Gouge me ’til it hurts
September 2nd, 2010As of right now we’re looking at about 30 hours before Hurricane Earl blows past our latitude. It reminds me of something that happened during the aftermath of previous hurricanes: price gouging. Price gouging is a disparaging term given to the practice of hiking prices of demand items after some disruption has occurred that would normally clear out the existing supply. Gasoline, food, water, ice, and toiletries are good examples of items vulnerable to price gouging.
There was a discussion over at GaryNorth.com about this topic. In Gary’s response to the discussion, one sentence of his jumped out at me: “Envious people hate the highest bidders.”
I’ll explain. A few years ago I attended an estate auction. There was a house full of very nice furniture. I bid on one piece that would have gone very well with our decor at the time. I was outbid. The same gentleman who outbid me on that piece outbid everyone else for most of the rest of the furniture in that house. I later found out that the furniture belonged to someone close to him and he was buying it back. (He could, and he did.) When I was talking with other people at the auction, some of them were incensed. “He can’t do that! The auctioneers should stop that kind of thing! How is anyone else supposed to get any?”
Envious losing bidders hating the highest bidder.
I didn’t sympathize with the losing bidders at all. That’s why it’s called an auction: highest bid wins. But it’s this same kind of envy that brings about anti-gouging laws.
At the estate auction, anti gouging laws would have prevented the auctioneer from going any higher than a reasonable price for that used furniture. If the rich guy didn’t get in the last bid, too bad! Even if he were willing to pay more, too bad! After a disaster zone is declared, in a majority of states it’s all of a sudden illegal to roll in with a semi full of 3,000 watt generators that would normally go for $500 and sell them for $1,500. It’s all of a sudden illegal to charge $10 for a gallon of gas or $4 for a gallon of spring water. Why? Because the people who (a) didn’t prepare for the disaster until everything was gone and (b) can’t afford the items at anything except the pre-disaster price get ticked off at the people who can afford the high prices (the high bidders) and want to make sure that they can’t buy the stuff either. They do this by punishing the people trying to sell the stuff. The result? Fewer people get the things that they want or need, and the sellers won’t try again the next time the disaster hits.
Doesn’t make a whole lot of sense, does it? Gouging goes on in other contexts, though. Airplane flights. Amusement parks. Ball games. But somehow it’s OK to charge three bucks for a little bag of peanuts during a flight.
If I don’t have enough gas for my generator by the time the hurricane comes, that’s my own stupid fault. But if the gas station around the corner were to hike their prices to $10 per gallon — high enough to keep the gas in the pumps long enough for me to get down there — I’d be more than happy to get gouged out the wazoo. I’d much rather pay $50 more to keep my generator running than to lose everything in my basement because my sump pump wouldn’t work, and lose everything in my freezer because it thawed.
Gouge me until it hurts. Let what’s left of the free market work to everyone’s benefit and let buyers and sellers meet at a price that’s beneficial for both.
