In Defense of Price Gouging:

As Todd notes, the state of Florida is stepping up its misguided efforts to combat "price-gouging" in anticipation of Tropical Storm Fay. Unfortunately, this issue tends to come up anytime there is a hurricane or other natural disaster.

I was going to write a post about how harmful anti-price gouging laws are and why they actually end up exacerbating the shortages of scarce goods that they seek to alleviate. But economist Glen Whitman said all that needs to be said in this excellent 2003 post, written on the occasion of a previous Florida hurricane:

[H]igher prices induce suppliers to bring more of the scarce good – generators, batteries, flashlights, etc. – to market. Tyler [Cowen] responds by pointing out that, in the short run, the supply is fixed – but then he immediately offers the obvious counterpoint, which is that “in the long run the economy will stand readier with emergency flashlights.” Exactly so, and this seems to me a decisive argument. In order to stock generators and such, shop owners have to take up valuable shelf space that could have been used for other items. The added profit they can reap during times of crisis is the financial reward that compensates them for making sacrifices during ordinary periods. A policy that clamps down on “gouging” during a crisis makes it less likely that necessary items will be available during the next crisis. Also, . . . the higher prices attract suppliers in non-crisis regions to transport their goods to the region where they’re needed most.

I hope that lawmakers and voters will come to understand these realities, and repeal anti-price gouging laws before the next big natural disaster occurs. But I'm not optimistic about it.

Related Posts (on one page):

  1. In Defense of Price Gouging:
  2. Gasoline "Price-Gouging":