For most economists, the workings of “price gouging” laws are simple and predictable. Binding price caps in emergencies create shortages on the most urgently needed goods and services during emergencies.
The recommended policy reform is simple, too: stop harming citizens when they can least afford it!
It would seem to be an open-and-shut case, a slam dunk for economics to inform the electorate and thus policymakers to avoid such folly. Remember the gasoline lines and natural gas shortages of the 1970s? Perhaps no simple event has convinced mainstream economists that price controls have bad consequences despite intention.
Defenders of economic liberty have an even easier argument: merchants ought to be free to ask what ever price they like for the goods and services they offer. Price gouging laws unjustly limit that freedom and government ought not to do that.…
[Ed. note: This post follows yesterday’s post by Donald Hertzmark challenging a call for federal price controls on energy.]
The spectacular problems that beset the Federal Emergency Management Agency (FEMA) after Hurricane Katrina have led analysts of weather emergencies to look elsewhere for leadership, or even evidence of competence.
Increasingly, that leadership has been found prominently in the private sector: among companies being recognized for their emergency response capabilities are big box retailers like Walmart and Home Depot and the regional restaurant chain Waffle House.
One reason that some government agencies may be failing is that their attention is directed to the wrong things. High on that list is policing against high prices during emergencies. Basic economic analysis finds that price gouging laws end up wasting state government resources and wasting consumers’ time during emergencies.…