Thursday, October 05, 2017

Price-gouging laws can backfire

This was by me and was printed in The San Antonio Express-News on Oct. 3. Click here to go to it.

Re: “More and more, qualms about price gouging in short supply,” Daniel Fridman, Opinion, Sept. 24:

Daniel Fridman argues we should not ignore the immorality of price gouging.

It seems immoral to sell a thirsty disaster victim bottled water for $5. Maybe that would happen even more without anti-gouging laws. But we should not ignore the immoral results the laws cause, which can be serious.

One is wasted resources. I drove around for two days a few weeks ago, looking for gas and unable to buy any. Either the lines were too long or the stations had no gas. My time and gas were wasted.

All I wanted was 2 gallons to keep me going for about a week (I drive only about 12 miles a day and own a Honda Civic). I would have gladly paid $5 a gallon, but the law prevented that.

If the price had been that high, most of us would have purchased just enough to last until the crisis ended. An extra-high price might have prevented the long lines.

What about all those cars idling in line at the gas stations (maybe many of the people just wanted to keep the AC going)? How much waste and pollution did that cause?

The Express-News had pictures of cars backed up a block or more onto busy streets. More congestion and pollution.

One of my students said she waited in line 30 minutes but the station ran out before she could buy any gas. Fights and fender benders also occurred.

Then there were the people filling 50-gallon drums. With the law preventing price increases, there was nothing to stop that behavior.

There is also the misallocation of resources. Who gets items when there are price controls?

After disasters, hardware store owners have sold gas-powered generators to friends since they are not allowed to raise the price. How is it moral that you need to know someone to get a vital good or service?

Grocery stores that might have been willing to pay a premium for the generators were out of luck. They couldn’t power their refrigerators and coolers. Food spoiled when people were in great need.

Fridman offered no examples of victims who did not get food, water or gas. He also did not mention that major companies don’t price gouge because they have their long-term reputation to consider, not because of any laws.

One example of this was Best Western cutting its affiliation with a hotel that gouged. It did not have to be told by the government to do that.

But what should be done when a hotel has too few rooms? If it raises the price, some friends or family members might go in on a single room and some can sleep on floors in sleeping bags, freeing up a room for others.

Otherwise, we are left with first come, first served. Only those who get there first get a hotel room.

Enforcing these laws causes problems, too. After Katrina, John Chefferson drove 600 miles to sell generators at twice the price he paid. But he was arrested and no one got them because the police confiscated them. How is that moral?

Texas gouging laws are vague. Attorney General Ken Paxton said not to raise prices by more than 10 percent above the previous three-month average. But neither that nor any other specific number is codified, showing how hard it is to make moral judgments in these cases.

Cyril Morong, Ph.D., is an associate professor of economics at San Antonio College.


Anonymous said...

Yes, price gouging laws can backfire, but rationing by price is just another form of rationing. If you need to have rationing, why is rationing by ability to pay superior. For every example you dream up I bet I can come up with a horrible example to counter your argument.

Cyril Morong said...

Because rationing by ability to pay and price is most efficient. Think of all the wasted time and gas waiting in line. That just makes the situation worse.

So what are your horrible examples?

Cyril Morong said...

You have to remember I was simply responding to a previous article that claimed that price gouging was immoral and that author is the one who only looked at one side of the issue

Cyril Morong said...

Also, the law does not state any specific numbers. It is just whatever Paxton says it should be. If we cannot define it precisely in law, then the whole concept is vague