On Price Gouging

Let's talk about another one of the supposed great sins of capitalist greed: price gouging.

Price gouging is when someone, either a person or a group, raises their prices above the normal market price, specifically during times of emergency or disaster, such as a hurricane. People are able to do this if either the supply of some good has fallen, the demand of a good has skyrocketed, or both.

The accusation, then, is that these businesses are being exploitive. They are taking advantage of some poor situation to make "exorbitant" profits. After all, these people were just in a disaster, and these companies use this fact to take every last penny from these desperate people.

Now, price gouging has been outlawed in at least 13 states in the USA (http://definitions.uslegal.com/p/price-gouging/). Now price gouging is a bit tricky to prosecute since what price is considered "too high" is a bit hard to define. But it's all for the best, right? We're keeping those greedy capitalists from exploiting the poor. Why would we possibly want to allow that kind of behavior?

Well, even ignoring the property right and ethical issues of interfering with voluntary trade, for a few reasons. Trying to simply ban behavior we personally disapprove of almost always carries unintended consequences. Even during times of emergency, the laws of supply and demand still hold true, and allow things to be the most allocatively efficient (i.e. providing goods and services to where they are most needed in society).

In a disaster, the price of a certain good commonly seen as a necessity is kept at it's normal price instead of the higher "price gouging" price. Let's say... food. Now, despite having a low supply of food, it's still as cheap as ever. People easily go, pick up as much food as they want, and return home. People are not treating food as scarce as it truly is because there is no price signal telling them how scarce it is. Artificially keeping these prices low encourages people to be wasteful, and stops them from asking themselves how desperately they need a certain item.

Also, outside companies have less of a motivation to find how to access this community. If they could charge higher prices, that would attract their businesses. But now, why bother? If the prices are the same, one town's as good as another. If there weren't any price gouging laws, then maybe the increased supply brought in by outside sources could have even brought the price back down, but now that will not happen.

Outlawing price gouging not only stops people from being thrifty and conservative in their choices, but it also hinders outside motivation to bring the item to where it is most desperately needed. This does not fix the problem, it is merely an attempt to deny the reality of this situation and hoping that everything will play out as normal. We are not making prices fair, but making prices lie.

If you really feel sympathetic for people in a disaster, which most people do, we should not simply just tell our government to pass a law to force other people to "fix" the problem. That's just laziness on our own part. Donate to one of the inevitable charity relief that form for these kind of events, or better yet, help out yourself. But don't try to interfere with the voluntary interactions of others.