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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