In a Hurricane, Price Gouging is the High Ground

After a natural disaster like Hurricane Harvey, disaster victims must contend with days or weeks of scare water, food, power, and supplies. A lot of attention is given to the prices of these goods, but the most desperate problem is not price, it's scarcity. It makes absolutely no difference whether a bottle of water costs 5¢ or $2 when there's no water to sell.

To relieve the scarcity, governments and charities take action, but disaster victims still depend heavily on strangers in neighboring counties or states to acquire and take in desperately needed supplies. Why would strangers do that? "Compassion," sure, but there's never enough compassion and personal wealth to adequately cope with large-scale disasters. Is there anything else, then, that reliably incentivizes people from neighboring regions to truck in goods to where they're so desperately needed? Yes: profits.

Imagine Henry, who lives in west Texas with his family of four. Despite his well-wishing, he can't afford to buy and transport a generator to the victims. What else might he do? He could buy twenty generators at, say, $800 each, then rent a U-Haul and drive them to flood victims where he'll sell them for $1,500 each. Outrageous? Well, let's look at the effect. Will Henry find people that willingly pay $1,500? Yes. Will those flood victims be better off for it? Yes, as demonstrated by their voluntary choice to pay the high price. Will Henry be better off? Yes, he'll make a handsome profit. How about the store from which Henry bought the generators? Yes, they obviously benefit, too, as will the manufacturer of the generators and the store that rents U-Hauls. In other words, everybody wins through voluntary action and cooperation spurred by financial incentive. It's economic and social harmony in the midst of tragedy and chaos.

If you condemn the profit motive of the people bringing in the goods, you risk losing sight of what the "greed" actually accomplishes, which is the uncoerced transfer of resources (money and goods) to where they're most valued, making everybody better off. And as long as the financial incentive exists, there will be an army of Henrys willing to truck in supplies, and more Henrys means more competition, lower prices, and quicker relief for disaster victims.

Unfortunately, it doesn’t work this way in about 35 states because of "anti-price gouging" laws. In these states, Henry would be thrown in jail and his generators confiscated, denying disaster victims access to the generators. And the injustice wouldn't end there because when a government eliminates the financial incentive for strangers to truck in goods, the flow of those goods slows or stops, prolonging the suffering of disaster victims at large.

So here is the lesson to be learned about what economists call "price controls": when a government moralizes by limiting the price of a good, the real-world effect is a more limited supply of that good. And correspondingly, when governments criminalize voluntary transactions between disaster victims and strangers willing to supply relief goods, it only prolongs overall hurt and suffering.

Market prices must be the result of voluntary, peaceful transactions—not governments dictate—as this is the best way to encourage conservation of scare resources and to direct the movement of goods to where they’re most valued. If you live in an area prone to natural disasters, do you and your fellow residents a favor by petitioning your local or state government to abolish any and all anti-price gouging laws. Be a voice of economic freedom and preemptively fight future suffering.

ArticleMichael Clark