Give thanks to “price gougers”

Some things never cease to amaze me, like yesterday’s news release from North Carolina’s attorney general, Roy Cooper. As far as superficial demagoguery and economic illiteracy go, his comments are right up there.

He warns: “price gougers… you can’t use a crisis as an excuse to make an unfair profit off consumers… If you think someone is ripping you off, let me know about it.”

Click below to hear my rebuttal on the Bill LuMaye on WPTF (four minutes).
[audio:http://bit.ly/nmovlC]

To start with, the term “price gouger” is merely a derogatory swipe at people who may raise a price in the presence of heightened demand. Since when is increasing one’s price immoral? The retailer has bought the item, and ownership includes the right to sell at the price one chooses.

And at what point is a profit, so long as the exchange is voluntary, “unfair”? If someone is “ripping you off,” you must be able to get a better deal elsewhere. If not, evidently the price is not so unreasonable.

In fact, the legislation, as Sara Burrows noted in the Carolina Journal, defines gouging as in excess of the average price over the 60-day period prior to the emergency. Yes, you read that correctly. During what the state defines as an emergency—and for 45 days afterward—retailers are considered criminal if their prices happen to be higher than the earlier average.

Apparently, above average is “unreasonably excessive.”

The legislation and the attorney general’s statements indicate belief in a vague “fair” price, which does not exist except in their minds. Further, they ignore how prices work and what they signal.

In the case of an emergency, such as a hurricane, demand for certain goods such as gasoline and water is likely to rise. Naturally, this causes prices to rise. Otherwise, retailers would run out. That’s not ripping anyone off; it’s responding to market forces.

Further, higher prices signal the higher value in the area and induce more suppliers to enter the market.

The effect of gouging laws, which cap prices in the face of higher demand, is reverse of that intended. Rather than increase availability, they generate shortages. If prices cannot rise, people will tend to hoard them and leave few for others. Additionally, the incentive for more suppliers to enter the market will be lost.

So rather than criminalize people who respond to market forces, we’d do better to understand that they are helping us.

Fergus Hodgson

Director of fiscal policy studies at the John Locke Foundation, policy advisor with The Future of Freedom Foundation, and host of The Sta...

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