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Price Gouging

There’s a wonderful defense of “price gouging” by Jeff Jacoby in today’s Boston Globe:

Imagine a system that could instantly respond to a calamity like Hurricane Charley by mobilizing suppliers to speed urgently needed resources to the victims. Imagine that such a system could quickly attract the out-of-town manpower needed for cleanup and repairs, while seeing to it that existing supplies were neither recklessly squandered nor hoarded. Imagine that it could prompt thousands of men and women to act in the public interest, yet not force anyone to do anything against his will.

Actually, there’s no need to imagine. The system already exists. Economists refer to it as the law of supply and demand. Unfortunately, too many journalists and politicians call it by a more pejorative and destructive name: “price-gouging.”

It ends with an essential example of how prices allocate resources during a disaster and quotes a member of the Cafe Hayek staff:

Newsday last week quoted the owner of a tree removal company, who had driven down from Miami and was charging twice his normal rate “because I’ve got to deal with more aggravation.”

“No one wants to come here when I can stay home and sleep in air conditioning next to my wife and kid, go to the gas station whenever I want and get gas,” he said. “The ones who are willing to pay now know that they’re not getting a great deal, but they’re willing to pay a little bit more to get their lives together quicker.”

At the same time, price increases perform what George Mason University economist Donald Boudreaux calls “economic triage,” directing supplies and repairs to those whose need for them is most pressing. Someone who wants a generator so he can power his computer and TV might be willing to rent one for $250. At $400, he is more likely to decide he can live without it — thereby making it available to the butcher desperate for electricity so he can keep thousands of dollars’ worth of meat from spoiling.

When demand increases, prices go up. As prices rise, supplies do, too. And with higher supplies eventually come lower prices. It isn’t “gouging,” it’s the way the world works — even after hurricanes. Demonizing vendors won’t speed Florida’s recovery. Letting them go about their business will.

Don’s piece on price gouging is here.


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