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Reality Isn’t Optional, #778

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Here’s a follow-up note to Mr. Lee Bennani:

Mr. Bennani:

Thanks for your follow-up e-mail to my previous note [2].

You’re correct that among the perceived benefits of anti-price-gouging restrictions are “elevated chances for poor people to buy needed items instead of these things [being] all bought up by the rich.” This perception, alas, is false.

Nothing is easier than to imagine that, with prices kept artificially low by government diktat, poor people’s ability to acquire goods is increased both absolutely and relative to the ability of rich people to acquire goods. But imagination isn’t reality.

In reality, anti-price-gouging restrictions almost surely decrease the ability of the poor to compete successfully with the rich in acquiring goods.

Anti-price-gouging restrictions reduce available supplies of goods. The resulting increased scarcity of goods thus raises these goods’ actual market values. As a result, the costs that individuals are willing to incur to acquire these goods are made higher than these costs would be without any restrictions on price hikes. (The excess of per-unit values over per-unit maximum-allowed monetary prices is why people are willing to wait in long lines – to incur socially wasteful costs of spending hours in queues – for a chance of buying goods that are in short supply.) The fact that government prohibits monetary prices from accurately reflecting these higher values no more changes this reality than did the Chinese government’s initial prohibition on physicians accurately reporting COVID-19 change that reality. In both cases, government prohibition of accurate reporting makes matters worse.

So with quantities supplied artificially shrunken by anti-price-gouging restrictions, who is most likely to acquire what few supplies are available? Not the poor. Yes, they are (perhaps) better able than are the rich to afford to spend time waiting in long lines. But the rich are (surely) better able than are the poor to pay others to wait in long lines for them.

More importantly, the rich are far more likely than are the poor to have personal, social, business, and political connections that enable them to persuade merchants to hold inventories aside for them – for the rich – to purchase.

Unless you honestly believe that in the throes of shortages created by price ceilings poor people are on equal footing, in competing for goods and services that are in short supply, with people such as Jeff Bezos, Mitch McConnell, Andrew Cuomo, Scarlett Johansson, LeBron James, Paul Krugman, the mayor of your city, the branch manager of your bank, and your wife’s gynecologist, you should reassess your claim that anti-price-gouging statutes result in “elevated chances for poor people to buy needed items instead of these things [being] all bought up by the rich.”

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