WASHINGTON, September 2, 2017 — Half the economists in America have weighed in on price gouging this week, as has Texas Attorney General Ken Paxton, who warned, “We’ll be dealing with those people as we find them.”
Thirty-four states have laws against price gouging. Their definitions of price gouging vary. Arkansas bans “excessive and unjustified” price hikes in an emergency, while California bans price hikes more than 10 percent above the prices charged immediately prior to a federal, state, or local declared emergency. Jurisdictions like Connecticut and DC prohibit any price hikes above pre-emergency levels. Some only forbid price gouging on “essential” items, while others ban price hikes on all goods and services.
Most people resent price gouging. We get resentful when we think we’re being charged an exorbitant price. The unfairness of it all sticks in your craw like a piece of barbed wire. But paying that price means you value what you’re buying at least as much as what you’re giving up for it, and you either don’t want to wait to find a lower price, incur the costs of searching for lower prices, or tie up your money by buying things that have a “reasonable” price that you don’t need now, but that might cost more later when you do need them.
Let us stipulate that people should be good and kind. They should help each other out in an emergency. They should give freely to those in need. They should do unto others as they wish done unto themselves.
There are people behaving in just that way. Some stores in affected areas have cut prices and are providing services for free. People across the region are loading up flatbed trailers with water and other supplies to give away to people in need in the storm-hit areas.
In coming weeks, church groups and other volunteers will descend on Houston to tear out soggy drywall, pull up sodden carpets, and provide hot meals and fresh clothes to people who have lost everything. The outpouring of generosity will provide thousands of stories to help restore our faith in the basic goodness of our fellow men and women.
But the scale of the destruction is vast, and the need is far greater than the generosity can fill. People and resources will pour into that gap in hope of making some profit. If we want those needs to be filled, we will welcome them to do it.
We rely on stores to stock up on extra before a storm so that it will be there when we need it. But that comes with a risk to the store, and costs. If the storm doesn’t come, they are left with money locked into extra inventory, and that extra inventory may have cost more than inventory in normal times. Storage, refrigeration, extra generators and transportation all cost. If, like Washington D.C., you don’t allow prices to rise at all, who will incur those costs or take the risks?
Houston will need thousands of plumbers, electricians and carpenters from around the country as it rebuilds. Some, out of generosity, will absorb the cost of going there themselves, but not all can afford to do that. If Paxton wants to keep the price of plumbing at pre-storm levels, how will he encourage people to leave their families and businesses to fill the need?
Half a million cars were destroyed in the storm. If sellers can’t charge even a small premium, what will get them to bring used cars from California and Florida to meet the need in Houston?
Economists are generally in agreement that price gouging is necessary before and after a storm to encourage an inflow of resources and ensure that we don’t run out. People who are unfamiliar with economics and uncomfortable with capitalism often disagree.
“Price gouging is immoral! Letting people extort others for goods that are essential to life is no different than letting them extort others at the point of a gun!”
Let’s consider this in moral terms. Is there a moral difference between a gas station in the middle of the desert that will sell you enough gasoline to get to food, shelter and water for all the money in your wallet, and a highway robber who takes all the money in your wallet and leaves you to die in the desert? You would probably prefer not run into the robber at all in that desert, but would you really prefer not to run into that price-gouging gas station as well?
It may not be virtuous for people to take advantage of others, but does it really make you feel better after the disaster for there to be less water and gasoline at “normal” prices than for there to be more at higher prices?
Ideally, for you, you run into someone who gives it away free; you’re hurting after the disaster, and there’s probably no ATM handy. You might hate the guy who took the risk to stock up on supplies to sell and incurred costs because of it and now wants a higher price, but would you really prefer that he and his supplies simply not exist when virtue is exhausted, and people have given all they are willing to give?
We dislike them, but price gougers, scalpers, and other middlemen serve a necessary function. Hating them is like hating the organisms that ensure that your yard isn’t hip deep in animal corpses. Nature is a package deal. If you don’t like the decomposers, you can’t be said to understand, let alone like life. You like only a sentimentalized view of it: pandas and Disney movies.
In the condemnation of price gouging that we see on social media, we really see nothing more than virtue signaling. It presents extreme cases and reduces the citizens of Houston, Humble, Corpus Christi and other affected cities to sweetened versions of Jean Valjean. In their need they should not be charged, certainly not above normal prices. But once you start virtue signaling, there’s no logical point at which to stop. Profit itself becomes the crime.
In a disaster, rising prices are neither good nor bad. They are only necessary if you want the effects of the disaster to go away. Rising prices ensure that those in need don’t run out of what they need. We can wish for people to be generous and kind, and some will be, but it’s only the option not to be that will ensure that the victims of Harvey benefit from more than our good wishes.