Scholar defends economics of price gouging

Friday, September 8, 2017
Chris Woodward (

credit card swipeReports of price gouging happen after natural disasters but is it wrong?

Even if many others might disagree, American Enterprise Institute (AEI) scholar Mark Perry says the economics are actually non-controversial among economists. That's because a city such as Houston is suddenly experiencing a short supply of supplies, goods, and empty hotel rooms.

"So the price system, or the price mechanism, or market prices do a very good job of accurately reflecting the relative scarcity of a good or a product or a service," he argues. "And so after a disruption in the market of course many, many things are going to be in relatively short supply and their relative scarcity has increased."

Florida AG fighting price-gouging as Irma looms

MIAMI (AP) - Florida Attorney General Pam Bondi says the state has gotten more than 1,500 calls on a price-gouging hotline in the last two days.

Bondi said Wednesday that many of the calls dealt with complaints about the prices being charged on water, food and gas, although she said people have also called to complain that stores are running out of supplies.

The attorney general also said she had been talking directly to retailers such as Amazon. Bondi says the state has received complaints about excessive delivery fees for items such as water. She says the company has told her it suspended 12 third-party vendors because of gouging complaints.

Bondi, who noted she has no authority over airlines, said she talked to two airlines about ticket prices and that both told her they were putting caps on some tickets.

In other words, Perry sees it as "a natural market force" that the price of those goods and services and critical supplies are going to go up to reflect the new market conditions that have been completely disrupted and distorted by a natural disaster.

As a result, Perry says there's only going to be two choices. One of them is to allow market prices to take effect.

"The high prices force people to conserve on what are now relatively much more scarce critical goods, whether it's water or plywood or chainsaws, whatever it is, people are going to conserve those now in their use," he explains. "The other thing that high prices do is it attracts the supply because what's happened, you have an increase in demand, reduction in supply, what you want are supplies to flow into that area from outside that area, and so high prices are a way to attract those critical supplies that are needed into that area."

The second choice, says Perry, would be to have price controls or price gouging laws that prevent the prices from going up.

"From an economic standpoint what that does is it guarantees that the shortages and scarcities are going to last much longer and it's going to slow down the recovery process," warns Perry. "As bad as the situation is, it's going to be made even worse by price controls where at least with market prices and without price gouging laws it's going to help speed up the recovery process and actually reduce the amount of pain and suffering that is going to be taking place."

Perry is not alone in this opinion. Other economists from the center-right side of the political aisle have said as much to OneNewsNow. Matthew Yglesias of liberal made a case for price gouging in 2012 after Hurricane Sandy.

"These laws are hideously misguided," Yglesias wrote at the time. "Stopping price hikes during disasters may sound like a way to help people, but all it does is exacerbate shortages and complicate preparedness."

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