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News Link • Free Trade

Anti-Gouging Laws Prevent Prices from Sending the Right Signals

• The Independent Institute

Governor Chris Christie of New Jersey, a Republican, and New York Attorney General Eric Schneiderman, a Democrat, have warned sellers against “price gouging” in the wake of Hurricane Sandy.

Their words and policies are supposed to help people during a catastrophe, but the opposite is true. As columnist Matthew Yglesias explains in Slate, stopping price hikes during disasters doesn’t make things better for consumers, it worsens shortages and complicates preparedness.

The basic imperative to allocate goods efficiently doesn’t vanish in a storm or other crisis. If anything, it becomes more important. And price controls in an emergency have the same results as they do any other time: They lead to shortages and overconsumption. Letting merchants raise prices if they think customers will be willing to pay more isn’t a concession to greed. Rather, it creates much-needed incentives for people to think harder about what they really need and appropriately rewards vendors who manage their inventories well.

Consider the case of Thakur Gas. The Branchville, N.J., service station was fined $50,000 for raising the price of gasoline 17 percent when Tropical Storm Irene hit last year.

But which would have been worse for consumers: higher prices at the pump for a few days—or letting gas sit idly in a storage tank while drivers try to figure out alternative means of transportation?


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