If it’s hurricane time, it’s also time for the war on price gougers. Hurricane Harvey is certainly no exception.
When a Best Buy in Houston began selling 24-packs of Dasani water for $42.96 and 12-packs of Smartwater for $29.98, the masses went ballistic, as did Texas officials. According to Grit Post, Houstonian John McGovern, who provided Grid Post with a photo of the Best Buy water prices, exclaimed,
It’s taking advantage of people in need to make easy money playing off fear. Best Buy doesn’t need to sell water at $43 a case. They don’t need the money. I understand the law of supply and demand and the cost and availability of goods being shipped to an area once a disaster hits. This was before there was a shortage. This is pure greed.
Another Houstonian, Patricia Isaac, provided Grit Post with a photo of bottled water being sold at a Kroger for $13.99 when the usual price is around $4.99 or $5.99.
By Tuesday, the Texas Attorney General’s office has received 550 complaints and 225 emails regarding price gouging. Texas Attorney General Ken Paxton told Fox News that price gougers who gouge people will be fined $20,000, unless the victim is a senior citizen, in which case the fine will be raised to $250,000.
Kayleigh Lovvorn, a media relations official for the Texas Attorney General’s office, said, “Unfortunately, price gouging like this can be common following natural disasters.”
Well, doh! I wonder why that is!
What these people do not understand is that the natural law of supply and demand is not suspended simply because a disaster hits. It remains as operative in a hurricane as the law of gravity does.
In fact, what such people don’t realize is that the so-called price gouger is doing everyone a service with the extraordinarily high price that he is setting for his products, including bottled water.
First of all, let’s keep in mind that all these products are private property. That is, they belong to the owner, not the community and not the government. Under principles of private property, the owner can do whatever he wants with what rightfully belongs to him. If he wants to keep it instead of selling it or giving it away, that’s his decision. No one can rightfully force him to sell or donate what belongs to him. If he decides to sell it, he is free to sell at whatever price he wants. By the same token, no one is forced to buy from him. That’s what a private-property system and a free-market system are all about.
If the owner decides to sell, the law of supply and demand will determine the price at which the item is sold and bought. If supply is scarce or if demand is high, prices will tend to be higher. If supply is plentiful and demand low, prices will tend to be lower.
In a hurricane, things like bottled water or ice will naturally soar in price. That’s because supply of such items is suddenly scarce and demand suddenly high.
The extremely high price is a good thing, not a bad thing. Why? Because the enormously high price sends critically important signals to both consumers and entrepreneurs.
The signal to consumers is: Conserve! Be cautious on how you use this water. Don’t waste it. There is a very small supply of it.
The signal to entrepreneurs is: Bring bottled water into this area. It is badly needed. It is in extremely short supply.
Why would entrepreneurs pay attention to such a high price signal? Because high prices mean high profits to entrepreneurs. Some of them are willing to undergo the hazards of getting bottled water into Houston because they stand to make a hefty profit for their risk and toil.
Then, as increased supplies of bottled water get into Houston, the price starts falling, telling consumers that the need for extreme caution is diminishing and telling entrepreneurs that the need for bottled water is becoming less urgent.
Now, think about what happens under a government’s anti-gouging law. The limited supply of bottled water in Houston after the hurricane strikes isn’t changed. It remains the same, only now the seller is required to sell his product at the pre-crisis price, which is significantly lower than the price dictated by the law of supply and demand. That lower price falsely tells consumers: You don’t need to conserve because there is plenty of bottled water here in Houston. It also tells entrepreneurs: You don’t need to bring bottled water into Houston and you’re not going to make a big profit if you do.
The stores quickly sell out of the available bottled water, which is quickly consumed, perhaps even wasted. And it’s all because people think that the government can and should repeal the law of supply and demand during hurricanes and other natural disasters.