Thank You for Price Gouging

I don't know what it will take for policymakers and voters to understand basic economics. It would help if reporters understood economics or at least bothered to call economists when covering stories that involve economic issues. For instance, the Maryland Attorney General is recommending that the legislature pass legislation making it a crime to charge high prices during emergencies. And not just during actual emergencies (like a tornado destroying Baltimore), but during any time-period in which there is an emergency somewhere else in the country. This, of course, is almost all the time; and the proposed law could end up harming consumers. Yet, in the media's coverage of the issue I have yet to see a single economist quoted, not even by the Washington Times.

[Attorney General] Curran, a Democrat, told leading state lawmakers that station owners and suppliers increased prices well above necessary [after Katrina]. He found no violation of Maryland law but recommended the state adopt measures to prevent price gouging in future crises.

"Many stations enjoyed dramatic increases in per-gallon profit margins," Mr. Curran told Senate President Thomas V. Mike Miller Jr., Calvert and Prince George's Democrat, and House Speaker Michael E. Busch, Anne Arundel Democrat. Profit margins were higher in early September than before the hurricane struck on Aug. 29, Mr. Curran said.

According to AAA statistics, average prices increased to $3.26 a gallon for regular unleaded gasoline in Maryland on Sept. 2, 53 cents more than the previous day.

...[under the proposed Maryland law] people who sell fuel, food, medical supplies, building materials and other key goods at prices more than 10 percent higher than rates in the two months before a declared emergency could face charges unless they could prove they were passing along price increases from suppliers. If convicted, retailers would face up to a year in jail and a $1,000 fine.

The Maryland Senate could vote on the legislation as soon as this week. Yep, it could soon become a crime in Maryland to offer something for sell at a price that bureaucrats don't like. And business owner could go to jail unless they prove themselves innocent. (Why waste time with the silly superstition that people are innocent until proven guilty?) Virginia has a similar law; and a Centreville gasoline station was recently prosecuted for charging up to $5.89 per gallon days after Katrina. Bureaucrats considered the price, which is comparable to what Europeans pay, "unconscionable". Yes, unconscionable. You know, like murder.

These price control laws raise numerous issues:

First, it shouldn't be a crime to offer something for sell at a certain price. Ever. As Milton Friedman argues in Free to Choose, price controls are an assault on free speech and should be prohibited under the First Amendment.

Secondly, there are many reasons to charge higher prices during emergencies that have nothing to do with increased costs from suppliers. Prices are set by supply and demand. If people in Maryland storm on gas stations increasing demand, prices will rise - even if the costs to the sellers stay the same. And prices should rise. Otherwise gas stations will run out of gas.

Finally, and most importantly, it's in everyone's best interest to have "price gouging" during emergencies. If you're fleeing a disaster area and the gas station right outside of town is selling gas for $10 a gallon, you will probably only get a quarter or half a tank - leaving plenty of gasoline for the people in line behind you. But, if the idiots in power impose a price cap of $3 a gallon, you will probably fill up your entire tank. And so will the people right behind you. And the people behind them. Until the gas runs out, screwing the people at the back of the line who will end up with nothing. Make no mistake about it, this Maryland law - and similar laws in other states - will hurt consumers during times of emergencies, where we need market forces to operate the most.

Walter Williams has a fantastic explanation of why "price gouging" in emergencies is a good thing. It's worth reading. If you live in Maryland, send a copy to your legislators.

In related price control news, the dumb Hawaii legislators who enacted non-emergency price controls on gasoline in September are already moving to abolish them. They're not admitting that the controls have done more harm than good (most Hawaiians are actually paying prices higher than before the controls). Instead they're blaming the governor for failing to do what it takes to enforce the law. Ah, "do what it takes". F.A. Hayek shows in the Road to Serfdom how elected officials either have to abandon price controls or suspend civil liberties and give absolute power to a powerful executive to enforce them. Thank god Hawaii is choosing the former.