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A Cyclone of Confusion Is About to Strike

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With hurricane Florence now striking the U.S. east coast, the typical late-summer silly season in economics commentary is about to launch. And nothing is more silly than is the barrage of self-righteous condemnations we’ll hear of so-called “price gouging.” The letter below will be personalized and sent to each of the many politicians and pundits who will, predictably, use the occasion of this hurricane to expose his or her economic ignorance.

Mr. or Ms. [Politician or pundit who laments higher prices caused by natural disasters yet celebrates higher prices caused by tariffs]

Mr. or Ms. [name here]:

You are slamming merchants in the path of hurricane Florence for so-called “price gouging” – that is, for raising the prices they charge in response to the fact that this storm has reduced supplies of goods and services. Yet you are also on record as supporting tariffs. Can you explain this inconsistency?

Tariffs increase employment in protected industries only by making the tariffed goods more scarce. This greater scarcity prompts protected firms to raise the prices they charge. In turn, these higher prices better ensure not only the survival, but also the increased production, of the protected firms. Your support for tariffs implies that you applaud these consequences (even if you overlook the consequent reduced outputs and employment elsewhere in the economy).

Just like tariffs, natural disasters also make goods more scarce. Why do you, therefore, find it to be unethical and harmful for merchants to raise prices when the increase in scarcity is caused by natural disasters, but ethical and helpful for merchants to raise prices when the increase in scarcity is caused by tariffs? And why are you blind to the increase in outputs of firms whose prices rise because of natural disasters, while you see clearly the increase in outputs of firms whose prices rise because of tariffs?

Greater scarcity is either a blessing or it’s a curse. People of good sense understand that it’s always a curse, yet one made as tolerable as possible by prices rising to accurately reflect this greater scarcity. Like people of good sense, you recognize that greater scarcity is a curse if caused by nature. But unlike people of good sense you, bizarrely, think that greater scarcity is a blessing if caused by tariffs. Also unlike people of good sense, you do not understand that, regardless of the cause of greater scarcity, it is always good for prices to rise to reflect this accursed reality.

Why do you expect merchants to take advantage of the greater scarcities caused by tariffs (and applaud them for doing so), but are surprised when merchants take advantage of the greater scarcities caused by natural disasters (and criticize them for doing so)?

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

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