In Defense Of Price Gouging

In these days and times, when you actually have people claiming that to be compassionate, you’ve got to be pro-looting, I’d say that opposing price gouging laws would definitely be considered an “alternative view.”

But, rising prices caused by a disaster are nothing more than the result of supply and demand. If the demand for a product suddenly explodes, you can generally expect that the product will increase in price or it will run out. In other words, it’s a trade off and you have to pick your poison.

The thing is, most people bitterly resent it when prices soar after a disaster, but generally don’t get as piqued about shortages. However, I take the opposite view: we’re better off having needed products available at higher prices.

Here are excerpts from a couple of older columns that’ll help explain how price gouging actually benefits consumers after a disaster. First, here’s Sheldon Richman:

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“A natural disaster creates a new and acute demand for flashlights, batteries, lumber, blankets, water, and so on. The pre-disaster price for those things was determined by the pre-disaster demand. If prices did not rise in response to the new higher demand, the shelves would be quickly emptied. In fact, the first few customers might buy up all of a store’s supply, leaving nothing for the people who arrive later. But if the price rose to meet the new conditions, the early buyers would tend to buy less, postponing satisfaction of their least urgent needs until things returned to normal. For example, if bottled water remained at its lower pre-disaster price, early shoppers might buy more than their families needed for drinking—they might buy some to water their plants. Others looking for drinking water would be out of luck. But if the price were allowed to rise, the first shoppers would tend to buy less, leaving water for other families’ vital needs.

Thus anti-gouging laws may appear to be in the interest of all consumers, but they actually benefit early shoppers at the expense of latecomers.

…Without anti-gouging laws, alert suppliers in unaffected areas, looking for higher profits, would divert their needed products to the stricken area. One might be tempted to condemn such “profiteering,” but that would be shortsighted. New supplies now would be available for people in need. Besides that, the competition from additional goods would keep prices from rising as high as they would have otherwise.”

Here’s more from Thomas Sowell, who writes about hotel room prices in the aftermath of hurricanes in Florida:

“Among the complaints in Florida is that hotels have raised their prices. One hotel whose rooms normally cost $40 a night now charged $109 a night and another hotel whose rooms likewise normally cost $40 a night now charged $160 a night.

Those who are long on indignation and short on economics may say that these hotels were now “charging all that the traffic will bear.” But they were probably charging all that the traffic would bear when such hotels were charging $40 a night.

The real question is: Why will the traffic bear more now? Obviously because supply and demand have both changed. Since both homes and hotels have been damaged or destroyed by the hurricanes, there are now more people seeking more rooms from fewer hotels.

What if prices were frozen where they were before all this happened?

Those who got to the hotel first would fill up the rooms and those who got there later would be out of luck — and perhaps out of doors or out of the community. At higher prices, a family that might have rented one room for the parents and another for the children will now double up in just one room because of the “exorbitant” prices. That leaves another room for someone else.

Someone whose home was damaged, but not destroyed, may decide to stay home and make do in less than ideal conditions, rather than pay the higher prices at the local hotel. That too will leave another room for someone whose home was damaged worse or destroyed.

In short, the new prices make as much economic sense under the new conditions as the old prices made under the old conditions.

It is essentially the same story when stores are selling ice, plywood, gasoline, or other things for prices that reflect today’s supply and demand, rather than yesterday’s supply and demand. Price controls will not cause new supplies to be rushed in nearly as fast as higher prices will.”

As Thomas Sowell is fond of saying, “There are no solutions…(t)here are only trade-offs.” Having supplies in stock during a crisis are worth the trade off of having rising prices…

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