Last week, a fellow Opinion writer at the CW published an article entitled “Price gouging during disasters is a good thing”. The topic of the article was, of course, the evacuation and aftermath following the Hurricanes in Texas and Florida. However, I believe the article was formed under misconceptions about what price gouging is and economics in general. I hope this article will bring some clarity to both.
First, the initial article does not explicitly define price gouging, leading the central argument to be a bit off center. According to US Legal, price gouging occurs when businesses unfairly or unnecessarily raise prices. So in a legal sense, it’s not fair to label raising prices during times of natural disasters “unfair” or “unnecessary” because shortages occur that make those price points economically reasonable. Regardless, even saying that price gouging is “good” in natural disasters suggests that it is morally acceptable as well. However, I don’t think paying $100 for a case of water is some moral victory. These changes in price may be necessary, but they are definitely not “good”.
In addition, the article’s third paragraph starts out by trying to use an argument based on the law of supply and demand, the most basic tenet of economics. However, the author simplifies the law of supply and demand to a point of inaccuracy by saying “if supply goes up, demand goes down”. Technically, if supply goes “up” (the supply curve shifts to the right) the quantity demanded will increase, not go down, and the price will decrease. But that assumes that there was only a change in supply. Supply and demand are affected by many factors, and it is disingenuous to say that they directly affect one another in a vacuum.
Despite his mischaracterization of supply and demand, the author does make a solid argument about rationing. It is strikingly similar to one made by Milton Freidman in favor of raising prices during times of crisis. But as pointed out by the right-wing Action Institute, that argument belies the fact that unlimited price gouging leaves people in poverty out in the cold. Further, if the government has no restrictions on price gouging, there would be no way to determine if the new prices were even reasonable in the circumstance. An example: let’s say one person owns the only two grocery stores in a town and during a hurricane raises the price of a case of water to $85 at one store and $90 at another. From an outside, free-market point of view, both of those are fair market prices. But for all we know, both grocery stores have enough water to sell to the town 2 times over, making it unethical even by the original author’s point of view. Allowing free reign on price gouging incentivizes monopolization and tells poor families “too bad”.
The initial article exuded influences of purely free-market and libertarian thinking. This is not the world we live in; we are not governed by anarcho-capitalism. Regulation is a necessity of the modern world. Even if you want to look at all this from a completely capitalist standpoint, business owners have an obligation to help out if they can. This comes out of the idea of volunteerism imparted in libertarian thinking: those who have benefited from the market should voluntarily reciprocate. Elon Musk, and example of this volunteerism, performed modern-day magic by extending the battery life of Florida-Teslas remotely free of charge so they could all evacuate safely. Sometimes the economy puts business owners in a difficult ethical position, and I do not hold anything against Florida business owners who had no choice but to raise their prices. But if we can do better, we should.
Paul Bousquet is a sophomore majoring in economics. His columns runs biweekly.
