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Give Thanks to Price Gougers

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Some things never cease to amaze me, for example, the willingness of state officials to vilify and prosecute those who dare to raise prices during an emergency. As far as superficial demagoguery and economic illiteracy go, those initiatives are right up there.

Thirty-one states have some form of anti-price-gouging law, and a recent statement from North Carolina’s attorney general, Roy Cooper, is typical of the accompanying rhetoric. Cooper warns: “price gougers … you can’t use a crisis as an excuse to make an unfair profit off consumers…. If you think someone is ripping you off, let me know about it. ”

To start with, the term “price gouger ” is loosely defined; it is merely a derogatory swipe at people who happen to raise their prices. In the case of an emergency, such people merit praise rather than condemnation. (Click here for my latest four-minute radio interview on the matter with North Carolina’s WPTF.)

Natural disasters, such as Hurricane Irene, bring heightened demand for products such as gasoline and ice. Retailers respond by raising their prices. Otherwise, they would run out of supplies. In turn, the higher prices signal the products’ relative scarcity and give more suppliers an incentive to enter the market.

So the effect of anti-price-gouging laws, which cap prices, is the reverse of that intended. Rather than increasing availability, they generate shortages. If prices cannot rise, people will tend to hoard needed goods and leave few for others. Moreover, the incentive for more suppliers to enter the market will be lost.

Examples of legislatively induced shortages abound; just look at the post–Hurricane Ike scenario. Even two weeks after the 2008 storm, gasoline shortages and delays continued. Some stations resorted to rationing purchases, but that didn’t prevent fistfights between drivers disputing their place in the queue.

The Third World offers even more striking examples of what happens if you push price controls to their extreme. Amidst hyperinflation of 4000 percent in the mid 2000s, Zimbabwe’s rulers imposed price controls and even mandated price cuts. That only led to empty shelves and a thriving black market at prices that reflected supply and demand.

Such consequences flow from a belief in a vague “fair ” price, which does not exist except in central planners’ minds. By their logic, sales above that price are unfair or exploitative.

In the case of North Carolina, as Sara Burrows noted in the Carolina Journal, the legislation defines gouging as setting a price in excess of the average price over the 60-day period prior to the emergency. Yes, you read that correctly. During what the state defines as an emergency, and for 45 days afterward, retailers are considered criminals if their prices happen to be higher than the earlier average.

Apparently, any price above average is “unreasonably excessive. ”

So long as the profitable exchange is voluntary — which means that it is mutually beneficial — there is nothing unreasonable about it. If someone were “ripping you off, ” you would be able to get a better deal elsewhere. If not, evidently the price is not so excessive.

All of these laws also reflect either a misunderstanding of private property or a disrespect for it. If a retailer has bought an item, he has ownership that includes the right to sell at the price he chooses. By forcing retailers to part with their property at terms they do not agree with, many legislators appear to have forgotten the Fourteenth Amendment: “… nor shall any State deprive any person of life, liberty, or property, without due process of law….”

Unfortunately, consumers have also acquired an entitlement mentality with regard to other people’s property. Already, many are bringing law enforcement to bear on retailers.

Some might still ask, what about the poor? Won’t they suffer in urgent times? Sure, as in normal times, those with less may merit charity. However, while price controls may make some goods available at lower prices, without increased returns on offer there will be fewer of those goods available for everyone, rich and poor alike.

So to criminalize people who respond to market forces is to waste enforcement resources. Such people are helping us address the heightened scarcity of the situation.

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    Fergus Hodgson is host, editor, and founder of The Stateless Man radio show and e-newsletter and a policy advisor with The Future of Freedom Foundation.