While the experts are unable to predict where Hurricane Dorian will hit, it is not difficult to issue another prediction that is 99 percent certain to become true: Once Dorian makes landfall, public officials will be enforcing anti-gouging laws.
Anti-gouging laws prohibit sellers of certain important items from significantly raising their prices in emergency conditions. The goal is to help people in the affected area to be able to purchase essential items at reasonable prices.
As with so many other governmental interventions into economic activity, anti-gouging laws only make the situation worse.
During hurricanes and other natural disasters, there are items that are in scarce supply. That’s just the way it is. There is nothing public officials can do to increase that supply.
Thus, the question becomes: How should those particular items be allocated? There are only two ways: One is by governmental decree and the other is through the price system.
Let’s say that there are 100 bags of ice in the affected area. Before the hurricane, they were selling for $10 a bag. Suddenly the hurricane hits and people are clamoring for ice.
The public officials’ response is the bad one. Attempting to protect consumers from “price gouging,” they order the ice seller to keep his price at $10 per bag. if he refuses to do so, they threaten him with jail and fines, even though it’s his ice.
That means that those 100 bags are going to be sold out immediately, perhaps to the first customer in line. Thus, the goal of trying to help most consumers goes unfulfilled because the ice is quickly sold to the first customers, who might well waste some of the ice, given the cheap price they paid for it.
Moreover, there is no incentive for people around the country to ship ice into the affected area. Since they can make just as much money selling ice elsewhere, there is no reason to go to the trouble and possible danger of getting ice to the hurricane area.
The other alternative — the good one — is to let the price system function freely. Since ice is now extremely scarce, the owner zooms his price up to $100 a bag. For public officials, that seems like a heartless act. Actually, it’s the best thing that can happen. The extremely high price immediately sends a signal to consumers: “Conserve!” Most people aren’t gong to buy bags of ice for $100. They are going to purchase partial bags or go into together with other people to purchase a bag. Since it is so expensive, no one is going to waste a bit of ice. Thus, the high price is simply a way to allocate a fixed supply of a scarce item. The high price essentially sends the following message to consumers: “There isn’t much of this available. So use it wisely and prudently.”
Equally important, the high price sends a message to suppliers around the country: “There is a big profit opportunity here. You can send your ice to other areas around the country that are selling it for $10 a bag. Or you can send it over here where it’s going for $100 a bag.” As suppliers ship bags of ice into the affected area to make a big profit, the price starts to go down owing to the increase in supply, thereby enabling more people to buy it.
Thus the price system is the free-market’s information-transmission device that tells consumers and suppliers about market conditions. Moreover, not only does a free market harmonize people’s interests, it also protects the principle of private ownership of property that is the foundation of a free society.
By prohibiting an owner from selling his property at whatever price he wishes, anti-gouging laws destroy the principle of private property. They also worsen adverse conditions during natural disasters. They should be abolished before they do even more harm.