Who Should Decide on Prices After a Disaster?

by: Mark J. Perry
Several years ago, Art Carden provided the fill-in-the-blank "price gouging" form below, and it's being put to good use now in Alabama and Kentucky following the tornadoes in those states:

Fearing increases in the prices of basic items as a result of (disaster), officials in (state or municipality) have declared a state of emergency whereby restrictions on "price gouging" are now in effect. According to (politician or law enforcement official), the law is designed to protect innocent consumers from "unconscionable" increases in the prices of food, gasoline, ice, electric generators, and home-repair services. The unintended, unseen consequences, however, are predictable, unfortunate, and avoidable.

It's only in the fantasy world of politics that the "anointed elected officials" think they get to be the "price deciders," and determine if sellers are guilty of "price gouging." In the real world of the marketplace it's much different and much more democratic - the impersonal market forces of supply and demand become the "price deciders," and we're all much better off with those market-determined prices than with the artificial prices determined by politicians and bureaucrats.

If the goal is eliminate shortages of critical goods in Alabama and Kentucky by directing scarce resources as quickly as possible to the areas where they are needed the most, then there's no mechanism more efficient than the price system to achieve that outcome. Just like an earthquake, hurricane, flood or massive price breaks don't change the fundamental laws of physics, gravity or aerodynamics, those disasters also don't change the basic laws of supply and demand.

And it's those market forces, not political rhetoric, that are the best friend of the disaster victims. Suppressing the very price mechanism that most effectively eliminates critical shortages after a natural disaster for political reasons will certainly make the situation worse, not better; and the recovery period longer, not shorter - and those are the unintended, but inevitable consequences of "price gouging" laws.