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It’s Hurricane Season, Which Means Anti-Gouging Laws

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With the onslaught of Hurricane Florence, the anti-gouging snitchers and enforcers are surfacing, just as they do every hurricane season. According to a news story on Fox5ny.com, the North Carolina attorney general’s office has received 500 reports of price-gouging. The article even features a telephone number that people who wish to report price gougers can call: 1-877-5-NO-SCAM.

North Carolina Attorney General Josh Stein stated, “My office is here to protect North Carolinians from scams and frauds. This is true all the time — but especially during severe weather. It is against the law to charge an excessive price during a state of emergency. If you see business taking advantage of this storm, please let my office know so we can hold them accountable.”

Stein’s enforcers have already initiated investigations of gasoline stations. Hotels and retail establishments that sell essentials like water are sure to follow. Remedies include direct orders to stop the high pricing, seeking refunds for consumers, and civil penalties.

First of all, Stein is entirely off base in conflating fraud with price-gouging. They are two completely separate concepts. One violates the rights of other people. The other doesn’t.

Fraud involves the intentional misrepresentation of a material fact. For example, if I sell you a bottle of water that says “One liter” on it when in actuality it has .75 liters of water in it, that’s fraud. That would be a scam.

When it comes to the crime of “price-gouging,” however, there is no misrepresentation whatsoever. The seller simply changes the price of a bottle of water from $2 to $15. No fraud. No scam. Just selling what belongs to him at a higher price than before.

In fact, that’s the first and foremost thing to consider in all this: that the bottle of water belongs to the person who owns it. It is his. He bought and paid for it. It doesn’t belong to the state, to society, or to anyone else. It is the private property of the owner.

Ownership of an item necessarily entails doing whatever the owner wants to do with it. Let’s assume that a person in a hurricane has purchased 1,000 bottles of water and stored them in his house. Suddenly everyone is badly in need of water. Does anyone have the right to forcibly enter the man’s house and take his water from him? Does the state have the authority to do so? Of course not. The bottles belong to the owner. He had the smarts to buy them and store them. If he chooses to keep them for himself and his family, that is his right under principles of private property. By the same token, he’s free to share them with others but cannot legitimately be forced to do so.

Private property is the foundation of a free society. If the government or others wield the authority to take people’s property from them, there is no way that that can be considered a genuinely free society.

If an owner has the right not to sell his property, he also has the right to sell his property. But the terms on which he offers to sell his property are entirely his. That’s what private ownership also entails — the right to set the selling price for things you own. By the same token, people have the right not to buy. If a sale is going to take place, the seller might have to lower his price and the buyer might have to raise the price he is willing to pay. That’s what a free market is all about.

Those principles don’t change in a hurricane. In fact, they become even more important. While the North Carolina attorney general and state lawmakers might think they are helping people by enacting and enforcing an anti-gouging law, the truth is that they are actually doing everyone great harm.

When the hurricane hits, suddenly everything is in extremely short supply. Sellers realize that suddenly demand has soared — people are lining up to buy bottles of water. That causes them to raise their prices because they suddenly find themselves with the unforeseen opportunity to make some unexpected money. That’s why stores are in business — to make money. If a store owner finds himself with 100 bottles of water that he was previously selling for $2 and realizes that he’s going to quickly run out to a suddenly high demand, it is in his interest to charge $15 a bottle.

On the surface of things, it appears that the store owner is being greedy and selfish, which might well be the case. But that’s beside the point. The point is that he is actually doing everyone a big service by immediately raising his prices.

First, the $15 price tells consumers that bottled water is in extremely short supply. Consumers are being told by the high price that they need to conserve, badly and quickly. No unnecessary use of water. Few people are going to be wasting water when it’s costing $15 a bottle.

Second, the $15 price tells suppliers and entrepreneurs to start bringing water into the hurricane area. They see an opportunity to make a nice profit, which induces them to take risks to cross flooded areas to bring water to people. Are they doing it out of the goodness of their heart? Who cares? What matters is that they are serving people by bringing them water. As the supplies increase, the price starts to go down. Once the emergency is over, the prices return to normal levels.

Now, let’s assume that someone snitches on the owner of the bottled water and some nearby cop orders him to return to the $2 price for the water. That isn’t going to increase the seller’s supply of bottled water. He still has the same 100 bottles of water to sell. It simply means that everyone who is in line first is going to walk out with those 100 bottles. In fact, the first 5 customers might buy them all. Given that they have paid only $2 per bottle, they are unlikely to take care of them as carefully as if they had paid $15 an bottle. Moreover, the number of people who are willing to risk their well-being by bringing in bottles of water that can be sold for only $2 is going to be much less than if they could sell it for $15 a bottle.

When it comes to laws like price-gouging, good intentions are irrelevant. What matters is the actual consequences of the law. And the consequences of price-gouging laws are always disastrous.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.