Go After the Price Gougers

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As
many goods and services become scarcer due to Hurricane Katrina,
there are increasing calls for arresting anyone who engages in u2018price
gouging'. Price gouging has been described by
government officials
as raising prices above the levels they
should be in the market during an emergency. Just what constitutes
the deviation above the market level is determined by bureaucratic
judgment. Normally when the supply of a good decreases or the demand
increases, the price of that good should go up. However, during
times of government crisis, officials believe they have the power
to change the laws of economics. All they have to do is threaten
to prosecute anyone who raises their prices above what the government
deems is an acceptable level and voil — there are plenty of goods
and services for everyone.

Like
so much of what the government does, there are unintended consequences
for messing with the laws of nature. In the case of the price gouging
assault, by denying price increases the government actually causes
greater scarcity. Prices lower than the market price (especially
in an emergency) will cause a run on the good and service. Then
people who see the good first are able to buy the good rather than
those who need it the most (and are most willing to pay for it).

The
Real Price Gougers

The
intent of this article, however, is not to give a detailed analysis
of the why the government's campaign against price gouging hurts
much more than it helps. The analysis has been very well done in
other
articles
. I hope to show that there is a form of price gouging
that should be halted immediately. There is no need for a natural
disaster or supply shortage to occur for the guilty individuals
to raise prices far in excess of the market rate, but a disaster
sure does help. If there is no crisis these individuals are adept
at creating one in order to start gouging. After the disaster is
over, the prices may go down a little, but the gouging remains.
You may ask what kind of business could get away with this over
a long period of time, and you would be correct to think that market
forces would make a private enterprise lower its price or go out
of business eventually. That is why no private businesses can price
gouge for any length of time. The only price gougers are governments
at all levels.

Since
price gouging is paying a price in excess of what the buyer thinks
the good is worth, it is impossible to be u2018gouged' in a free market.
A driver who sees gas priced at five dollars per gallon and does
not buy the gas because he determines he could ride his bike instead
has not been gouged. Neither has the driver who buys that five-dollar
gas because he values that gas higher than his five dollars. This
is the very essence of economic calculation that Ludwig Von Mises
preached. The government, however, makes us pay for its services
whether we want to or not. The government has to use either force
or the threat of force to extract payment from us which indicates
that we do not value their services as highly as the money they
seize from us. If the government must force people to pay a certain
price for its services, then by definition this price must differ
from the market rate. If the price is at or below the market rate,
the taxpayers would pay for the service voluntarily.

The
government also pays far in excess of the market rate for goods
and services that it procures. There are numerous examples of $600
toilet seats and $300 hammers with the Department of Defense, or
whole lists of projects that the Congressmen bring home to their
districts known as pork. All of these projects are bought at a price
far in excess of the value received. If a Congressman had bought
these goods with their own money, we would perhaps considered the
Congressman a bit looney, but we could believe that he valued that
Maui
Space Surveillance system more than his $34 million
(look at
the defense hyperlink). However, we all know the money was seized
from taxpayers, most of whom fail to understand why anyone would
pay $34 million for this project. By forcing the people to pay far
in excess of what they would pay in a free market, isn't the government
gouging us?

The
Biggest Gouger

Besides
all the isolated incidents of gouging that we read about every day,
there is one arm of the government that gouges all goods and services
– the Federal Reserve. Since the establishment of the Fed in
1913, our money has been debased to the point where it has lost
almost all of its original value. This is gouging in reverse. Instead
of raising the price of a good above the market level, the Fed lowers
the value of your money. The result is the same. However, when the
Fed prints money to drop from helicopters,
the government gets the money first, thus profiting at the expense
of others who receive the money last. The last recipients of the
money must buy goods at inflated prices above what the market price
would have been absent inflation. The reason there are $800,000
shacks in parts of California and New York is because the Fed's
artificial lowering of interest rates has created abnormal demand.
The artificial demand shoots the price up like plywood before a
hurricane and gouges homebuyers. The same can be said for those
of us who like to save money — we are getting gouged on our rates
of return.

If
there was a free market in money, prices would actually fall over
time as improvements and innovations in production are rewarded,
preventing governmental gouging.

So
there is an argument to be made for preventing price gouging. Gouging
occurs anytime voluntary exchange is replaced with coercive u2018appropriations'.
As the politicians and talk radio hosts like to say — u2018Price gouging
must be stopped immediately, and the gougers must be brought to
justice'.

September
13, 2005

Hal
Cranmer [send him mail]
is an Air Force Academy graduate and former military and commercial
pilot. He now works for an industrial manufacturing company
in Minnesota.

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