As of right now we're looking at about 30 hours before Hurricane Earl blows past our latitude. It reminds me of something that happened during the aftermath of previous hurricanes: price gouging. Price gouging is a disparaging term given to the practice of hiking prices of demand items after some disruption has occurred that would normally clear out the existing supply. Gasoline, food, water, ice, and toiletries are good examples of items vulnerable to price gouging.
There was a discussion over at GaryNorth.com about this topic. In Gary's response to the discussion, one sentence of his jumped out at me: “Envious people hate the highest bidders.”
I'll explain. A few years ago I attended an estate auction. There was a house full of very nice furniture. I bid on one piece that would have gone very well with our decor at the time. I was outbid. The same gentleman who outbid me on that piece outbid everyone else for most of the rest of the furniture in that house. I later found out that the furniture belonged to someone close to him and he was buying it back. (He could, and he did.) When I was talking with other people at the auction, some of them were incensed. “He can't do that! The auctioneers should stop that kind of thing! How is anyone else supposed to get any?”
Envious losing bidders hating the highest bidder.
I didn't sympathize with the losing bidders at all. That's why it's called an auction: highest bid wins. But it's this same kind of envy that brings about anti-gouging laws.
At the estate auction, anti gouging laws would have prevented the auctioneer from going any higher than a reasonable price for that used furniture. If the rich guy didn't get in the last bid, too bad! Even if he were willing to pay more, too bad! After a disaster zone is declared, in a majority of states it's all of a sudden illegal to roll in with a semi full of 3,000 watt generators that would normally go for $500 and sell them for $1,500. It's all of a sudden illegal to charge $10 for a gallon of gas or $4 for a gallon of spring water. Why? Because the people who (a) didn't prepare for the disaster until everything was gone and (b) can't afford the items at anything except the pre-disaster price get ticked off at the people who can afford the high prices (the high bidders) and want to make sure that they can't buy the stuff either. They do this by punishing the people trying to sell the stuff. The result? Fewer people get the things that they want or need, and the sellers won't try again the next time the disaster hits.
Doesn't make a whole lot of sense, does it? Gouging goes on in other contexts, though. Airplane flights. Amusement parks. Ball games. But somehow it's OK to charge three bucks for a little bag of peanuts during a flight.
If I don't have enough gas for my generator by the time the hurricane comes, that's my own stupid fault. But if the gas station around the corner were to hike their prices to $10 per gallon — high enough to keep the gas in the pumps long enough for me to get down there — I'd be more than happy to get gouged out the wazoo. I'd much rather pay $50 more to keep my generator running than to lose everything in my basement because my sump pump wouldn't work, and lose everything in my freezer because it thawed.
Gouge me until it hurts. Let what's left of the free market work to everyone's benefit and let buyers and sellers meet at a price that's beneficial for both.
(Thanks to Sustainable Life Blog for including this post in the Carnival of Personal Finance!)
May be controversial but I agree. I’m pretty left-leaning when it comes to economics and government regulations but even I hate when people say that a price of something “isn’t fair.”
If someone is willing to buy it at that price, it will be sold at that price. If YOU(the complainer) just bought it at that price, not only is it fair but you and others like you are the reason that it’s not lower.
I do believe in a few exceptions to this rule but they’re not gas, water, or other typically gouged items.
You know you say “gouge me until it hurts,” but what if the price gouging is happening on a more essential product say, housing? Don’t know if you’ve been watching any Katrina documentaries but a lot of people couldn’t move back because the rents had doubled and tripled in some areas. The available housing stock was limited, and because of the disaster a lot more people were looking for rental housing. Perfect gouging situation. But as you know, it was no homeowners “own stupid fault” that their house got destroyed.
It benefits the landlords – who were also more likely to get paid through fema, but renters were stuck out. I don’t care what your argument is, charging $1200 a month for a $600 a month apartment really isn’t fair.
It’s very easy to sit back and say that folks should be responsible and prepare for emergencies. I agree that folks in a sensitive area should be prepared for common occurrences in the areas they live. I also agree that folks aren’t always as responsible as they should be.
Having said that, there’s also a reason that when a disaster strikes there are special government designations that enable the areas affected to get special aid. In those situations, there is no reason for price gouging to occur. Is it worth it to become more wealthy off the backs of the misery of others? What if someone in New Orleans was trying to get out of town but couldn’t because they couldn’t afford the price of gasoline, or they needed a gallon of water to keep living for a few days but couldn’t get it? Is the potential loss of human life worth the extra $$$ in someone’s pocket? You can’t take it with you when you leave!
I used to think more like you do, and then I started thinking (after some highly unusual flooding where I live due to Ivan a few years back) that I sure hope I’m never truly in need and all I encounter is someone with their hand out saying “show me the money”. I couldn’t do that to someone else, and I sure hope they wouldn’t do it to me.
If I thought that retail prices would help get needed items into the hands of more people, I would agree.
The problem is that in an emergency situation, there is no truck coming to resupply the stores. Once they sell out, the retailer isn’t getting any more for a while.
Keeping prices normal doesn’t mean that more people will be able to get supplies because they’re finite. It just means that instead of the people willing to pay the exhorbitant prices receiving the supplies, the people that rush the stores and stations within the first two hours will get it.
I guess it is more of an equal opportunity situation but the same amount of people will still be out of luck.
I agree…even in an emergency I think a business owner should be able to charge what they want. In such an emergency, it’s often dangerous for the store owner to stay and might be more expensive to pay employees to work that day. With a limited supply, if they sell out the first hour, and supply trucks don’t come for days, they have limited their income during the one time you wouldn’t want to do that. If they hike up prices, they are supported for longer. From an owner’s perspective, it would be reckless not to raise prices.
For those who think supplies should be readily available to all in an emergency via cheap prices…guess what, the supply is limited no matter what. Cheaper prices mean that those who get there first will buy more. And either horde, or sell in their community later at a hiked price. So restricting price gouging…really not a solution in an emergency.
Price controls lead to shortages – it’s Economics 101.
If its only for a short time, there may be no ill effects.