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So-Called “Price Gouging” Under Desperate Circumstances

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In my latest column for AIER, I further explore so-called “price gouging,” this when it occurs under very extreme and desperate circumstances [2]. A slice:

Everyone understands that the looting of stores leads only to an arbitrary distribution of who gets available supplies and who goes without. There’s simply no reason to suppose that successful looters are more worthy or needy than are unsuccessful looters or people whose morality won’t permit them to loot.

Everyone understands also that the distribution of available supplies through looting does nothing to inspire suppliers to bring more supplies into the region.

Yet very few people see the similarity, visible to economists, of queueing to looting. As with looters, there’s simply no good reason to suppose that successful queuers are more worthy or needy than are unsuccessful queuers or people whose time or circumstances won’t permit them to queue.

And if available supplies are so limited that some people must do without and die, no conceivable distribution of these supplies will prevent people from dying.

The gallon of water sold to Jones at a “gougingly” high price saves Jones’s life, but it also results in Smith dying of thirst. If the price of that gallon of water had instead been held down to what politicians consider to be “normal,” it’s possible that Smith — able to afford that lower price and fortunate enough to be near the front of the queue — will get the water and survive. But in this case the unfortunate person to die of thirst will be Jones.

Deaths in these bitter circumstances can be avoided only if additional supplies are brought in. And what most economists understand that most non-economists don’t is that “gougingly” high prices are the market’s means of attracting to devastated regions these vital supplies. If government prevents these prices from rising, the market process is thwarted — which in cases such as this one means that people will perish.