Here’s a letter to a Substack commenter.
Mr. Calamitous:
You’re unhappy with economists’ defense of so-called “price-gouging,” which is the practice of charging (and paying!) unusually high prices in the aftermath of natural disasters and wars. Specifically, you write:
Your example with overcharging for, say, water when there’s been an earthquake is not good for people, it’s cruel. There are times when charity and public service are the proper response, not markets. Markets are a tool we can use in some situations, not a magic wand. The lack of awareness of this is what makes libertarians seem aloof and a little ridiculous.
With respect, I disagree.
First of all, these high prices are not “overcharging.” They reflect the underlying material reality that supplies have suddenly been much-reduced while, simultaneously, demands have suddenly been much-increased. The substantial reduction in supply relative to demand is a reality that raises the market value of each unit of the good that is available. This market value is what it is; a government prohibition of “price gouging” prevents the market from accurately reporting to the world this economic truth. Outlawing “price gouging” is akin to outlawing meteorologists from accurately reporting on the formation and path of hurricanes.
Floridians and Louisianans might for the moment feel better being told that skies will be sunny and winds calm, but because such misinformation prevents them from taking appropriate measures, they’ll regret the lies fed to them when the storms strike.
And so it is with high prices. Prices kept artificially low ‘lie’ to consumers and to suppliers. Buyers fortunate to be near available supplies (or who have family or political connections with suppliers) will over-consume. Worse, suppliers will get neither the information nor incentive necessary to encourage them to take extra steps to bring more supplies into the devastated areas.
You write that such problems should instead be handled by “charity and public services.” Maybe. But the very fact that prices rise to levels that you find objectionable implies that charity and public services aren’t doing the job.
I’ve a question for you. Do you, whenever a natural disaster strikes somewhere in the continental U.S., always take several days off of your job, rent a flat-bed truck, fill it with the likes of propane, bottled water, plywood, and blankets, and then drive that truck to disaster areas and either donate these supplies or sell them at the prices you paid for them?
I’m guessing not.
Now, suppose someone offered to pay you, each time a natural disaster strikes, $5 million to take five days off of work in order for you to rush needed supplies to disaster areas. Would you take this job offer? I’m guessing so – which means that you, sir, are a price gouger. The only difference between you and the “price gougers” who you criticize is that the prices they charge to help relieve the suffering of disaster victims are lower than the prices you charge.
Now I don’t hold against you your inaction induced by the failure of buyers to meet the exorbitant prices you charge. Most people – including me – don’t do much to help rush supplies to disaster victims. But you should stop criticizing the actions of those suppliers who you and others unjustly tar as “price gougers.”
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
