Bloomberg.com Cheers Post-Sandy Price-Gouging [Private Sector Disaster Relief]
As I rode a taxi home from work last night, my driver asked if I minded going a fair distance out of our way to return an iPhone to some tourists who had left it in his cab days before. Delighted to play the role of Hurricane Sandy Guardian Angel, I agreed. Our reward? He got a peck on the cheek from some lovely Algerian teenagers, and then we ran out of gas at the Lincoln Tunnel entrance, a few blocks from my home but a borough away from his.
During the drive, he had explained to me that he was almost empty because gas was nearly impossible to find in Manhattan and lines in New Jersey were eternal. As I hoofed it home, I wondered if there was any cure for this post-disaster market failure. Well, a quick Google search provided a resounding answer: Make price-gouging legal.
Now the idea that gas stations and others should jack up prices in Sandy’s aftermath is not just counterintuitive, it is strongly at odds with efforts by New Jersey Governor Chris Christie, New York Governor Andrew Cuomo and other officials to crack down on retailers looking to make increased profits off the storm.
Yet the arguments in favor of extortion are pretty strong. Here’s Matthew Yglesias at Slate:
The failure to allow prices to adjust doesn’t magically eliminate the supply side problems, it just means that the gasoline is misollacated and lots of people need to waste time in line. You can also see that the combination of shortage and underpricing seems to be leading people to overconsume when they do get to the front of the line.
Last but by no means least, the lack of price gouging is harming things on the supply side. If it were possible to earn windfall profits by transporting gasoline into the affected areas, then human ingenuity would be finding ways to do it. But if you restrict retailers to earning merely ordinary profits, then people won’t take extraordinary measure to increase supply.
Price-gouging is just looting in reverse.