasters. Policies that are always harmful will still be harmful during a crisis. We see that with government attempts to prevent price-gouging.
Remembering that free markets are the absence of something, consider the following sentences.
Now in the above three sentences, pretend you’re talking about someone’s health and replace “free markets” with “non-smoking.” (Also change “are” to “is.”)
Non-smoking is also the absence of a harmful thing.