Current Events

Two Short Points in Defense of Price Gouging

Over at the New York Times, Andrew Sorkin has a rather incredulous piece on hurricane price gouging. The piece mentions some of my work on the topic, as well as pieces by Michael Giberson and Tyler Cowen. It’s a fair and accurate summary of our views, but the overarching tone of the piece is basically “look at the crazy stuff these economists believe!”

I understand the negative reaction that most people have to price gouging, and to the academics who defend it. The suffering caused by disasters like Hurricanes Harvey and Irma is immense. And sometimes those of us who write about price gouging can seem insensitive to that.

Still, as unpopular and unattractive as it may be, I think the pro-gouging position is the correct one. My reasons for that conclusion are developed in some detail in my paper on the topic. But if that’s a bit too TLDR for you, here are two points that I think are essential to bear in mind for any intelligent discussion of this topic. (If these are still too long, I have a short video on the topic too.)

  • Price Gouging Doesn’t Cause Scarcity; Disasters Do. In the aftermath of a natural disaster, there often aren’t enough vital resources to go around. Disasters destroy existing supplies of goods like drinkable water and electric power, and increase demand for substitutes. As a result, no matter what we do, some people’s needs are going to go unmet. In extreme cases, the results of this scarcity can be tragic. But it would be a mistake to blame unmet needs on price gouging. Disasters cause scarcity; and scarcity means that resources have to be rationed. Whether we do that by price increases, or waiting in line, or through a random lottery, some people’s needs are going to go unmet.


  • The Real Question is Which Method of Rationing is Least Bad. What most people call “price gouging” is really just one way of rationing scarce resources. A more accurate description would be rationing according to willingness-to-pay. When too many people want something, and there’s not enough to go around, one way to bring supply and demand into balance is to allow prices to increase. That’s not the only way of rationing scarce resources. But it does have two advantages. First, it dissuades people who don’t really need the resource from consuming it (call that the demand problem). Second, it encourages people who have an abundance of the resource to bring it to market in order to earn the exceptionally high profit (call that the supply problem). No one is saying that price gouging is a perfect method of rationing. I certainly wouldn’t use it to ration goods among friends or neighbors who I knew well. But in the large and anonymous setting of the marketplace, where knowledge of who really needs what is limited and empathy is in short supply, rationing according to willingness-to-pay is arguably less bad than any of the alternatives at solving both the demand and the supply problems.

In short, those of us who defend price gouging want the same thing that most of us do – we want scarce resources in times of emergency to go to those who need them most. Our claim is that rationing according to willingness-to-pay does, at least in some contexts, a better job of achieving this goal than any alternative mechanism.

Not raising prices and simply allowing those who show up first to buy whatever they wish might seem like a more moral alternative. At least, no one’s going to charge you with “gouging.” But that leads to situations exactly like the one featured (though apparently not understood?) at the top of Sorkin’s article. And that’s no help to whatever desperate people might show up too late.

  • HermanStone

    “Second, it encourages people who have an abundance of the resource to bring it to market in order to earn the exceptionally high profit (call that the demand problem).”

    I think you meant “supply problem” for this one.

  • King Goat

    Matt, I think what most people deplore as ‘price-gouging’ is a situation like this: I own a store which sells, among other things, bottled water. I sell it every day for a price around what stores in neighboring districts sell it for. Disaster hits my neighborhood, making it hard to replenish my stock and leaving most in the neighborhood without alternatives. I have a few left, and people show up wanting water right now. In a day or two, this will be sorted out, and water will be available at about the usual price. But I suddenly jack up my price to far higher than that of neighboring stores (and far, far higher than my usual profit-producing price) because my customers are momentarily desparate.

    I’ll take no loss over selling it at the usual price, I just saw a chance to make a lot more than usual because my customers are ‘over a barrel.’ And I’m not impacting anything,”encourag[ing] people who have an abundance of the resource to bring it to market;” in a day or two in a first world country things are usually cleaned up so that usual distribution starts again. All that’s really going on, it seems, is my greed.

    “it dissuades people who don’t really need the resource from consuming it”

    A person who can’t afford it is not necessarily someone who doesn’t need it. I realize that’s a bug of capitalism in general, but I think that’s in part why price gouging is so universally reviled in capitalist countries, no system is perfect and price-gouging in these situations reveals the ugliest face of capitalism.

    • “A person who can’t afford it is not necessarily someone who doesn’t need it.”

      True. Like I said, it’s an imperfect mechanism. Still, there are two points to make in response to this. First, there is an imperfect but still strong correlation between willingness to pay and need. Even granting that some people need it and can’t afford it, rationing by willingness-to-pay still helps to move goods toward those who need them more. Moreso than, say, rationing by the method of first-come-first-serve. Second, it’s worth thinking a bit more about what “can’t afford it” means. Suppose a bottle of water that normally sells for $2 sells instead for $12 in the wake of a disaster. That’s a big increase. But it doesn’t necessarily price a lot of people out of the market, in absolute terms. It’s unclear how much actual price gouging renders people absolutely unable to pay, as opposed to simply making it uncomfortable for them to pay.

      • Sean II

        There’s an interesting clue to folk economics or anti-market thinking here, in the things people don’t say.

        Someone like Cohen would say merchants in a disaster should simply give their goods away, and turn themselves into temporary aid workers. They’d tell you it’s morally revolting to sell these scarce necessities at any price.

        Yet that’s usually not what you hear in these arguments. The demand is not “give for free” but “sell at yesterday’s price”.

        Yet the very poorest, the worst of the worse off, will be those without a dollar in their pocket, who cannot buy at any price. So what about them?

        Why don’t disaster pricing arguments advocate for the amount they can afford, just because it happens to be $0?

        One possible reason is: it would too obviously bring up the rationing problem you mention above, and make it harder for people not to notice how arbitrary queuing really is. In a zero price scenario, you just can’t miss the fact that someone is bound to come away empty handed, that – as you say – we’ve merely swapped sad stories among the late, for sad stories among the broke.

        Another possibility is: most people see this debate from the seller’s point of view. They focus on the excess profit, the part of the story where something wholesaled for $1 that normally retails for $1.1 is being bought up for $20 a unit.

        They don’t focus on the buyer who spent that $20, because again it would be obvious that he must really have wanted the item, to say that sum. They don’t focus on the bad luck of the guy who didn’t have $20 to spend, because of course he might have just as easily have lost by late arrival. What they focus on is the shopkeeper, and the extra money in his pocket. THAT is really the offensive thing here.

        One can find support for this interpretation in the everyday behavior of anti-market folks. As a group socialists and progressives show a revealing tendency to spend more time fretting about what the rich have, than what the poor lack.

        It isn’t poverty that offends them, it’s wealth. The classic click-bait stry in a recession is not “behold these wretched poor”, it’s “you won’t believe what these CEOs make”. Piketty didn’t become a hero to the left by prophesying the poor would starve, he did it by predicting that the people who already own boats would soon have the means to buy additional boats.

        • King Goat

          “What they focus on is the shopkeeper, and the extra money in his pocket.”

          I get you want to ascribe the worst (and of course latent) motives to those you disagree with politically, but it’s more likely what they don’t like there is the unequal bargaining power in the transaction. The idea that very unequal bargaining power undercuts the legitimacy of the supposed consent in a deal is a quite old one.

          • Peter from Oz

            You are right, the folk-marxists on the left are very much exercised with power. They see all human relationships as being being battles between the oppressors and the oppressed. But Sean has merely shortened that to the idea of focusing on the shopkeeper.

          • King Goat

            I hate to break it to you, but the idea of unequal bargaining power vitiating the legitimacy of apparent consent is not confined to and indeed predates Marxism. And note, it’s not necessarily focused on gain (profit) at all.

        • R.Levine

          I agree that the progressive left seems to focus much more on the moral outrage of others being better off than that of poverty. It’s long been a pet theory of me that leftists seem more focused on relative vs objective status as a metric of overall well being (so that a leftist would probably be more likely to say Julius Caesar had it better than an unemployed 26 year old American living in his parents’ basement in 2017, even though the latter is probably materially better off in most ways).

          As for the specific point about price gouging though, I think the response you’d get from moderate or middle left critics is “Of course I don’t think sellers should be obligated to give things away! They deserve to make a reasonable profit at reasonable market rates for their hard work. What they don’t deserve is to exploit a transient massive shock to demand to rip people off.” They probably wouldn’t phrase is as “demand shock” but you get the idea. I think the same kind of thinking is probably behind good samaritan laws.

          Incidentally I have a friend in Jacksonville who owns a barber shop and often posts libertarian-esque stuff to Facebook, but last week he too was posting “take note of anyone you see price gouging during the hurricane and be sure to boycott them afterwards”, etc.

          • Sean II

            That figures. Barber shops are like lyceums of folk economics. There’s always a guy there teaching lessons in “that’s how they getcha”.

            But why would a “reasonable profit” still be reasonable in an emergency? Forget leftists, even libertarians have been known to forgive trespass and theft of the cabin-in-the-woods sort.

            If it’s okay to steal in an emergency – i.e. if ordinary property rights can be suspended, then why would ordinary profit expectations still hold?

          • R.Levine

            Well I didn’t say I endorsed the “reasonable profit” response so take this in the spirit of devil’s advocacy, but aren’t these two very different meanings/types of “emergency”?

            Emergency type 1: You’re literally starving to death and will perish if you don’t steal someone else’s food. Everyone agrees: this is a life-threatening acute emergency for you, so go ahead and suspend property rights and steal a sandwich

            Emergency type 2: There’s some “general state of emergency,” of which a hurricane is a great example. There’s no immediate threat to anyone’s life or livelihood represented by your continued insistence on being paid the normal amount of profit, so this fails to pass the threshold for “ok, there’s a much higher priority at stake here so go ahead and suspend profit expectations entirely.” Maybe if the flooding and power outages render all the ATMs and credit card readers in town unusable and this goes on for days, etc. you can start to make this look more like type 1, but then I suspect the median person would start agreeing that the right to normal profit expectations becomes less defensible.

            But back to the original point, I agree that “reasonable” is pretty meaningless in this context (the guy who chooses to keep his store open in the hours leading up to the storm rather than leave town early may be taking on much greater risk, for example): I chose the wording to imply the “we know what things are worth better than the market” that I associate with people who get outraged about prices of things. Perhaps that was a little uncharitable of me, but I feel like I’d heard similar versions of it enough times that it had a decent chance to pass an ITT.

          • Sean II

            I see what you’re saying, but I think this…

            “There’s no immediate threat to anyone’s life or livelihood represented by your continued insistence on being paid”

            …is the key point of dispute.

            Since we started out trying to square the leftist circle – by asking “if they argue for disaster price stability, why not take the obvious further step and argue for disaster price reduction” – I don’t believe the quote above gets us to a good grade on the ITT.

            It just doesn’t sound like a very lefty thing to say: “True, the storm has left millions without clean water. But even so we shouldn’t expect merchants to make do without a normal rate of return. It’s not as if clean water is a matter of…”

            Just can’t picture them saying anything like that. Indeed I think it’s part of being a Leftist that you can’t really use “profit” in a sentence without sounding the trombone of negative emotion. I’m trying to imagine them sticking up for any level of profit in an emergency, but I can’t.

            Also I follow a lot of leftos on Twitter, and they’re not shy about pulling out the life-and-death card. Just this year I’ve learned from them that the PPACA repeal was “literally a vote to execute poor people”. Also that oil companies “literally murdered Houston”, although given that town’s dependence on the fossil fuel industry it’s not entirely clear why they object. Get back to you when I figure that out. The same sources tell me that drug companies “literally make a killing out of killing”, which would seem to reflect a view which holds any sick person to be a kind of disaster victim, from whom it’s wrong to extract profit. In calmer weather the same sort of people have assured me that high-speed internet access is, you guessed it, “literally a basic need”.

            Point being: the leftists I see would have no trouble constructing an argument that, under disaster conditions, a long list of things from food and water to drugs, batteries, gas, clothes, become necessities subject to cabin-in-the-woods type intuition.

            Another decent piece of evidence is their attitude toward looters, which seems to run along a spectrum from “meh” to instant forgiveness, and indeed disdain from anyone who would be so uncouth as to complain about them. (Although I can think of at least one factor that confounds this.)

          • R.Levine

            I would’ve appreciated a trigger warning there for violent abuse of the word “literally”…

            But ok, sounds like you probably just have a bigger sample set than I do of “leftist opinions” to work from (incidentally: are there any you’d recommend following for ecological observation? Or even just entertainment value?).

            I tried to sort of disclaim my original comment by saying “moderate or middle left” critics, but just to give a concrete example of what the more left-leaning people in my peer group look like: a good friend and former coworker’s husband is a cofounder and CEO of a small (~30 people) tech company. He’s 30 years old, self-describes as a “socialist”, and was a committed Bernie Bro last year (probably still is). Once at a party I was hosting I tried as politely / charitably as I could to ask how he reconciles himself to the socialist calculation problem. His response was that “obviously” central planning doesn’t work and that any modern / serious socialist project would retain something like the pricing system we have now. I didn’t press further because I was already a few whiskeys in and didn’t want to turn my party into an acrimonious political debate.

            So, I have a hard time imagining that guy (or most of my self-described “progressive” friends) advocating the kinds of things you mention hearing from leftist twitter (though I concede they’d probably still shy away from the word “profit”). As I mention above this may just be limited perspective on my part, so happy to read any worthwhile sources if you’d care to suggest any.

          • Sean II

            Sorry for the delay, got caught up in some other shit.

            So to keep up on your Turing Test performance I recommend Twitter. The key is not to oversubscribe so much you feed becomes unreadable, but rather to look for a handful of sources, then draw from their following list as needed.

            Believe it or not, one good place to start is BLM huckster Shaun King (he’s the might-be-white one). I also follow Deray, Netta, Patrice, etc. but they tend to be pretty single-issue. If you’re less interested in race relations they’ll bore you to death.

            Shaun (perhaps because he’s really a white ally) tends to push a broader range of lefty issues, and since he does nothing else with his time, rarely misses a major talking point or meme.

            Another good one is Corey Robin, worth keeping up with both on Twitter and by blog, along with the rest of the Crooked Timber crowd. These are the cutting edge too-cool-for-school lefties, and as such they offer a sneak peek of what mainstream lefties will be saying…er, six months from now.

            Speaking of the mainstream left, you can take their pulse pretty well just by keeping up with Vice, Young Turks, the Nation, Mother Jones, etc.

            Also recommend Sam Bowman and Julia Galef and Michael Tracey, people who try to be centrist or non-partisan. One can learn a lot about the left just by watching how difficult that task has become.

            And because mirth matters, throw in a couple of jesters, fools for the Lefty Christ. Hard to beat Kurt Eichenwald and Paul Kurgman for self parody of that sort lately.

          • R.Levine

            Thanks! Most of these are new to me; I’ll check them out when I have time.

          • Peter from Oz

            Folk economics is often the realm of folk marxists.

          • Farstrider

            What is the economic argument against boycotting them? (There is no moral one.) I would think an economist would say that the seller should have priced the public relations consequences of his actions, including his prices, into his business decisions. Thus, the seller either raised prices knowing that he might risk a boycott or other backlash, but decided the additional profits would be worthwhile, or did his math wrong. Either way, they should face the market consequences of their actions, no?

          • R.Levine

            That’s a good point regarding integrating PR consequences into a price, and one I’d generally agree with (did I say something that made you think I wouldn’t?). It seems like it fulfils a similar function to buying insurance, in that the seller is spending money (in this case the opportunity cost of foregoing potential profit) on continued goodwill from his customers (“insurance” that there won’t be a backlash later on due to people feeling like they were taken advantage of).

            I suspect that’s actually pretty close to how my barbershop-owning libertarian acquaintance in Jax would justify his position, if I quizzed him on this.

            Of course, the efficacy of any particular boycott is an empirical matter, right? I don’t know any research off the top of my head, but I seem to recall reading at various points that boycotts are generally pretty ineffective (I’m sure someone can correct me if that’s wrong). Naively I would expect that boycotts against more “institutional” sellers (i.e. a brick-and-mortar shop) would be more likely to be effective than those against one-off or ad hoc sellers (the guy who buys a shipping pallet of water bottles and sells them out of his pickup truck), and also that they’re more effective as the cost of taking business elsewhere decreases (i.e. if there’s a store across the street with similar inventory)

        • Peter from Oz

          Have you ever tried that experiment with children where you give one just a little bit more ice cream than other whilst giving both more ice cream than anyone would normally want at one sitting? The child who gets the smaller portion always whines about how unfair it is that the other child got a bigger serving. He doesn’t care whether he has got enough, only that he hasn’t got as much as his mate.
          Many liberals and progressives don’t even get out of this way of thinking. I can only think that their parents were not too hot on teaching them the realities of life.

          • Farstrider

            It is because the two children know that that, past the minimum amount for bare survivability, your wealth only has meaning as compared to the wealth of other people. There is no such thing as “enough” in that context, there is only a comparison between how much you and the other person has. We also call this “fairness.”

          • Peter from Oz

            If children ”know… wealth only has meaning as compared to the wealth of other people”, then they ought to be disabused of the idea, because it is the idea that is going to destroy the world. it is the single nastiest idea in the world today. Discrimination and all that bollocks is nothing in the evil stakes as envy.

          • Farstrider

            People who think this generally do not understand how economics works. Wealth and income are like prices – meaningless without a basis of comparison. Is a $100 a lot of money? Yes if an apple costs $1 but no if it costs $1000. The same is true with wealth and income: having $10,000 in the bank and a $10/hour job is great if everyone else is about the same, but terrible if everyone else has a lot more. Ir put another way, it’s great in 1917 but not so great in 2017, because the basis of comparison is different.

          • Peter from Oz

            You seem to be having a different argument to the one we’ve been having. Mine is an argument against envy. Yours is an argument about determining whether an income is adequate.
            I thought it was obvious from the example of the children and the ice cream, that I was referring to a situation where adequacy of income and wealth was not in question.
            I assume that person with the $10/hour job would be struggling to make ends meet. It follows that he could argue that he should receive welfare or a higher salary in the interests of fairness. But this would epend on the circumstances. But what he shouldn’t be allowed to get away with is the complaint that it isn’t fair that others earn more than him.

          • Farstrider

            No, we are having the same argument. My point is that there is no such thing as “adequate” income without context, because adequacy depends on things like what the person can purchase with the income and what other people can purchase with their incomes. That’s why $10 in 1917 is a different world than $10 in 2017.

            You chalk this up to mere “envy,” but that reflects an ignorance of economics. There is no such thing as “adequate income” or a “fair price,” without comparing the income or price to other incomes and other prices.

          • Peter from Oz

            “There is no such thing as “adequate income” or a “fair price,” without
            comparing the income or price to other incomes and other prices.”
            I thought it was clear that in speaking of ”adequate income” I had presupposed that prices had been taken into account. I was not suggesting that an adequate iuncome will be fixed for all time. Of course an adequate income in 1917 won’t be the same as an adequate income a century later.
            An adequate income is therefore an income that allows a person to live reasonably comfortably taking into account today’s prices in his locality.
            I cannot agree that it is necessary to make a comparison of incomes in order to determine whether an income is adequate. That is the post-modern trap of relativism that many economists fall into because they get fixated on the numbers. The Gini coefficient is such an exciting concept that is realtively easy to understand. It thus makes for great headlines even if it does stoke up the passion of the supericial pundits in the media who have fallen for the zero sum fallacy of the economy.
            Of course, I am not arguing that the price of labour is set on some absolute standard. The standard definition of value, the amount for which a willing but unanxious buyer would sell to a willing but unanxious seller (see Spencer v The Commonwealth 5 CLR 418; (1907) ALR 253), requires a comparison of the prices charged for transactions similar to the one being considered. This principle extends to the pricing of labour. But it has no bearing upon whether an income is adequate.
            If a person is earning is earning $10 per hour, we will not answer the question of whether that income is adequate by comparing it to the amount of income earned by his neighbours.
            Yes, the income of his neighbours is of some relevance in determining the prices of goods and services that our $10 hour chappy needs to acquire in order to live reasonably comfortably. But just saying that his income is inadequate because all his neighbours earn $20 per hour or more is not sound reasoning. It is where the tinge of envy begins to leech into the argument.

          • Farstrider

            What is “reasonable comfort?” Can you define it in any way other than by comparing what A has and what his neighbor has?

          • Peter from Oz

            Reasonable comfort merely means a standard of living which I can meet all my needs with a few luxuries thrown in. WHat my neighbour does isn’t really relevant.
            My neighbour has a boat which he sails on the Harbour. To him that’s a sign of reasonable comfort. I don’t see the need to have that luxury. It is possible that I could see something my neighbour has and think that it would be a good idea if I bought one too. But I would make the decision to purchase the item based on my budget and determining whether it is necessary for my comfort.
            The one thing I don’t do is compare myself with my neighbour in an economic sense.

          • Farstrider

            But “standard of living,” “needs” and “luxuries” are relative
            terms. Relative to what? Relative to what other people have.

            You do not mean these words in a literal, objective sense – you would not seriously contend that you were in “reasonable comfort” if you all you had was oxygen, water, some gruel, a tent to sleep in, plus a really nice car and a diamond ring, even though that meager list of assets would indisputably provide you with your “needs” and a few “luxuries.”

            You mean something much more precise than that. Particularly, you mean a level of material well being that mirrors or approximates what other people in a particular income strata have, like a house of such and such a size in a reasonably safe and clean neighborhood, indoor plumbing, electricity, a certain quality of schooling for your children, affordable access to given level of health care, the ability to retire at some point in your life, a nice TV, internet access, an iPhone, a car or two or three, a nice vacation every year or two, dinner out once in awhile, etc. You would not think any of these things would be required for “reasonable comfort” if a lot of other people did not already have them.

          • Peter from Oz

            ”But “standard of living,” “needs” and “luxuries” are relative
            terms. Relative to what? Relative to what other people have.”
            Ah, now I see where you gone wrong, you haven’t read the Wiki Man.
            Rory SUtherland is an executiveni an ad agency in the UK. He writes a fortnightly column in the Spectator (one of life’s necessities).
            In his column he notes the quirks and fancies that affect modern life but which economists and other social scientists often fail to notice. One of them is the proliferation of goods.
            In the 1920s Sutherland’s grandfather was a country doctor. So he had a solid upper-middle class life. This meant that he opwned lot of things that his working class patients didn’t, such as a house, a car, a radio, a phone, good food and inside plumbing. Now everyone has these things, and more. So the comparison is no longer so much between the haves and have nots, but between different brands. You ahve a seiko I have a Longines, etc.
            But the point is that in this day and age just about everyone can afford a wide range of goods and services. Of course people compare themselves with others, but my point is that they should not let that comparison blind them to their good fortune.

          • Farstrider

            Ok, but you’ve changed course. Your original point was not about gratitude for good fortune. Your original point was that it was wrong somehow to gauge how well off I am by seeing how well off my neighbors are. You’ve retreated from that silliness now, so my work here is done.

      • King Goat

        The case most recently reported was a case of bottle water that normally went for eight dollars selling for 99. That would price quite a few who might need it out.

        But take this example: a family driving through the desert has car trouble. The car breaks down several times, but they patch it up so it can go a little further, it breaks down again, they fix it so it goes a little further, etc. They’ve spent hours and hours in the desert heat. Finally, the car sputters up to a convenience store. The next establishment of any kind is an hour away, which they will have to walk. The store owner sees the sweaty, dirty, exhausted family slink in the store and head to the drinks section, and the owner skips ahead of them and changes the price of the drinks from 2 dollars to 20. Is what he did wrong?

        • Hollis Butts

          You could ask the family if the drink is worth $20, worth paying for. If the seller is selling the drink for what it is worth, it is a normal transaction. How much the seller paid is irrelevant.

          • King Goat

            It’s worth paying 20, or anything, because…they’re dying…

          • Hollis Butts

            I don’t quite see where you are going. The drink is worth $20 and the
            family has got $20. Actually, if the family had only $5, they would have
            an advantage because the seller would be forced to sell it at that price. Assuming that he is a greedy bastard, $5 is better than nothing.

          • King Goat

            When you look at a transaction between a well off, not dying shopkeeper and a poor, dying potential customer over a necessity to the latter, and you see the advantage to the former….Wow.

          • Hollis Butts

            Yes, the seller in this case has an advantage over the buyer. Is that a reason to under-price his goods even though the buyer can afford the seller’s price?

        • Salem

          What he did isn’t wrong, no.

          But more importantly, neither is it relevant. Notice how the salient features that power your example (a price customised to the willingness to pay of a single individual, the possibility of negotiation and game theory, because of a single buyer and a single seller) are completely irrelevant to price gouging in the real world.

          In the real world, there are multiple buyers. If someone is selling bottled water for $99, it’s not because the shopkeeper noticed that the customer had precisely $99 in his pocket. It’s because someone else was willing to pay $95 for it. If he cuts his price to $95, someone is still going to go thirsty, but now it will be on some other basis (queue, personal preference, etc).

          You’re also wrong that short-term disruptions to supply don’t encourage temporary entrepreneurship. Of course they do – unless stifled by anti-gouging laws.

          John Shepperson was one of the “gougers” authorities arrested. Shepperson and his family live in Kentucky. They watched news reports about Katrina and learned that people desperately needed things.

          Shepperson thought he could help and make some money, too, so he bought 19 generators. He and his family then rented a U-Haul and drove 600 miles to an area of Mississippi that was left without power in the wake of the hurricane.

          He offered to sell his generators for twice what he had paid for them, and people were eager to buy. Police confiscated his generators, though, and Shepperson was jailed for four days for price-gouging. His generators are still in police custody.

          But, you know, heaven forfend that anyone doing good should be rewarded. If you aren’t suffering, it doesn’t count as virtue.

          • MARK_D_FRIEDMAN

            “If you aren’t suffering, it doesn’t count as virtue.” Might have to steal that one.

          • Sean II

            Irish Catholicism stole it first.

          • King Goat

            “heaven forfend that anyone doing good should be rewarded”…with extraordinary, windfall profits precisely because the other side of their bargain has been reduced, through no fault of their own, to desperation and need…

            Uh, yeah, most people’s moral intuition’s say ‘heaven forfend’ to that.

        • Lacunaria

          I think it would be contemptible, though not so wrong that the sale should be forced if they can afford it. Better would be advertising his act and competition. Moreover, it would be irrational to let them die if it costs so little to save them. Maybe they’ll work for sustenance. Haha, they seem to be able to repair cars pretty well. 🙂

          The main problem with such theoretical cases is that they are overwhelmingly counterfactual but nevertheless lead to categorical rules which do unintended harm.

          Mark makes a reasonable deontological argument that explicitly excludes “only water hole in the desert” cases.

          • King Goat

            “Maybe they’ll work for sustenance”

            Heck, maybe they’ll sell you one of their kids that will do so for life! I mean, it’s rational (and therefore voluntary, amirite) if the contra is the kid dying (wasteful for all sides, that!).

          • Lacunaria

            That doesn’t sound voluntary for the kid. Are you asking if slavery should be legal? Is this really the scenario that you think is representative of price gouging?

    • Theresa Klein

      But there are many other reasons why a local merchant might increase the price of something, besides the increased desperation of customers.
      1. The merchant might be desperately paying suppliers above market rates to get someone to drive into the disaster area to bring more water – those costs could be front loaded and by the time the water gets there, the “market price” might have fallen, so he charges more for the existing water, which helps cover the risk of taking a loss on the future water deliveries.
      2. The merchant might want to keep some water in stock, instead of allowing it to get completely sold out, in the event the emergency gets worse and water get in even shorter supply. In other words, he might be implementing a kind of rationing. Keep raising the price in order to avoid running out completely so if someone really truly in need arrives, or if the situation gets very dire, there will be some left (and then you can always give it away).

  • M Lister

    “Willingness to pay” is surely misleading in many cases, including many cases of price gouging. Ability to pay at best is a deeply imperfect measure of willingness to pay. We’d only get a measure of “willingness to pay” between any two people if we had equal resources (and some other things.) This doesn’t mean that your larger point is wrong, but that this way of putting it (which is, of course, common) is misleading. I wish it were used less, or at least with more qualification.

  • Salem

    Allow me to re-write the OP in a style more suited to BHL’s recent content.

    Anyone who opposes price gouging is a despicable racist.

    Price ceilings lead to surplus demand, giving merchants the power to select who they do business with on an arbitrary basis, with no penalty attached. Scarce resources will be distributed, not to those who need them most as judged by willingness to pay, but to insiders, the well-connected, the most favoured groups. And, in a country as racist and unequal as the United States, that predictably means that African Americans and other minorities will lose out. The price system punishes racism, whereas price controls enable it – and price gouging laws worst of all, because in the aftermath of natural disasters they will kill people.

    If you support a measure that enables racism and will predictably disproportionately kill minorities, you are a racist (and a homophobe, and a transphobe). All of which are incompatible with being a True Libertarian™.

    If Black Lives Matter, you must oppose price gouging laws.

    • I realize you’re being hyperbolic here, but this is actually a really important point. If we don’t allow prices to allocate resources, we do enable people to select their customers through biases like bigotry or nepotism. Most of us would agree that the more bigoted outcome is the inferior outcome.

      • Sean II

        Counterpoint: if we let prices work, we perpetuate racial inequalities in the distribution of wealth.

        The higher cost to discrimination is merely theoretical.

        In practice whites will still end up with those scarce resources, because they started with a greater ability to pay.

        A visitor from afar, surveying the outcome, will struggle to distinguish between the distribution created by floating prices, and the distribution created by white ethnic patronage.

        • This is a fair point, and something similar came up in Bryan Caplan’s UBI debate with Will Wilkinson. My gut is telling me that the implementation of price controls during temporary natural disasters is a crude implement to use for correcting racial income disparity.

          That is, if the problem is price gouging, price controls at least attempt to address that problem. But if the real problem is income disparity, then price controls will do almost nothing to solve that problem. Better to address this latter problem with more appropriate policies outside the context of a natural disaster.

          • Sean II

            Yes, although suddenly it occurs to me there may be a comedy sketch in here:

            We open the last bottle of clean water in a Tampa that looks like Atlantis got dropped on Nagasaki. It’s being auctioned before a crowd with 99 rich looking whites and one unoptimistic black kid. The whites bid furiously with each other, until the hottest and richest blonde in the crowd escalates all the way up to one bitcoin.

            But when she goes up to claim her prize the seller notices her soaked iPhone and it becomes clear she can’t deliver anything but a promise. Likewise for the runner up, who can’t release funds for lack of access to Pay Pal. And so on through a range of crypto-currencies and hipster money substitutes, none of which work under present circumstances.

            Finally, the black kid gently edges his way to the front of the line and, removing a water-logged boot from one of his feet, produces a tattered five dollar bill.

            “SOLD…to the old-fashioned gentlemen from College Hill!”

      • Salem

        I was making two points.

        1. Price controls really do enable racism. You see this most obviously in minimum wage laws and rent control.

        2. BHL authors never use this kind of hyper-moralised language against the left. The invective is only ever against the right.

        • Both points very well made and well taken! Thanks.


    I have no issue with your argument, but it raises this question. Unless I’m mistaken, it’s purely utilitarian. If so, would you approach other public policy issues in the same way? For example, would you support the min wage if I could persuade you that it enhanced utility overall?

    • Swami

      Yes, I would be persuaded by a strong consequentialist argument.


        Makes perfect sense…if you are a consequentialist.

  • I USED to think the song went, “tax the rich; feed the poor, till there are no poor no more.”

    Later, I discovered the song really goes, “tax the rich; feed the poor, till there no RICH no more.”

    That says it for me. “I’d Love to Change The World” by Ten Years After

  • John Howard

    I prefer moral to utilitarian defenses of libertarian positions, although I’ve read that the utilitarian arguments are more “winning”. I defend price gouging on the grounds of property rights. If I own a bottle of water, I can put any price I like on it. Period.

    That there are huge discussions about what is best for the poor and needy is merely the ongoing promotion of altruism which Ayn Rand so strongly condemned. I agree with Rand on this point. I refuse to discuss how best to distribute what is not mine to distribute.

    I do notice, however, that the moral position (property rights) also ends up being the utilitarian position. Minimum wage laws and anti-price-gouging laws are both based in altruism, ignore property rights, and consistently produce disaster.

  • JW Ogden

    People seem to be more concerned about gouging than they are about people buying more supply that they need.

  • Konrad_Lorenz

    “in the large and anonymous setting of the marketplace, where knowledge
    of who really needs what is limited and empathy is in short supply”

    The whole problem with your argument is that empathy is not a zero-sum game. In a disaster, the economy is temporarily restructured to be driven by empathy and cooperation. Men with chainsaws appear on the streets to perform free labor. Private transportation (cars, boats) becomes available to wet cold pedestrian families, free of charge. Donations of money and blood pour in from long-distance observers.

    Empathy builds on empathy, rather than expending itself. Ruthless self-interest does not conserve a limited supply of empathy; it destroys the empathy of others. The damage of price-gouging in this respect is similar to that of looting. It kills the vibe. It stops (or slows) the chain of pay-it-forward. The economic damage extends far beyond the immediate transaction.