1. Back in 2008, economist Art Carden wrote “As surely as summer follows spring, natural disasters are followed by saber rattling about ‘price gouging,’ which is usually defined very lucidly and clearly as an ‘unconscionable’ increase in the price of a necessity. These tend to follow a formula, so I thought that instead of writing a new article discussing the unintended consequences of every price-gouging law that goes into effect after a natural disaster, it would be useful to write a universal, fill-in-the-blank article discussing the economics of price-gouging laws.”
That universal fill-in-the blank form appears below for the most recent disaster, Hurricane Sandy, using information from this news report about New Jersey
Fearing increases in the prices of basic items as a result of (disaster: HURRICANE SANDY), officials in (state or municipality: NEW JERSEY) have declared a state of emergency whereby restrictions on “price gouging” are now in effect. According to (politician or law enforcement official: GOVERNOR CHRIS CHRISTIE), the law is designed to protect innocent consumers from “unconscionable” increases in the prices of food, gasoline, ice, electric generators, and home-repair services.
Here’s an excerpt from the news article:
Gov. Chris Christie issued a forceful reminder to merchants: Price gouging during a state of emergency is illegal; will be investigated by the Attorney General and Division of Consumer Affairs; and will result in significant penalties.
“During emergencies, New Jerseyans should look out for each other — not seek to take advantage of each other,” the governor said. “The State Division of Consumer Affairs will look closely at any and all complaints about alleged price gouging. Anyone found to have violated the law will face significant penalties.”
2. The city of Washington, D.C. took a much different approach when Washington Mayor Vincent Gray legally sanctioned “price gouging” on Monday by authorizing an emergency surcharge of $15 for taxi cab rides originating in the District of Columbia (in addition to the normal fare).
3. Following Hurricane Charley in 2004 and complaints about price gouging from politicians and newscasters, Florida journalist David Brown wrote an article “Price Gouging Saves Lives in a Hurricane,” where he commented that “One item in very short supply among the finger-wagging newscasters and public officials [about "price gouging"] here in central Florida is an understanding of elementary economics. Maybe FEMA can fly in a few crates of Henry Hazlitt’s Economics in One Lesson and drop them on the newscasters and public officials.”
MP: Kudos to the District of Columbia and Mayor Gray for apparently having some understanding of basic economics and actually sanctioning “price gouging” for taxis following Hurricane Sandy. Basic economics tells us that higher prices following a natural disaster help to allocate scarce resources more efficiently than legally preventing prices from rising to a market-clearing level. If you want to guarantee that there will be critical shortages of essential goods following a natural disaster, the most effective way to achieve that outcome is to have laws that artificially prevent prices from rising to reflect the true, underlying market conditions.
By making higher, but accurate, market-based prices illegal in New Jersey following Hurricane Sandy, Governor Christie’s “command and control” Soviet-style approach to prices will delay the recovery and guarantee shortages of the goods most needed. Can FEMA fly some crates of “Economics of One Lesson” to New Jersey and make sure the governor gets a copy?