There has been a natural disaster. So, of course, there are widespread reports of those odious businesses dramatically raising the prices of everything from a gallon of gasoline to a hotel room. But is it really evil to see a massive price increase for goods and services in the wake of devastation? Certainly not.
In the aftermath of Hurricane Harvey, the Consumer Protection Division of the Texas attorney general’s office confirmed that it had received more than 500 complaints of price gouging. Hurricane Irma is only just now making landfall in Florida, but Attorney General Pam Bondi said her office has already experienced a “high volume of complaints” about price gouging for water and food.
A local Texas news crew was shocked to find basic economics at work at a Best Western Plus motel outside of Corpus Christi. Instead of charging its usual fee of $149 a night for a room with two beds, the hotel proprietor raised it to $321.89, much to the dismay of the journalists and cameramen.
Whether it is public officials or the social media mob, there is always some censure of price gouging. When it happens, lawmakers remind everyone that it is illegal to jack up the price of an item, while the populace demands an apology from the company.
The Outraged Public Should Thank Price Gougers
Price gouging should not be illegal. It should be embraced and welcomed. In fact, let’s hope price gougers are scattered across Florida to, as Tom Woods would say, perform their “socially and economically responsible work.” Price gouging, as it is incorrectly referred to, is simply basic economics – a matter of supply and demand.
Here is what happens: when there is an unexpected spike in demand for a product, and the supply has yet to adjust accordingly, prices will soar. And this is a good turn of events. Why? Because if prices stayed the same, then there would not be an incentive for the entrepreneur to serve the demand or for consumers to conserve scarce items.
For instance, let’s say a group of eight people went to a hotel room to rent a suite for a couple of days during or following a horrific weather event. If prices go up, then this group is more likely to stay in one or two rooms rather than splurge on three-plus rooms, as they might, had prices remained unchanged.
In the case of water, the market forces are at play in a time of price gouging. On Wednesday, a photo of a Wal-Mart shopper with about four-dozen cases of bottled water went viral – many said in jest that she is probably the biggest proponent of anti-price-gouging laws. It is customers like these that will help make shelves bare, but this can be avoided when the price goes up.
First, if the price-tag went from $2 to $10, the consumer is far more likely to buy less and conserve their water out of necessity rather than drinking whenever they feel like it or choose to waste it by cleaning the floor or kitchen counter. Second, if there is a limited supply of water and the price is $10, the entrepreneur will take the risk to bring the water to the struggling public.
Do Politicians Want Equal Misery for All?
As Tyler Cowen of Bloomberg wrote on Tuesday, “price gouging can be a type of hurricane aid” because “higher prices can help resources get to the people who need them most.”
Cowen noted in his op-ed that price gouging is the best alternative for victims. The economist offered this example: if Best Buy charges shoppers $42.96 for a case of water, then someone will snap a photo, share it on social media and lawmakers will be upset – but people still have access to water. On the other hand, the case of water stays the same, and the store is sold out in an emergency. This time someone snaps a photo, shares it on Twitter, and proceeds to complain about the general tragedy that has no one has water.
Which alternative would you prefer? The $42.96 for a case of water or nothing at all? When the government installs price ceilings, shortages happen a la Venezuela. Perhaps that’s what the politicians want – maybe they want to be identified as saviors.
After a massive tornado swept through parts of Tennessee in 2011, many people did not have access to power. Seeing a profitable opportunity, an entrepreneur in a nearby state grabbed several power generators, loaded up his truck, and drove to the damaged sites. He charged roughly double what power generators usually cost, but there were many tornado survivors who did not care and were willing to fork over the money. Unfortunately, the government intervened and prohibited the entrepreneur and his customers from engaging in a voluntary transaction.
Simply put: the government wants equal misery for all. If one person can’t have something, then the monster that is the state will try to prevent anyone else from having it either. To them, it is only fair in the name of general welfare.
Legendary free market economist Milton Friedman said it best:
The most harm of all is done when power is in the hands of people who are absolutely persuaded of the purity of their instincts and of the purity of their intentions.
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