Hurricane season is just beginning. The first time a hurricane makes landfall in the US, expect politicians and the media to denounce price gouging, establish hotlines for reporting violations and threaten offenders with dire consequences – this despite economists’ near unanimity that this practice is beneficial.
Market prices are determined by voluntary cooperation among people. Government prices are coercive and based on the naked police power of the state. Markets enforce themselves; government prices are enforced by men with guns.
Politicians are hypocritical. While they shamelessly denounce price gouging, they engage in the same practice. Prices at airports, turnpike rest stops and sporting venues – to name but a few – all are vastly inflated because government has a monopoly. Free market prices would be much lower at these places.
A poor ghetto kid risking his scarce capital to broker tickets outside a sporting event should be honored and encouraged – not called a scalper and treated like a criminal.
Americans understand and accept that prices for the same product fluctuate in different circumstances, such as hotel rooms in a college town for the weekend of a big football game. Yet if the price of the same hotel room rises due to an approaching hurricane, it somehow is condemned as gouging. I get it. People view a football game differently than a storm; however, in theory, there is no difference.
Market prices alleviate shortages by directing resources to where they are most needed. Government prices, such as rent control, result in scarcity, substandard housing and higher prices for units not subject to rent control. Market prices are non-political and foster civility. Government prices criminalize honest behavior, create black markets, incentivize illegal behavior and breed disrespect for the law.
Hurricanes and Generators
In a free market, entrepreneurs would buy and stock more generators in advance of a storm. Some may drive to other cities, at some peril, to buy generators to resell for what buyers are willing to pay. Some buyers may pay a lot if they stand to lose thousands of dollars of food in freezers or need to run vital medical equipment; others may just want the convenience of electricity. Market prices would mean those who stand to lose the most or have the greatest need would get generators.
Moreover, entrepreneurs bear the risk of getting stuck with unwanted generators if demand is insufficient or if the hurricane changes track or weakens. Soon after the storm passes, the price of generators reverts to the status quo ante.
Anti-gouging laws ensure that no one gets additional generators and they criminalize honest and economically desirable behavior.
With anti-gouging laws, no one gets added generators from entrepreneurial activity. In a free market, every decision and price is voluntary and non-coercive. With government prices, such as anti-gouging laws, everyone suffers. The intrepid entrepreneurs who supply extra generators are subject to vilification and arrest, while economically illiterate politicians and the media pander.
Hurricanes and Hotel Rooms
The situation with hotel rooms parallels that of generators. Again, price signals result in the most economically efficient allocation of hotel rooms. By adjusting prices when demand surges, consumers benefit. Higher prices result in the following, all of which result in more hotel rooms being available.
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People are incentivized to stay with family or friends instead of a hotel.
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Some would travel to more distant locations where rooms are cheaper.
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Families that may have taken 2 rooms decide to make do with 1 room.
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Some may decide to stay for fewer nights.
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The supply of rooms would be vastly increased, as higher prices incentivize local residents to rent out rooms – or even their entire house.
Hurricanes and Price Gouging
The price mechanism assures that more people will get more generators and hotel rooms. Far from being evil, higher prices enable the market to allocate scarce resources to the benefit of all consumers. Why should a storm be different than a football game – or for that matter than to Uber’s surge pricing?
There is no such thing as price gouging. Free market prices convey accurate and valuable information to guide consumers. Government prices such as rent control are dishonest and harm consumers. In which kind of society would you rather live, one based on voluntary cooperation of people in free markets, or one based on lies, coercion and enforced by men with guns?