Bring on the price gougers
IMAGINE a system that could instantly respond to a calamity like Hurricane Charley by mobilizing suppliers to speed urgently needed resources to the victims. Imagine that such a system could quickly attract the out-of-town manpower needed for cleanup and repairs, while seeing to it that existing supplies were neither recklessly squandered nor hoarded. Imagine that it could prompt thousands of men and women to act in the public interest, yet not force anyone to do anything against his will.
Actually, there's no need to imagine. The system already exists. Economists refer to it as the law of supply and demand. Unfortunately, too many journalists and politicians call it by a more pejorative and destructive name: "price-gouging."
Even before Charley made landfall last weekend, Florida officials had launched a campaign against "those who would seek to profit from the misery of others." Residents were urged to be on guard against any unscrupulous rise in prices, and to call a hotline with information about suspected profiteers.
Not surprisingly, the complaints poured in. By Thursday, Attorney General Charlie Crist's office had received 2,340 reports of price-gouging, and had filed a "first round" of lawsuits.
"It is astounding to me," Crist said, "the level of greed that someone must have in their soul to be willing to take advantage of someone suffering in the wake of a hurricane."
The media were similarly indignant. "After storm come the vultures," read a headline in USA Today. A Page 1 story in The New York Times offered examples of "those brazenly looking to make some extra money": vendors selling bags of ice for $10 instead of $2, gas stations "facing long lines of cars" charging $3 a gallon for gas normally priced at $1.78, and "a man with a chain saw" offering to clear a felled oak from one man's roof for $10,500.
"Some greedy merchants started ahead of the storm," reported The Washington Times. It cited "one complaint about a man in the Orlando area who normally leases generators for $250 a day with no requirements. He boosted the price to about $400 a day just before the storm hit, and implemented a seven-day minimum policy."
But why should it be news, let alone a crime, when soaring demand and/or tight supplies send prices through the roof? Air fares climb during peak travel periods, hotels charge more during the tourist season -- and yes, Virginia, ice sells at a premium when tens of thousands of Florida homes are without refrigeration and air conditioning in the middle of August. It isn't gouging to charge what the market will bear. It isn't greedy or brazen. It's how goods and services get allocated in a free society -- without the chronic shortages and corruption that are the usual result of price controls and rationing. And never is the flexibility of an unhampered market more essential than in the aftermath of a catastrophe.
Of course, price spikes are infuriating, especially to someone whose life has just been thrown into turmoil by a deadly storm.
But they do far more good than harm. Higher prices make it possible for victims to get the help they need to ride out the crisis and for the devastated region to recover as quickly as possible. They do so by sending the message that critical supplies and skills are urgently needed, and by inducing consumers with less-pressing needs to voluntarily defer to those whose needs are more exigent. When customers in Florida are willing to pay $10 for ice that usually goes for $2, or $400 to rent a generator that usually fetches $250, producers everywhere have a powerful incentive to ship truckloads of ice and generators to Florida. The higher price is justified not only by the higher demand, but by the higher costs associated with doing business in a disaster area. Newsday last week quoted the owner of a tree removal company, who had driven down from Miami and was charging twice his normal rate "because I've got to deal with more aggravation."
"No one wants to come here when I can stay home and sleep in air conditioning next to my wife and kid, go to the gas station whenever I want and get gas," he said. "The ones who are willing to pay now know that they're not getting a great deal, but they're willing to pay a little bit more to get their lives together quicker."
At the same time, price increases perform what George Mason University economist Donald Boudreaux calls "economic triage," directing supplies and repairs to those whose need for them is most pressing. Someone who wants a generator so he can power his computer and TV might be willing to rent one for $250. At $400, he is more likely to decide he can live without it -- thereby making it available to the butcher desperate for electricity so he can keep thousands of dollars' worth of meat from spoiling.
When demand increases, prices go up. As prices rise, supplies do, too. And with higher supplies eventually come lower prices. It isn't "gouging," it's the way the world works -- even after hurricanes. Demonizing vendors won't speed Florida's recovery. Letting them go about their business will.
Jeff Jacoby's e-mail address is email@example.com.
© Copyright 2004 Globe Newspaper Company.