August 1, 2018 | View PDF
We are now well into the 2018 hurricane season, and a major storm may or may not hit us this year. But when one does, the news media will always mention a little consequence called “price gouging.”
Reporters usually hype it up as something terrible, selfish, and even criminal. But when disasters strike, entrepreneurs are quick to respond by trucking in critical supplies and selling them for prices far above the norm. And people in need will be willing to pay for them.
Are these suppliers ripping off the victims? No, they are not. Yes, they do expect to make profits, just like people in any business. But their “excessive” prices are the result of the great expenses of quickly shipping the items over long distances and also risking delays, fines, and even seizures by law enforcement officials who somehow believe that providing critical essentials at elevated prices is a felony.
What if there were no “price gougers?” What if law enforcement apprehended and incarcerated every last one before he reached his destination? How would this action help the victims?
Imagine two identical coastal cities in Florida that have been severely damaged by a hurricane. One has “gougers” everywhere peddling everything from bottled water to plywood to tarps to generators at about 400% of their normal retail prices. The other has strict laws against them, and the local police are working overtime to make sure there is nobody around to sell these high-priced supplies. Which city would you rather live in? Think about it. Overpriced supplies, or no supplies? The police protecting property from looters, or routing out the “gougers” instead?
Anti-gouging laws not only hurt and obstruct the providers, they deprive the storm victims—people who are very willing to pay a few hundred dollars to save property that is worth thousands.
The buying and selling is strictly voluntary, like any other free market. Overpriced or not, people are not forced to buy anything. But some will need the items to save their property. The buyers and sellers will adjust their offers and prices according to their needs and mutual agreements. As long as officials step aside and get out of the way, the flow of commerce will take care of itself.
High prices have another beneficial effect. People will buy only what they need. If the local “Gestapo” mandates that prices be reduced to “normal” levels, people with little need will exhaust the supply, and those with great needs will end up empty-handed.
Prices will always adjust themselves according to the fundamental law of supply and demand. When the supplies run short, their prices will rise. But the higher prices will entice more entrepreneurs from farther away to bring more. As new supplies come in greater quantities, the prices will decline. In a free market, they will soon fall to normal levels, and shelves once again will become adequately stocked.
In a free market, which is completely voluntary, there is no such thing as price gouging. Gouging can only occur if outside forces interfere with the supply or the demand.
If anything is monopolized, then gouging really does take place. In practice, monopolization is caused by one entity—government—all levels of government. It has the power to become a single seller. It also has the power to artificially create demand.
“How?” you ask. Would you like to get a passport? Where would you buy one? Walmart? Sears? No way. You have to go to your monopoly provider—the federal government. And you have to pay the asking price, whatever it is.
But wait. Do you really need a passport? If you plan to do much traveling outside of the country, you will. However, it wasn’t always that way. A century or more ago, passports were not needed for international travel. But now, governments everywhere have created a need for them.
And they can gouge you for whatever prices they want.
And ditto for drivers’ licenses, business licenses, permits, bail bonds, fines, penalties, traffic citations and many other things.
Welcome to the real world of price gouging.