Time is running short and everyone is trying to purchase enough gas to escape impending disaster. Relatives are too far away so dozens of families seek refuge in hotels. Water lines are damaged so bottled water becomes a necessity. Anytime disaster strikes, people immediately begin purchasing goods in far greater quantities than the market can provide. It is for this reason that these commodities are the most likely to experience price gouging — the act of dramatically increasing the price of a good — which is an illegal and widely disdained practice. But counter to our intuition, price gouging is actually a good thing.
The most basic and proper defense of price gouging is the moral basis of the free market in general: if you own something, you have the right to sell it for whatever price others are willing to pay. A person who takes advantage of another’s misfortune is certainly despicable, but being despicable itself ought not be a crime. My need for something you have gives me neither the right to take it from you nor to dictate the terms and conditions of our trade. However, I understand that such an answer seems calloused and unacceptable to those who see the intolerable suffering of people in disaster situations and feel their pain. Indeed, defending the cause of the vulnerable is an admirable position. So I intend to explain how the principles of a free-market are not only just but pragmatically effective.
The law of supply and demand is the most elementary law of economics and is as inescapable as the laws of gravity: if supply goes up, demand goes down — and vice-versa. In emergency situations, the demand for certain goods increases and thus by necessity the supply decreases. When this happens, rationing must occur. We could ration on a first-come-first-serve basis, where it is not those who have less money who go without but those who have less time. But if people going without is our qualm, how does this solve the problem? We could attempt to put caps on the amount any individual is allowed to purchase, but such laws would be almost impossible to enforce and would be harmful to those who need more of a certain good than others (the nearly empty gas guzzler needs more gasoline than a nearly full hybrid; the family of 5 needs more bottled water than the newlyweds). Neither of these methods of rationing will work.
Price gouging, however, is itself a form of rationing. Heightened prices discourage customers from purchasing more than they need without dictating to them exactly how much that is. Moreover, price gouging has an advantage that the other forms of rationing do not: it incentivizes businesses to remain open and helps them afford extra freight fares to import more goods. Under the current system, business owners have no motive to risk themselves by staying in the area during a disaster. When price gouging is allowed, local business owners may stay and continue to import goods while others from out of the area may even rush in to take advantage of the opportunity. This increases competition and supply, guaranteeing fewer people go without and somewhat lowering the cost.
This is the case not only in theory, but in actuality. We see the businesses that have shut down as their stock is emptied in these emergencies. But when Uber initiates price surging during snowstorms or other disasters they see significant increases in drivers for that area, which provides people with rides they otherwise would not have gotten. People have gone out of their way to bring generators to afflicted areas — until they are arrested for price gouging. Now, we don’t see this happening anymore, and instead more people go without generators.
The idea of price gouging goes against our conscience. When we see someone in a less than ideal circumstance, we want someone to place the blame on. The business owner selling packs of water for $40 seems to fit that role. But we need to forsake the simplistic view that price gouging is merely malicious and understand that even the apparently negative aspects of a free market are incredibly efficient. If we put our minds to the task of finding the best way to help these victims of natural disaster we will see that the greatest good is done for the most people when we respect the right to price gouge.
Carter Yancey is a junior majoring in computer science and mathematics. His column runs biweekly.
