Here’s What’s Wrong About Price Gouging

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Here are some situations. See what you think of them.

You’re getting ready to drive to work when you turn on the radio and discover that an accident has closed two lanes of the freeway you usually take. Unwilling to spend two extra hours inching through horrible traffic, or to forfeit half a day’s wages so you can go to work at a later time, you decide to sacrifice four dollars and take the toll road.

Your friend has a birthday tomorrow, and you want to give him his favorite thing, which is a certain kind of Brazilian coffee. When you get to the store, you find that the cost has gone up. Several would-be customers are shaking their heads and turning away: they’re not buying at that price. “Bad season in Brazil,” one of them says. “Half the crop wiped out.” Hence the price increase. But you want to please your friend, so you pay the extra money and buy him a pound of coffee.

The first snowfall of the winter turns out to be a bad one. When you see the stuff clogging your driveway, you regret that you didn’t contract with the neighborhood snowplow guy to clear the drive whenever it snowed. You call him on his cell, and over the sound of heavy equipment you hear him say something about wanting to “do the customers with contracts first.” In fact, he’s got all the contract customers he can handle — but he’d be willing to help you out today, for twenty dollars extra, fifty dollars for doing it right away. You happily agree.

Do you see anything wrong about any of these little episodes? I mean, do you see anything contrary to common morality? Anything contrary to common sense? Anything contrary to normal economic reasoning? No? You don’t? I don’t either.

You would have paid a hundred dollars, if the snowplow guy had asked for it. It would have been worth it to you. But no, he’s not allowed to ask for more.

Now suppose the government decreed that no motorist should have to pay more to drive, just because there was some dumb accident on the freeway. Suppose the government therefore closed the toll road, just to make things fair, meaning that you would be required either to spend extra hours on the freeway or to forfeit some of your pay for a much delayed arrival at work, or both.

Or suppose the government decided that no one should pay more for essential foodstuffs (e.g., coffee), just because some unpreventable meteorological event occurred. Suppose the government therefore decreed that no one should be allowed to pay more for coffee than the price that prevailed before that event, meaning that all available supplies of coffee would be long gone before you went to shop for it — purchased by casual customers who would never have bought any coffee at the price it is worth to you.

Or, to go at this one more time, suppose the government refused to allow the snowplow guy to charge you extra just because there was a big snowfall and you hadn’t been prepared for it. Obviously, you wouldn’t get your driveway plowed, despite the fact that some of the people who got theirs plowed, at the ordinary price, had nothing better to do with their cars than drive to the convenience store for a bag of chips, whereas you needed to show up at the office to sign an important contract. You would have paid a hundred dollars, if the snowplow guy had asked for it. It would have been worth it to you. But no, he’s not allowed to ask for more.

What do you think of the morality and economics of that second set of situations? Not much, I imagine. Yet that is the morality and economics that is official in our country. That is the morality and economics that the people, as a corporate body, loudly applaud.

Consider what happens when some meteorological accident befalls an East Coast state. As soon as a hurricane is foretold, state and local officials decree that no one will be allowed to charge more for gas, food, or lumber than they do on a normal day. To charge more would be “gouging,” and an awful thing. The result? The economy grinds to a halt. Long lines form at stores and gas stations. People in urgent, perhaps desperate, need wait in line up behind people who have nothing better to do that day, and no one has a compelling economic interest in rerouting supplies to the weather-threatened region from other places; it’s a hassle, and the price would be the same anyhow. Besides, if you made a mistake in pricing, you could be arrested. Fat little Chris Christie, or some similar buffoon, bustles from one gas station to another, threatening to arrest “profiteers” and occupying the 6 o’clock news. And the people cheer.

It appears to be an article of the national faith that prices are determined by the law of supply and demand. But another article of faith is that the government can and should violate that law.

The other day, federal officials made headlines by announcing an investigation of airline companies because they allegedly raised prices on flights in New England after a government train had an accident that disabled the main line from New York to Boston. The idea of these high-level feds is that it would have been scandalously immoral for the airlines to charge more money for their seats, thereby allowing travelers who were willing to pay more to go ahead and pay it, and travelers who didn’t set so high a priority on getting to Boston right away not to pay it. Except on John Stossel’s show, no murmur of disapproval greeted the well-publicized announcement of this sanctimonious investigation, or witch hunt.

So this is the mystery of contemporary politics. Actions that would, in certain contexts, make almost all Americans shake their heads in wonder are welcomed, in other contexts, with pious approval. Why is that? I don’t know.

It appears to be an article of the national faith that prices are determined by the law of supply and demand. This idea is even taught in high schools, where realistic ideas almost never appear. But another article of faith is that the government can and should violate that law (which it constantly does), and that no one will pay a price for the government’s action: no one will spend hours waiting to buy something he’d prefer to pay a bit more money for; no one will find that the items he wants to buy have disappeared when he finally gets to buy them; no one will lose his life or livelihood because of an arbitrarily imposed “fair price.”

Americans believe that there’s no such thing as a free lunch. They also believe that the government can cook one up for you, at any time, and no matter what happens. No problem! Just make a law.




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Comments

Scott Robinson

Dear Mr. Hunter,

Very well illustrated. I know that when I saw the empty store shelves in communist countries, I thought that it resulted from the incompetence of government. "Close enough for government work." But, your put flesh on the bones article is much more logical. If the price of everything on the shelf is 50 cents, then people will come in and buy as much as they want. The only problem with my logic is the juxtaposition of capitalist customers in a communist market. Odds are that the customer does not have hardly any money which brings back the need to budget. The other odds are that the higher powers looking out for the wellbeing of the public will institute rations. Translation, even if you want to buy six loaves of bread, you may only purchase one quarter of loaf of bread for every documented member of your household. Of course this argues against my claim on government incompetence. It would probably be based on the number of people in line to buy. If your whole family wanted bread, your whole family would have to go to the market with you so you could get your whole loaf.

But to get off my rambling, your article is a very good illustration of voluntary exchange. The salesman is only going to raise the price as high as the customer is willing to pay. It is funny how our higher powers looking out for our best interest quickly turns into us having more limited choices. And yes, calling having to choose for your whole family to go to the store together is being generous regarding choices.

Good Perspective,
Scott

Visitor

Thanks for this writeup. It always amazes me when people get upset because the price of ice goes up after a hurricane. If you don't want it enough to pay the higher price, don't buy it. And if they complain that ice is too much, how long until they say iPhones cost too much and should be sold for less? We saw this in Venezuela where the government mandated lower prices and the store shelves went bare.

Jacques Delacroix

I filed a negative comment on this article because it misrepresents American manufacturing production in a way that is essential to its argumentation. The misrepresentation also strengthens a widespread fallacy with important implications for American international trade and investment policy.

If you did not receive the comment, please, tell me so I can send it again, with more references. If you pocket-vetoed it or issued an executive order against it, you should tell me. Thank you.

LibertyUnbound

Hi Jacques:

There was no comment from you on this article registered within the system; however, there was a similar comment in the article "Manufacturing Hubbub."

If your comment on this piece is separate, or you have additional material you wanted to add, please repost—thanks!

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