Price Gouging: Inexcusable Greed or Capitalism Working?

New Jersey’s Attorney General is warning state residents of price gouging today, Save Jerseyans, as this late-winter Nor’easter pounds our state. There are laws on the books (which they sometimes enforce).

But let’s never forget the #1 Save Jersey rule: NEVER accept a bad or questionable premise at face value. That’s lazy thinking and you’re better than that because you’re reading this site’s stuff!

Should “price-gouging” be illegal? Is price gouging TRULY evil?

Or just smart business? Or perhaps even a necessary evil which does a lot of good when disaster strikes?

Forget what you think you know. Renowned conservative economist Walter E. Williams said it best in a written reprimand of Chris Christie back in the immediate aftermath of Hurricane Sandy:

New Jersey Gov. Chris Christie and others condemn this as price gouging, but I ask you: Which is preferable for a family seeking shelter — a room available at $250 or a room unavailable at the pre-hurricane price of $125? It’s not the intention of the motel owner to make a room available for another family. He just sees an opportunity to earn more money. It was not the intention of the family of four who made do with just one room to make a room available for another evacuating family. They are just trying to save money.

Even though it was no one’s intention to make that room available, the room was made available as if intended. That’s the unappreciated benefit of freely fluctuating prices. They get people to do voluntarily what’s in the social interest — conserve on goods and services that have become scarce.”

Said another way: the market place works.

A few examples….

  • Profits will eventually encourage competition and create downward pressure on prices;
  • Scarcity encourages conservation (i.e. smarter planning) and pooling of resources among the general population;
  • Meeting Demand with Supply: Businesses have an incentive to proactively prepare well for storms/disasters in advance;
  • Prices that are TOO below what supply and demand dictate encourage frivolous purchases (e.g. someone hoarding gas), creating artificial scarcity for those who really need the fungible good;
  • Needed products are worth more because the “good” derived from them is greater (you’re getting a bigger bang for your buck); and

All of this is really just another way of saying, as Professor Williams noted, how “[d]estruction does not create wealth.”

The market is smarter than the government, even in a crisis!

So is something “evil” transpiring when a consumer pays slightly-more expensive prices for gas or rock salt when he or she waited until the snows were already coming down? Or a process – that works – playing out? And does government actually make the situation worse when it tries to intercede (ask a Sandy victim)?

Food for thought for your snow day; you’re welcome as always….

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