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Three Cheers for “Price-Gouging”

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Here’s a letter to a self-described “social activist” from New York:

Ms. Lubis:

Thanks for your e-mail.

You’re “stunned” by my linking [2] favorably to Jeff Jacoby’s [3], Art Carden’s [4], and Mark Perry’s [5] arguments in opposition to regulations aimed at stopping so-called “price-gouging.” And you allege that I “miss that people naturally AND RIGHTLY!!!!!! react with negativity against people taking advantage greedily of people’s adversities.” You conclude that “stores which raise prices are morally degenerate.”

You mistake me. I fully understand that decent people naturally and rightly react with disgust to those who take advantage greedily of other people’s adversities. What I do not understand is why so many people cannot grasp the simple fact – the fact that’s at the core of economists’ arguments against “anti-price-gouging” regulations – that reality isn’t optional.

High prices that prevail in the aftermath of natural disasters reflect the regrettable reality that supplies of goods and services have suddenly become unusually low while demand for these goods and services has become unusually high. These high prices – far from being evidence of some people taking advantage of other people’s misfortunes – accurately report the economic damage wreaked by natural disasters. And in doing so these high prices incite suppliers to bring more supplies to the devastated areas, as well as prompt consumers to use these goods and services more prudently.

Criticizing these price hikes makes no more sense than does criticizing a newspaper reporter who accurately reports, say, the number of people killed by a mass shooter. The reality reported on is indeed gruesome and regrettable, but supplies of the likes of propane and plywood no more miraculously become greater if a government statute compels prices to lie about economic conditions than do the victims of a mass shooter miraculously rise from the dead if a government statute compels reporters to under-report the number of shooting victims.

You’ll respond that, unlike in a mass-shooting calamity, sellers can choose not to raise the prices they charge. This is so. But sellers cannot choose to keep the market values of goods and services lower than what these values are.

Also note that buyers can choose not to pay high prices. Yet, obviously, many buyers do not make this choice. Many consumers, as revealed by their choices, prefer to acquire the goods at high prices rather than not acquire the good at low prices.

So I ask: when you blame high prices on the greed of sellers, do you blame also the greed of buyers who pay high prices? My guess is that you don’t, but – given your premises – you should. The reason is that sellers sell at high prices only when consumers willingly pay high prices.

I end with a second and more-fundamental question: if sellers who charge unusually high prices are guilty of moral offenses against victims of natural disasters, aren’t you and I even more guilty? Like you, I remained at home as hurricane Dorian bore down on Florida and the Bahamas. I – self-interested person that I am – toted no water, no propane, no plywood, no blankets, no anything to the residents of those regions. This fact means that the prices that I charged to Dorian’s victims for much-needed goods and services were infinite. Ditto for you.

So do you regard yourself to be “morally degenerate”? If you’re correct that merchants are “morally degenerate” if they sold goods and services to Dorian’s victims at prices that are high but lower-than-infinite, aren’t you who sold nothing at any prices to Dorian’s victims something worse than morally degenerate? If not, why are you morally outraged at the merchants who – unlike you (and me, and countless others) – actually made goods and services available at prices that many people willingly paid?

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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