As Hurricane Dorian neared the US coast, officials in Florida, Georgia, and South Carolina engaged in a familiar ritual: They declared a state of emergency and activated their state’s price-gouging laws. These laws, which exist in 35 states, make it illegal for vendors to hike the prices of basic necessities. The Florida statute, for example, threatens merchants with up to 60 days in jail and stiff penalties if they sell “essential commodities” for a price that “grossly exceeds” what the items cost 30 days before the emergency. In some states, such as California or West Virginia, a seller who boosts prices by as little as 10 percent can be punished with a year in prison.
Bans on “price gouging” are popular. They are widely regarded as a shield against unscrupulous jackals who take advantage of a disaster to rip off their fellow citizens, jacking up the price of critical supplies — gasoline, bottled water, generators, hotel rooms — just when people are most desperate for them.
Vendors who charge more for such goods and services during a crisis are frequently denounced by politicians (and journalists). South Carolina Attorney General Alan Wilson issued a statement warning storeowners against “unfairly” charging more for food, gasoline, or lodging. “By our law,” he declared, “that’s a criminal violation and an unfair trade practice.” In an online video, Florida Attorney General Ashley Moody urged Floridians to download her office’s “NO SCAM” app, and use it to turn in businesses that raise their prices. Within days, reported CBS, her office had received thousands of complaints. One targeted a gas station charging $9 for 24-packs of bottled war, up from their normal price of $4.
Moody and Wilson sincerely believe that “price gougers” are greedy swindlers who deserve to have the book thrown at them. The lawmakers who pass laws barring state-of-emergency price increases may genuinely think such laws keep miserable situations from growing even worse.
But they don’t.
Laws against “gouging” add to the suffering caused by hurricanes, floods, and other disasters. Rather than prevent anti-social behavior, they encourage it. And far from ensuring that supplies remain available at prices residents can afford, they all but guarantee more painful shortages.
Price controls are always bad policy, because they interfere with the free flow of accurate information about market conditions — information that countless buyers, sellers, suppliers, and consumers rely on to make economic decisions. That kind of interference is economically harmful at the best times, but it’s devastating in a crisis, when destruction is widespread and the need for accurate economic information can be a matter of life and death. When the price of bottled water more than doubles overnight, it isn’t because of a storekeeper’s whim. It is how the market communicates that a vital product is about to become much more scarce.
Prices aren’t arbitrary. They’re signals. Every price conveys a message about supply and demand, just as every thermometer reading conveys a message about heat and cold. When temperatures change, so do thermometer readings — and those changes can affect everything from medical care for a child running a fever to the air-conditioning in an office building. No one would applaud a law making it illegal for thermometers to accurately indicate spikes in temperature, as economist Mark J. Perry points out. Equally foolish are laws that criminalize rising prices, which accurately reflect spikes in demand or a plunge in supply.
To be sure, prices — unlike thermometer readings — are not objective scientific measurements. Some people are rapacious jerks willing to take advantage of others’ misfortunes. But that doesn’t change reality. Prices fluctuate in response to shifting circumstances, and letting them rise and fall freely is the single best method to prevent or mitigate scarcity, and to help communities recover from a calamity.
Amid the chaos of a hurricane or aftermath of an earthquake, no government official could possibly keep track of every factor bearing on the supply and demand of crucial goods and services. Imagine that Florida or South Carolina were to appoint “water czars,” whose job was to determine how much merchants were entitled to charge for bottled water as long as the emergency lasted. Consider everything such administrators would have to take into account:
The level of existing inventories. The availability (or non-availability) of bottled-water substitutes, such as tap water. The condition of the infrastructure needed to replenish supplies (e.g., bottling plants) and to bring them to disaster-battered communities (e.g., trucks and highways). The czars would have to assess the public’s heightened anxiety and calculate whether such anxiety was making consumers more intent on stockpiling water supplies — or more willing to share them. They would have to set the price low enough that families could afford to buy the water they needed, but not so low that vendors’ stocks would be cleaned out by selfish customers muscling their way to the head of the line. The price would also have to be high enough to give out-of-town suppliers an incentive to speed more water to the stricken area — but not so high as to needlessly raise the risk of dehydration and other medical harm.
Not even the wisest czar would get the price of bottled water right.
What is true of water is true of every other commodity, and every other circumstance. Only the free movement of prices, undistorted by arbitrary caps, directs supplies to where they’re needed most, without the corruption and queues that inevitably result from price controls and rationing. That isn’t “gouging,” it’s the way healthy markets have always worked. And it’s the quickest way, hands down, to get back to normal after a crisis.