Issue of the week: Should price gouging be illegal?

last updated 8 January 2015

In the wake of Hurricane Sandy, gas stations became “target No. 1 for politicians looking for innocent entrepreneurs to scapegoat,” said Holman Jenkins in The Wall Street Journal. Thousands of fuming people spent hours earlier this week waiting in line for scarce gasoline, prompting New York Democrats and New Jersey Republicans alike to threaten dire consequences for anybody caught price gouging. It may be hard for those drivers to believe this, said Matthew Yglesias in Slate.com, but anti-gouging laws are “hideously misguided” and actually created those long lines. Price controls always “lead to shortages and overconsumption.” If all those who engaged in “panicky pre-emptive hoarding” had to pay higher prices, they would “think harder about what they really need.” No one would like shelling out more during a shortage. But it’s even worse not to be able to buy gas at all “because it has all been bought up by earlier, stockpiling drivers.”

But the long gas lines weren’t merely a result of panic buying, said Constantine von Hoffman in CBSNews.com. Hundreds of gas stations in Sandy’s zone of destruction had underground tanks that were flooded and no electricity to power their pumps; fuel trucks couldn’t reach some stations because of damaged roads. “Millions of gallons of gasoline are sitting in storage tanks, pipelines, and tankers that can’t unload their cargoes.” It’s not clear how freeing up prices could resolve such concrete distribution problems. You’d be surprised athow quickly higher prices would wash away those impediments, said Art Carden in Forbes.com. They would work “like signal flares” to entice suppliers from elsewhere to get their goods to New York and New Jersey, where people have already been paying way too much—not with money, but “by waiting in line.”

I get the economics of it, said David Futrelle in Time.com. But what about ethics? “With so many people suffering, the cold logic of capitalism seems callous and morally suspect.” The market’s invisible hand ignores the reality that “most people would rather wait in line than have someone make a windfall profit off their desperation.” In the wake of disasters like Sandy, it’s “the charitable impulse” that really matters, said Felix Salmon in Reuters.com.People need to feel that “neighbors are rallying together at a very hard time.” That’s why, even though I don’t think it should be illegal to price gouge, I don’t like it. The benefits of higher prices flow to merchants and people rich enough to afford to pay more. The costs, as always, “are borne by those who can least afford it.”