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An Open Letter to the Attorney General of Texas

Mr. Ken Paxton, Attorney General
State of Texas
Austin, TX

Mr. Paxton:

You boasted today on Fox News that your office, in the wake of hurricane Harvey, will prosecute so-called “price gougers” – that is, merchants who charge prices deemed to be too high by Texas politicians.  I urge you to quit your witch hunt.

Because each ‘gouging’ price paid for any item is paid voluntarily by a consumer spending his or her own money – and because that consumer cannot conveniently find that item elsewhere at a lower price – the consumer clearly doesn’t deem the price to be too high.  That is, while the consumer would, as always, prefer to pay a lower than a higher price, the consumer prefers to pay the high price and actually get the item than to save money by going without the item.  Formal legalities asides, why should the judgment of politicians about what prices in the aftermath of natural disasters ‘should’ be override the judgments of on-the-spot consumers about the appropriateness of prices?

Government intervention is often justified as a means of correcting “market failure.”  But by enforcing prohibitions on “price gouging” your office causes market failure.  Penalizing merchants who raise the prices of goods and services prevents markets from truthfully conveying an unfortunate but undeniable truth – namely, the natural disaster caused available supplies of goods and services to fall significantly relative to the demand for those goods and services.  By forcibly keeping ‘legal’ prices lower than their actual market values, you not only encourage black markets and other corrupt and corrupting processes, you obstruct the information and incentives that are necessary both to persuade consumers to now use those goods and services more sparingly, and to spur suppliers from around the world to rush to the devastated areas additional supplies of those goods and services.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030