Issues & Insights

‘Price Gouging,’ Hurricane Dorian Victims’ Best Friend

When natural disasters threaten, governments are quick to roll out anti-price gouging laws. Josh Stein, the Democratic attorney general in North Carolina, which might take a hit from Hurricane Dorian, has already warned business that if they take “advantage of this storm” he will “hold them accountable.” He’ll be praised for protecting consumers when he should instead be held responsible for hurting them.

Even the Republicans, who should know better, are all in on anti-price gouging laws. Florida Attorney General Ashley Moody has issued a warning similar to Stein’s, while Georgia Gov. Brian Kemp has “enacted price gouging controls” in a dozen counties near the coast. South Carolina Gov. Henry McMaster has done the same for the entire state.

There is nothing humane about adopting price ceilings during times of disaster. When anti-price gouging laws are in effect, rather than protecting consumers, they ensure shortages of the goods that the victims of Hurricane Dorian need the most.

“Anti-price gouging laws are really ‘pro-shortage’ laws,” says economist Mark J. Perry.

Prices are more than a number attached to the things we buy and sell. They are signals. If prices are allowed to increase naturally, say for plywood, bottled water, gasoline, chain saws, flashlights, and other goods needed when disasters hit, that sends the message that more of those goods are needed in the stricken areas.

But when a politically driven ceiling is applied by government, those goods are quickly bought up, leaving many customers without the items they need to protect themselves and later to recover in the aftermath.

To illustrate how insidious anti-price gouging laws are, the story of John Shepperson, whose experience should be taught in every introductory high school and college economics class, stands in stark relief. The students studying his plight would wonder just what country this man was in. They should be shocked to find out it was America.

In 2005, Shepperson, bought 19 generators at $500 each, loaded them on a rental truck, took time off from work, and drove 600 miles from his home in Kentucky to Mississippi, where the victims of Hurricane Katrina were in urgent need of electricity. According to Perry, “John offered to sell his generators at twice the price he paid, to help cover his costs and make a profit.” But rather than allow Shepperson to provide an in-demand product to willing buyers, the government arrested him. Shepperson was held for four days.

Meanwhile, the generators were seized by the government, says Perry, and “never made it to consumers with urgent needs who desperately wanted to buy them.”

The risk of being arrested for attempting to carry on free-enterprise commerce is a strong disincentive for entrepreneurs who would rush scarce goods to disaster zones.

At the same time entrepreneurs are vilified for satisfying consumer demand, unionized utility workers are free to enjoy their “hurricane payday.”

“I’ll probably make 30 grand this month,” journeyman Nick Chilelli told Reuters a couple of years ago after he drove a truck 18 hours from Cincinnati to Florida to reconnect power for those who lost it during Hurricane Irma. “Everybody out here is killing it.”

According to Reuters, “the utility repair workers typically make about $50 an hour, which jumps to $75 for overtime and $100 on Sundays.” That’s not price gouging?

Of course those workers deserve to earn what the market pays. But why are they treated differently than entrepreneurs who would gladly truck a surplus of the goods that will quickly disappear from the local markets?

Author and reporter John Stossel says that Nobel Prize-winning economist Milton Friedman once told him that “gougers deserve a medal.” At the very least they deserve to be paid what the market will bear. Yes, in times of catastrophe, when shelves that once held necessary items are empty, the price to restock them can be quite high. The alternative though is that all but a few consumers go without. They should be the ones to decide if the prices are worth it, not elected officials who disregard the laws of economics.


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10 comments

    • Sad, but not shocking. The least informed people are those working in the bureaus and agencies of the federal government. They are the typical jack of all trades and masters of none.

    • It’s called compassion for evacuees. This is reality – not some aeticle in an Econ textbook.

  • Absolutely correct! Let buyers decide how much they are willing to pay and sellers decide how much they are willing to accept to acquire, stock, and move the goods. Anyone that doesn’t like the prices doesn’t have to pay the prices, he is free to drive 1,200 miles himself.

  • I believe this anti-gouging obsession started with Hurricane Andrew. Florida officials warned “gougers” to stay away, while complaining that the federal government wasn’t helping people.

  • “If prices are allowed to increase naturally… for… goods needed when disasters hit, that sends the message that more of those goods are needed in the stricken areas.”

    I would agree with this assertion only if the sole cue taken during a natural disaster by supply chain managers was market demand. However, hardware and grocery merchants typically ship extra stock to the affected area before and after an event like this. They don’t need a price signal before doing so because common sense tells them there will be increased demand for certain products.

    “There is nothing humane about adopting price ceilings during times of disaster.”

    I can think of one humane thing: with a price ceiling in place, access to essential goods is no longer primarily determined by wealth. The rich don’t deserve to live any more than anyone else.

    “But when a politically driven ceiling is applied by government, those goods are quickly bought up, leaving many customers without the items they need to protect themselves and later to recover in the aftermath.”

    Another way to look at it is that the entire available supply has been distributed to consumers, and there are no idle resources on store shelves. The consumers that missed out on the goods are the ones that did not buy quickly enough, rather than the ones that are less wealthy than average.

    Finally, imagine this scenario: In the aftermath of a natural disaster, during which no price ceilings were set and no anti-gouging laws in place, you (a relatively wealthy person in your area) need some bottled water and other essentials from the grocery store. You arrive to find a crowd outside the store comprised of people that can usually afford bottled water easily, but cannot afford the 1000% increase the grocery store has determined is proper based on their supply levels and the market demand. You can afford this price (barely). The police are too busy to have a significant presence at the grocery store, and you are not wealthy enough to afford a private security team. What do you think are your odds of making it from the store to your car with your case of very expensive bottled water, through a desperate crowd of people who can see the water on the store shelf and in your hands, but can’t pay for it, and who expect to suffer or die because of the lack of water?

    I would argue that we’re all safer, and there is less unrest and looting, with the price controls in place and a first-come, first-serve approach to resource availability. I believe the market rules should be adjusted in times of disaster to assure maximum distribution of necessary resources, even at the expense of the natural increase in profit margin that would be imposed during other similar demand spikes. Anti-gouging laws may be bad for retailers and represent interference in a free market, but that’s offset by the benefit of increased safety for all citizens in the affected area.

    • If price controls are so great, why limit them to times of disaster? You know, just like the Soviet Union did. All those food lines in Moscow, year after year, decade after decade, were just coincidence, right? The shortages had nothing to do with the price controls, right?

      • Why not just limit price controls to times of disaster, then? Isn’t that the topic of discussion for this article? I didn’t and wouldn’t argue for a Soviet-style market. It’s entirely reasonable to adjust policy / behavior based on circumstances. If I drench my house in water when it’s on fire, I’m smart. If I do that “year after year, decade after decade” no matter the temperature of my house, I’m an idiot. Drench/price control when there’s a fire/disaster, and don’t when there’s not.

  • There would be no need for price gouging or price gouging control if people would be responsible and prepare long in advance for predictable and naturally occurring natural disasters.

  • Whatever anyone may think – it’s against Florida law:
    Florida Statute 501.160 states that during a state of emergency, it is unlawful to sell, lease, offer to sell, or offer for lease essential commodities, dwelling units, or self-storage facilities for an amount that grossly exceeds the average price for that commodity during the 30 days before the declaration of the state of emergency, unless the seller can justify the price by showing increases in its prices or market trends. Examples of necessary commodities are food, ice, gas, and lumber.

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