Columnist: “Warning, warning” • Greg Morin
“New Jersey has a tough price gouging law to ensure that profiteers will not take unfair advantage of people at their most vulnerable” Governor Chris Christi, http://goo.gl/TDHa0
Unfair advantage – so who exactly is the Solomonesque arbiter of that which is fair and unfair? In this case the states of New Jersey and New York. And how is unfairness defined? By pulling arbitrary numbers out of thin air of course! In New Jersey it is holy writ that a 10% markup above normal price level is perfectly justified and fair, but 11% is the act of a wanton criminal. In New York it is left to the highly subjective discretion of a judge to decide if one has breached the barrier of “unconscionably excessive” pricing.
The state of New Jersey is currently charging eight businesses with violation of its “anti-gouging” laws. How horribly high must one raise prices to be so charged? Thirty-dollars. One hotel charged $119 a night rather than the usual $90 a night! Oh the humanity! Give me a break. Hotels routinely raise prices this much or more when demand is high for other reasons. So apparently it’s criminal if a storm increases demand but not criminal if the Super Bowl does? Even the gas stations under indictment only raised price by $2/gallon, which translates into an extra $20-$40 per tank. Which would you prefer? No gas at all (or the prospect of waiting for hours in line) OR a quick fill up that cost an extra $40.
Anti-gouging laws are probably the most convincing proof that politicians are completely ignorant of economics. About on part with someone ignorant of physics trying to cool their house with a refrigerator. Anti-gouging laws give birth to another set of laws that try to repair the damage caused by the anti-gouging laws: rationing laws. If controlling the seller makes a mess then try to control the buyer. Genius.
Such laws are the sole cause for all shortages following in the wake of a disaster. Although supplies can become constrained, actual shortages arise because price controls cause demand to outstrip supply (e.g. if the government decreed all BMW’s cost only $1,000 the increased demand would quickly create a shortage). Not convinced shortages are demand and not supply driven? Consider this: what happens every time there is even a whisper of possible snowfall here in Georgia? Everybody and their cousin rushes straight to the grocery store and buys up every last loaf of bread and gallon of milk. This is entirely irrational. But people are irrational beings and will irrationally increase their demand for goods they do not need. High prices are a way of telling people “hold your horses there – do you really need those 10 loaves of bread?” If a loaf of bread were allowed to go from $2 to $10 chances are high you will reconsider just how badly you need it. This will leave more available for those that truly need it.
Think of high prices as flashing red lights in the cockpit of the economy saying “warning, warning – supplies are constrained, please devote resources over here to relieving the constraint” Government’s brilliant solution is to disconnect the light. Entrepreneurs flock to high prices like cats to catnip, rapidly increasing supply and lowering prices through competition. For example, absent such laws a gas station might hire a tanker truck to travel out of state, buy up as much $3/gallon gas as it can find, haul it back and sell it for $6/gallon. But because prices can’t be raised this scenario and many others do not happen, and we are left with long lines and shortages.
Anti-gouging laws are about as effective as outlawing fevers by requiring the ill to take ibuprofen. Masking the symptoms does not cure the disease; it only prolongs the illness.
Greg Morin is a member of the Libertarian party and CEO of Seachem Laboratories located in Madison. Constructive comments are welcomed to this paper or at gregmorin.com
Printed in the November 15, 2012 edition