Price-gouging law has reared its ugly head in the wake of the flooding in Texas. This has totally overshadowed the alleged price gouging that occurred during the eclipse.
The price of solar eclipse safety glasses was as low in the months before the eclipse, but rose to as much as $150 for the identical product on the day of the eclipse. And it turns out that prices for these glasses were higher along the direct path of the eclipse. Naturally, some eclipse glasses vendors were accused of price gouging because they demanded unreasonably high payments by exploiting unusual market conditions.
Hundreds of complaints of price gouging were received by the office of Texas attorney general Ken Paxton in the aftermath of Hurricane Harvey. There were “reports of up to $99 for a case of water, hotels that are tripling or quadrupling their prices and fuel at $4 to $10 a gallon.” “These are things you can’t do in Texas,” Paxton said. “There are significant penalties if you price gouge in a crisis like this.” Indeed there are. Price gougers “can be hit with a $20,000 fine per occurrence, or up to $250,000 if the victim is someone age 65 or older.”
By now the whole world has seen the picture of the case of water at a Best Buy store in Texas with a price tag of $42.96. “This was clearly a mistake in a single store,” Best Buy spokesman Shane Kitzman said in a statement. “We feel terrible about this because, as a company we are focused on helping, not hurting people affected by this terrible event. We are deeply sorry that we gave anyone even the momentary impression that we were trying to take advantage of the situation.”
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In this Internet age, there is one thing that always follows stories about price gouging: articles by free-market economists and commentators about the economics of price gouging. This is not one of those articles.
This does not mean that these articles are wrong. To the contrary, they are right and needed. Here are statements from three such articles:
Prices should rise during emergencies. Price changes save lives. That’s because prices aren’t just money—they are information. Price changes tell suppliers what their customers want most, maybe chainsaws more than blankets, water more than flashlights. (John Stossel)
So-called price gougers face all the same challenges as anyone else, having to forego whatever income they otherwise would have earned if not for their disaster-relief project, and face the risk of losing future income because they took off from their jobs or put their own regular businesses on hold. These losses and risks must be compensated, which is another reason they sell products at a premium price, in addition to supply/demand realities. (Tom Mullen)
Because each ‘gouging’ price paid for any item is paid voluntarily by a consumer spending his or her own money – and because that consumer cannot conveniently find that item elsewhere at a lower price – the consumer clearly doesn’t deem the price to be too high. That is, while the consumer would, as always, prefer to pay a lower than a higher price, the consumer prefers to pay the high price and actually get the item than to save money by going without the item. (Donald Boudreaux)
The economics of price gouging is simple. Price gouging is simply charging market prices for goods that are in high demand and short supply. Natural disasters don’t negate economic laws.
And then there is the economic calculation problem. At what level of price increase does it become price gouging? A 100 percent increase? A 50 percent increase? A 20 percent increase? What about a 10 percent increase? Why or why not? All goods or just “essential” goods? For what period of time? How intense does a storm have to be in order to trigger price gouging laws? For the government to try and calculate how much prices should be allowed to rise on certain goods before, during, and after a natural disaster is pure Soviet-style central planning. Price-gouging laws are contrary the free market, free enterprise, and freedom itself.
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There is another problem with price-gouging laws, and one that is often overshadowed by the economic arguments against them: property rights.
If I own a bottle of water it is my property. It belongs to me. No one has a claim on it. If I want to pour it out in down the drain, then that is my business, and not the concern of government. If I want to give it away, then that is my business, and not the concern of government. If I want to sell it for a high price to a willing buyer, then that is my business, and not the concern of government. If I want to keep it in my refrigerator until the end of time, then that is my business, and not the concern of government.
These things are true of every bottle of water I own. These things are true whether or not I own a business that regularly sells water. These things are true whether or not someone is dying of thirst. These things are true in the middle of a hurricane. These things are true even if you wish they weren’t.
Price-gouging laws grossly violate property rights.
None of this means that raising prices on essential goods in the midst of a natural disaster is always moral, just, and right. But that is a matter of conscience, religion, and ethics, not law.
