Just as certain things are impossible in mathematics, accounting, chemistry, and physics, so also in economics.
Adding two even numbers together can never result in an odd number. Assets cannot but equal liabilities plus equities. Oil and water do not mix. Atmospheric pressure does not increase with an increase in height. When the price of a good rises, the amount demanded of the good will not rise.
Another impossibility in economics is a seller’s overcharging or ripping off a buyer by means of price gouging. Yet there is a tremendous amount of resistance to such a statement — especially in my state of Florida.
I have seen a number of hurricanes threaten the Florida coast or make landfall during my many years of living in Florida. Without fail, hundreds of cases of price gouging of water, ice, plywood, gasoline, and batteries are reported to the Florida Attorney General’s office when a hurricane approaches the state or after it comes ashore.
The coronavirus pandemic is the mother of all hurricanes when it comes to price-gouging complaints.
The headline in a recent Orlando Sentinel article read, “Florida fights coronavirus price gouging: 10-pack of toilet paper for $90 and $90 to ship it.”
“It absolutely pisses me off,” said a resident of Kissimmee, south of Orlando. He reported the inflated price of a 10-pack of toilet paper that was offered for sale by an Amazon seller to the Florida Attorney General’s office. “I’m going to do what I can and report it as I can see it,” the man said. “There’s a lot more than just what I’m finding. That’s the tip of the iceberg.” He also reported an “online app selling Clorox wipes for what he said was 15 times what they normally cost.”
Like the other states, Florida has a price-gouging law that makes it illegal for retailers to raise prices during a state of emergency. According to Florida Statutes, Title XXXIII,
Upon a declaration of a state of emergency by the Governor, it is unlawful and a violation of s. 501.204 for a person or her or his agent or employee to rent or sell or offer to rent or sell at an unconscionable price within the area for which the state of emergency is declared, any essential commodity including, but not limited to, supplies, services, provisions, or equipment that is necessary for consumption or use as a direct result of the emergency.
A price is “unconscionable” if the “amount charged” represents “a gross disparity” between “the price of the commodity” and “the average price at which that commodity” was sold or offered for sale “in the usual course of business during the 30 days immediately prior to a declaration of a state of emergency” or else “the amount charged grossly exceeds the average price at which the same or similar commodity was readily obtainable in the trade area during the 30 days immediately prior to a declaration of a state of emergency.”
A few weeks ago, Florida Attorney General Ashley Moody activated a “state price gouging hotline” for the public to report price gouging. “Our first goal is to deter price gouging in real-time so consumers can afford the essential commodities they need to stay healthy as we fight the COVID-19 pandemic together,” Moody said in a statement. “We remain committed to holding responsible anyone who would exploit this state of emergency to rip off Floridians.”
In the past three weeks, “about 1,200 consumer complaints have come in about price-gouging on face masks, hand sanitizer, cleaning supplies and other items during the pandemic.” The Attorney General’s office has “issued 56 subpoenas” and “deactivated more than 100 posts by working with online platforms where posts with ‘outrageous prices’ first appeared.”
Price gouging is an economic impossibility.
Let me put it as simply as I can.
Every commercial transaction must involve a willing seller and a willing buyer or the transaction will never take place. Either the seller announces the price of a commodity that he has for sale or a buyer announces the price he is willing pay for a commodity. If the buyer doesn’t like the price set by the seller, he can try to negotiate; if the buyer still doesn’t like the price set by the seller, then he won’t purchase the good. If the seller doesn’t like the price offered by the buyer, then he can try to negotiate; if the seller still doesn’t like the price offered by the buyer, then he won’t sell the good. If the buyer is unwilling to buy or the seller is unwilling to sell, then no transaction takes place.
It is that simple.
That doesn’t mean that there is never seller’s remorse or buyer’s remorse. A seller may regret selling a good for a particular price just as a buyer may regret buying a good for a particular price. A seller may find that another buyer was willing to pay a higher price. And a buyer may discover that another seller was willing to accept a lower price.
But just as sellers have no right to use the power of government to force buyers to purchase a good at a high, extravagant, inflated, or unconscionable price, so buyers have no right to use the power of government to force sellers to offer a good at a reasonable, equitable, market, previous, or historical price.
Not in a free society.
A voluntary exchange in a free market between a willing seller and a willing buyer always results in a win-win situation for both parties. Otherwise no transaction will take place. A fair and just price is the price voluntarily agreed upon by a buyer and a seller.
No one seems to mind when a seller has to heavily discount some of his merchandise to move it off his shelves or racks. But let a seller raise his prices during a crisis, a panic, or a disaster and people scream “price gouging” and look to the government to intervene.
That, of course, doesn’t mean that it is moral or ethical to raise prices on “essential” goods during a crisis, a panic, or a disaster. That determination is between a seller and his conscience or religion. It just means that, as far as the law is concerned, there should be nothing criminal about it.
Price gouging is not the only economic impossibility. Two others are taking usury and underpaying workers.
Governments make an artificial distinction between interest and usury. Interest is said to be “usurious” when it is “exorbitant” or simply “too high.” Again, a fair and just rate of interest is the rate voluntarily agreed upon by a lender and a borrower. If the rate is too low, then the lender won’t lend. If the rate is too high, then the borrower won’t borrow.
Progressives maintain that businesses are underpaying their workers if they are not making at least $15 an hour. But again, a fair and just wage is the amount voluntarily agreed upon by an employer and an employee. If the wage is too high, then the employer won’t employ. If the wage is too low, then the employee won’t work.
Just like price gouging, taking usury and underpaying workers are economic impossibilities.