Those who oppose anti-price-gouging laws argue that market prices should prevail both before and after a natural disaster like Hurricane Harvey because those market prices will do a better job of allocating scarce resources than artificially-low, government mandated prices. There is no obligation for those opposing price-ceiling laws to personally suggest what the prices will be, since impersonal market forces will determine prices, which will dynamically change and adjust constantly to the changing market condition.
But it seems like there is an obligation for those who support anti-price-gouging laws to explain to us when a price goes from being an “acceptable” price to being an illegal price that “gouges” the public and motivates legal prosecution of the “price gouging” business or individual. According to Texas law, a business or individual is guilty of “price gouging” when the price is “excessive or exorbitant.” Of course, I guess the Texas Attorney General is the “decider” about when a price “gouges” but what advice would supporters of anti-price-gouging laws give to the attorney general?
Let’s use the actual example of John Shepperson of Kentucky, who in 2005 took time away from his normal job to buy 19 generators, rent a U-Haul truck, and drive it 600 miles to the Katrina-damaged area of Mississippi. John offered to sell his generators at twice the price he paid, to help cover his costs and make a profit. Instead his generators were confiscated, Shepperson was arrested for price gouging, held by police for four days, and the generators kept in police custody. They never made it to consumers with urgent needs who desperately wanted to buy them.
Let’s assume that John Shepperson paid $500 at his local Home Depot for each generator. He had to pay $9,500 upfront (or charge that amount on a credit card), rent the U-Haul, drive 600 miles, find a place to stay while traveling, etc.
Q: Since charging $1,000 per generator was considered to be “price gouging” by the local authorities in Mississippi, what price would have been acceptable to those authorities and to supporters of anti-price-gouging laws? $600, even though that might not have covered all of John’s costs and expenses? $700? $800?
Further, John Shepperson invested a lot of money and took a lot of risks in his entrepreneurial venture, so that should be carefully considered. For example, what if he drove to Mississippi and found out that he wasn’t able to sell all 19 generators, either because there wasn’t enough demand, or he wasn’t able to access all of the willing customers for generators because the roads were impassable due to flooding, etc. What if ten other entrepreneurs got to the affected areas and satisfied all of the demand for generators, leaving John with no customers. Or what if the competition among sellers was so intense that the market price for generators was only $600 and John was barely able to even cover all of his costs?
So who decides what price John Shepperson would have been allowed to charge for generators, and what specifically is that decision based on?
Bottom Line: While it’s easy for “armchair observers” to criticize
price-gougers entrepreneurs like John Shepperson for “price gouging,” it’s much more difficult for those who are “long on indignation and short on economics” to convincingly explain to us when a “fair” legal price crosses some arbitrary, squishy, fuzzy line and becomes illegal “gouging.” Are there any supporters of price gouging laws who are up to the challenge? Apply your analysis to John Shepperson, and tell us the maximum legal price he should have been allowed to charge before he was guilty of “gouging.” Explain your analysis in detail.
Prediction: Nobody can successfully and convincingly meet the challenge.