Is price gouging bad? It’s a commonly held belief that it is.
Last week, when Google updated its ads policy to ban any ads that ‘exploit, dismiss or condone [an emergency situation] including price gouging or artificially inflating prices,” it caught my interest. Is price gouging always the villain it’s made out to be?
Price gouging, the act of greatly increasing prices during a crisis, strikes a chord of unfairness in our collective consciousness. It's seen as exploiting those in dire straits, profiting from misery. The image of a store owner hiking the price of basic supplies during a disaster certainly seems heartless.
Worse, the practice would hit the poorest the hardest – those who can least afford inflated prices. This immediate emotional reaction is understandable. No one wants to feel taken advantage of, especially in times of need. Price gouging is illegal in most states.
But there's another side to the coin that gets lost in the emotional uproar.
In an ideal world, we'd like everyone to have equal access to essentials, particularly during emergencies. But we don't live in a perfect world.
During a crisis, hoarding becomes the norm. Let’s look at a hardware store selling batteries as a hurricane heads to town. There’s no reason not to grab more, even if you’re well-stocked at home. After all, you never know. Soon, future customers – some who may have needed them more – only see empty shelves.
Remember the pandemic's early days? Toilet paper, of all things, vanished from stores. People weren't wiping more; they were panicking about shortages. Higher prices would have discouraged stockpiling, allowing people with a real need to get their goods.
And when a disaster region runs low on supplies? If there’s a financial incentive, entrepreneurs react. Just like the rain brings out umbrella salesmen on New York streets, if someone can double or triple his investment on a vanload of generators, you’ll see people doing just that. All manufacturers and suppliers automatically would have more incentive to work harder.
Yes, they’d be doing it to profit, but if the net effect is more vital supplies, who cares about their motives?
And, of course, people profit from awful situations every day, and good for them! Everyone who works at a hospital or fire station – even wheelchair manufacturers earn their living by addressing some form of human misery.
My father-in-law, who ran a medical company, worked like a mule, partly for the good of humankind, but more to send his five kids to college. Along the way, he advanced nuclear diagnostic medicine and helped thousands. It’s Adam Smith’s “invisible hand” in action – each of us working for our own self-interest creates a robust society. It’s why “greedy” capitalism has enriched more lives than any other economic system humans have invented.
Like many populist notions, actions that seem inherently unethical at first glance often have a more nuanced reality. The straightforward answer isn’t always as clear-cut as it seems.
— Ken
Even the opposite of price gouging has gotten me. More than once I was very annoyed that what I wanted was on sale and thus sold out when I would have gladly paid the regular price to have it available.
The late great economist Professor Walter Williams penned this great column in 2005 shortly after Hurricane Katrina, in which lots of political establishment hand-wringing over “price-gouging” was all over in the media and was the topic du jur in Washington, D.C.
See: http://walterewilliams.com/the-role-of-prices/
Footnote: I really miss Walter Williams … he passed a few years ago. He would frequently guest host on Rush Limbaugh’s radio program, and when he did, I would always try to tune in to hear his economical wisdom.
R.I.P. Professor Walter Williams