Price-gouging laws = legalized looting

This one won’t be popular, I know, but here it is anyway.

In the wake of a disaster like Hurricane Sandy, I think we pretty much all deplore the looting that often occurs — thieves taking advantage of deserted stores (and homes) and preoccupied law enforcement to break into places and steal the private property of others.  And our virtually-unanimous condemnation of looting is rooted, of course, in our reverence for private property rights, the fundamental bedrock of our capitalistic system and essentially of our civil rights as well (freedom of speech doesn’t mean much if others can come take your property whenever they don’t like what you say), the basic concept that the owners of private property generally have the right to decide whether and on what terms to sell their property (subject to certain public-safety limitations, e.g. no selling liquor to minors).  Looting deprives the owners of private property of value that the property would’ve borne them had they been able to sell it on their terms (i.e. to the highest bidders), and virtually nobody likes that outcome.  Good.

So, what about laws against “price-gouging,” like the ones in effect in states ravaged by Sandy?  In New Jersey, for example, it’s illegal to raise prices more than 10% during a government-declared state of emergency.  New York’s law makes it a crime to raise prices at all on “necessary goods” during such a time, defining “necessary goods” to include such items as food/water, gasoline, power generators, and transportation services like taxis.  Such laws, while well-intentioned, are simply public-sanctioned looting.  Just like traditional looting, they deprive the owners of private property of value that the property would’ve borne them had they been able to sell it on their terms (i.e. to the highest bidders).  You may support such laws, but if so, let’s at least not make nice about it; let’s call it what it is — if the government forces you to either sell something for less than what you could otherwise get for it (or else not sell it at all), that’s not “just” the government “regulating prices in a time of emergency,” that’s the government confiscating your private property for public use without compensation.  I know, you think I’m cold, unfeeling, and greedy.  No, I’m a capitalist, and capitalism allocates resources more efficiently and effectively than the government.  I’ll illustrate.

Let’s take generators for instance.  Many people in the Northeast don’t have electricity in the wake of Hurricane Sandy.  That’s a problem.  It’s November; it’s getting cold; people need heat; food needs refrigeration; we all get it.  So, if I owned a hardware store that had ten generators in inventory, how would those generators get allocated?  Well, first of all, keep in mind, I wouldn’t have to sell them at all.  I could take one home for my own personal use and give the other nine away to my friends if I wanted to, and nobody, not even the States of New Jersey and New York, under their current misguided laws, could legally do anything about it.  I could also lock up my store, generators and all, go on vacation, and reopen for business as usual in a month (assuming that no traditional looting had taken place while I was gone).

If, on the other hand, I auctioned the generators off to the highest bidders, I could probably get far more than a 10% premium above their normal selling price.  And why shouldn’t I?  Anyone who wanted to be prepared for an extended period of time without electricity could’ve purchased a generator prior to the hurricane.  But if someone’s in the market for a generator now, that means he/she chose not to purchase one in advance.  He/she would’ve made a “bet” that he/she wouldn’t need a generator, as I would’ve made a “bet” that he/she would.  And not just a bet — I would’ve made an investment in generators, spent my hard-earned money to buy some, and risked the possibility that nobody would’ve ever wanted to pay me more than I had paid for them.  Then, when the hurricane came along and knocked out the electric grid for a while, I would’ve “won” my bet — people would really need the generators that I had had the foresight and had taken the financial risk to acquire (and I also would’ve essentially performed a public service in making generators available when people needed them).  Thus, I’d deserve to be rewarded handsomely.  How handsomely?  As handsomely as the market would bear.

So what if a bunch of rich people showed up and bid the prices for my generators up from $2,000 a piece to $20,000 a piece (or more)?  What’s wrong with that?  Nothing.  Those rich people wouldn’t be any less deserving of generators than anyone else.  If, instead, I instituted some kind of a lottery system, or a first-come-first-served system (as the New Jersey and New York laws essentially require), would the people who “won” the lottery or the people who “won” the race to my store necessarily be any more deserving than the rich customers?  No, they wouldn’t.  I suppose that I could review applications from everyone who wanted a generator and sell them according to which customers, in my opinion, needed them the most, but if I did that, A) I could be wrong, B) there’d likely be far more equally-needy applicants than there were generators, and C) the electric grid would probably be back up and running before I got done reviewing applications.

And, once I had finally sold all ten of my generators, however I sold them, there’d probably still be a whole bunch of people left without access to one.  Allowing the price to rise would actually encourage cooperation, conservation, and efficiency in the acquisition and use of my generators.  How?  If less-rich people really wanted to “win” a generator in a bidding war, then they could pool their financial resources, match the $20,000 price, and set the generator up at the home where they could most easily share sleeping quarters and refrigerator space for a while.  Or — and I’m not recommending this — if the state felt that generators were “necessary,” as New York does, then the state could even be the highest bidder, buy up all of my generators, and then distribute them however it wanted to.

What’s more, allowing the price to rise would incentivize others with access to salable generators to get those generators to the market where there’s the greatest need and demand for them. Otherwise, fewer hardware store owners whose stores are located hundreds of miles away are likely to load up trucks with generators and head into the storm-ravaged states. It may be nice to think that altruism alone would motivate enough of that kind of behavior, but this is about human beings taking risks with their time, property, and safety, and believe me, the profit motive goes a long way toward getting more people to do more of that (and see my comment below crediting John Stossel for discussing generator manufacturers‘ profit motive to increase the supply of generators in storm-ravaged areas).

Now, like you, I actually would NOT like to see desperate people having to choose between looting their kids’ college funds or looting my store to get generators.  Two things about that, though:  1)  I don’t think it’d really have to happen that way — I don’t think that anyone who couldn’t or didn’t get one of my generators would freeze or starve; I think they’d go to relatives’ or friends’ homes or to community shelters until the power came back on.  And 2)  if I were a long-term profit-maximizer, as every businessman and woman should be, my interest in seizing the opportunity to get as much as I could for each one of my generators would be tempered by the fact that I wouldn’t want those to be the last ten sales I ever made; I’d want to sell rebuilding supplies in that community and to eventually get back to business as usual in that community, so I’d be wise to sell my generators at prices that I believed rewarded my investment while avoiding alienating the very community in which I wanted to stay in business — if not, the free market would judge me more fairly and effectively than the government ever could.

The point is, if it were my property, then it ought to remain my decision whether and how I part with it, even in the wake of a disaster like Hurricane Sandy.  I might choose to give all ten generators away, or I might choose to sell them at normal retail price but only to groups of families who claim the intent to share their power output, or I might choose to sell them first-come-first-served for normal price plus 10%.  But whatever I chose to do, it should be just that, my choice.  In times of acute need, as the Northeast is currently experiencing, in the short term, it can sound attractive to abandon our principles (e.g. private property and limited government) in the interests of expediency, but in the long term, I believe we’d be better off if we didn’t do that.  Losses of life, clearly, are the most acutely-tragic losses incurred in disasters; they’re irrecoverable, and I think we all — directly or indirectly — grieve those losses.  Property losses — electric grids, homes, and businesses — on the other hand, are recoverable, but can still be quite devastating.  We cannot always control whether we lose lives or property to disasters, but we can decide whether we’re going to lose our principles.  I’d prefer we not compound already-tragic, involuntary losses of life and property by voluntarily losing our principles as well.

See?  Not popular.  I knew it wouldn’t be.  Sorry for any offense.

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One Response to Price-gouging laws = legalized looting

  1. John Stossel made another good point: Letting prices rise would incentivize manufacturers to tackle the logistics of rush-shipping more of a scarce product to a region with limited accessibility.

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