Imagine a Category 5 Hurricane Hurricane barreling towards you. Imagine being worried that the gas will be ten times as expensive as it usually is because last you heard anti-price gouging laws had not been implemented. You arrive to the gas station and to your relief, the price is almost the same as it was a week ago.
Although you had not heard about it, benevolent politicians enacted price gouging laws. You roll up to the pump but your heart sinks. It's out. They are all out. And not just of gas, the gas station is out of every supply you might need.
It turns out the economy is not governed by emotions or intentions. The economy is governed by supply and demand.
We see this very phenomenon happening today as Hurricane Irma approaches the Florida coast. Airline tickets out of Miami to New York have gone from $358 to $3578. The hot takes on this are universal in their condemnation of the blood drinking capitalists.
But, at the same time as they eviscerate the airlines for being “greedy” they do not take into account the economics of the situation. Because of the approaching hurricane, demand for airline tickets is increasing.
As price theory tells us, this increase in demand will increase prices for airline tickets which in turn will serve two roles. To discourage people who value the airline tickets the least from buying them and to increase the flights out of Miami.
Sadly, the general public does not understand price theory and politicians respond to the political winds and not to what is right. Instead of allowing prices to adjust, anti-price gouging laws would ban the adjustment or at least limit it.
So instead of the supply increasing and self-rationing effects incentivised by market forces, we get a situation where people are clamoring for more of a good than they otherwise would but no market forces are either stimulating more supply or discouraging demand.
Politicians doing the politically safe thing does not actually help Americans in need. In 2005, Hurricane Katrina devastated the gulf coast. At the same time, Kentuckian John Shepperson needed money but also wanted to help people in need. Shepperson bought nineteen generators, rented a U-Haul and six-hundred to Mississippi and sell those generators to people who needed him.
Although he was selling them at twice what he bought, he was providing nineteen more generators than affected residents would of had to access otherwise. They gladly bought them. Local law enforcement, enforcing Mississippi anti-price gouging laws, arrested Shepperson for helping others.
To add insult to injury, they kept the generators.
The choice consumers face after a disaster is simple. Expensive goods or no goods. Sadly our political discourse in disasters assumes the choice is different. Our discourse assumes a choice between expensive goods or goods at regular price.
When trying to escape the path of a hurricane, you might prefer gas at the regular price given a choice between risking your life and paying extra the choice is clear. It is not compassionate to ignore unintended consequences and let others suffer so you can feel like you did something. It is compassionate to allow the choice to exist.
Price gouging is often considered indefensible. In truth, it is anti-price gouging laws that are indefensible. As conservative and Nobel Laureate economist Milton Friedman put it, “the price gougers deserve a medal.”