How Anti-"Price-Gouging" Laws Really Work

A recent op-ed by College of New Jersey associate professor James Stacey Taylor titled Defending Price-Gouging in the Wake of Sandy drew some heated and emotional responses. Stacey's column was the subject of a recent TOS Blog post of mine. This letter appeared in the November 14, 2012, New Jersey Star-Ledger:

In James Stacey Taylor’s Nov. 9 op-ed, "In defense of price-gouging," the professor states that price-gouging would increase resources to those in need in time of major disaster.

I take the opposing position. Victims of disaster (we can call them people, neighbors or fellow human beings) who may have lost everything they own do not need heat, lights, water or food sold to them at prices beyond the fair market price. They don’t need these resources sold to them at below market price. Victims of disaster need heat, lights, water and food given to them with an open heart.

The professor’s philosophy appears to be based on greed. Give to our neighbors. Help the poor and the needy.

I left these comments:

Two or more individuals have an inalienable right to contract voluntarily with each other, on mutually agreed terms, including price, at any time, so long as the transaction (or trade) doesn’t involve the initiation of physical force or fraud against others--i.e. doesn’t violate anyone’s rights. Trade is the moral basis of a “fair market price,” which is not some arbitrarily designated figure lifted from a particular point in time.  
 
Kudos to James Stacey Taylor for exposing the economically destructive nature of laws against “price-gouging,” a form of price controls. Such laws are also morally destructive because they interfere in the rights of people to mutually benefit through voluntary trade. This is not “greed,” it is justice. Greed is a lust for the unearned; a one-sided gain at the expense of another’s loss. 
 
This is not to disparage lending a helping hand in a time of emergency, and charity and trade are not mutually exclusive. But need is not a moral claim on another, and to attack “price-gouging” is to attack voluntary trade, the morally ultimate form of human interaction—people getting better together. 

Which drew this rebuttal followed by my response:

vespertilianman

What absolute rubbish. Price gouging during this disaster is a form of looting from innocent victims, and to try to portray this looting as something good is complete nonsense. To attempt to justify increasing the cost of the few commodities available by saying it will actually produce more available commodities is not taught in Economics 101; it is a page torn from Evil 101. With what you suggest, only the very rich who can afford the increased prices will benefit. The victims of this storm need help, not more victimization. For God's sake, quit trying to make things worse for them.

A customer voluntarily agreeing to buy from a “price-gouger” may not be happy about the price, but he was not looted. Words have precise meanings. “Looting” is taking another’s property by force or fraud. You want looting? How about fining a pizzeria $10,000 for selling a pizza pie for $1.85 above what some government official allows—and $20,000 for each additional pie? That’s what a merchant faces for investing in a generator to stay open in a blackout, as Mueller reported in the S-L Monday. It’s state-sponsored grand larceny. The law against “price-gouging,” which no one can objectively define, is a looter’s law that turns honorable businessmen into victims. That’s Evil 101.  
 
And by the way, vespertilianman, the “justification” for a merchant raising his price is his moral right to act on his own judgment, which no politician has any right to interfere with. The law of supply and demand will neutralize any inordinate price increases in short order, which will speed the recovery unless government bureaucrats get in the way. That’s Economics 101. Politicians never seem to tire of the fantasy that they can suspend the laws of economics with some law. Stop cheering them on. 

The article referred to in my last comment was titled Sandy Opens the Door to Price Gouging by Karin Price Mueller. Mueller, a writer for the NJ Star-Ledger's consumer advocacy column "Bamboozled" under which her article appeared, was a customer of the pizzeria mentioned above. "I was convinced that this shop owner was overcharging at a time when a community was in need," she said. "He shouldn't give pizza away for free, but simply charge a fair price. Was I being stickler for the rules? For a law that’s meant to protect consumers? Heck, yes. That’s my job."

But after talking to the owner of the pizzeria, who explained about how his costs affected his pricing decision, she said "now I’m not sure what to think." "This," she said, "was no longer black and white, but shades of grey."

"So exactly how do the experts —Consumer Affairs’ investigators — deal with price gouging complaints that are in the questionable category?", she wondered. This very question highlights the arbitrariness of the law.  Arbitrary law, by its nature, is unjust. Mueller explains:

   "For each of our investigations, the Division is issuing a subpoena for sales receipts and records from before and after the state of emergency, as well as documentation of the costs faced by the merchant," said a spokesman from Consumer Affairs.
   The agency is directing its investigators — some of whom remain without power and face flooding in their homes — to focus on cases in which there have been numerous complaints about price gouging "that appear to be the most egregious and abusive to those in desperate need."

This means that the investigators--some emotionally distraught over their own tragic personal losses--will be going after the merchants who have had the most customers--that is, fellow citizens--ratting them out. The government investigators will go rifling through the merchants' books looking for the "most egregious and abusive to those in desperate need" based not on evidence but on the complaints of disgruntled customers. How will they distinguish "desperate need" from simple "need" or no "need" at all is a question that will have as many answers as there are investigators, but all of the answers will be subjective. 

How is any merchant to answer any charges emerging from such investigations? He can't, because there can be no rational defense against any statute that criminalizes legitimate economic activity. Such is the nature of laws that are "shades of grey"; i.e., non-objective. 

This would be funny, if these anti-gouging laws weren't so "egregious and abusive." Every customer that walks in the merchant's door could potentially be the one to sic state investigators on his tail. One wonders why any merchant would even want to bother to stay open in the next emergency. 

Yes, there are unconscionable merchants that deserve social scorn, as there are unconscionable practitioners in every field. But they are undoubtedly few and far between. After all, any reputable merchant knows that his customers are the bread and butter he'll need to stay in business long-term. How many merchants would risk destroying his reputation to make a short-term killing? How many would want to rip their customers off based on common decency?

Anti-gouging laws are a prescription for turning decent people into criminals. Unless fraud is involved, the government's job is to protect people's right to voluntary trade, not involve itself in judging the moral propriety of the choices of the traders.

Related Reading:

Banning "Price Gouging" (Or How to Hamper a Recovery)