Unintended Consequences of Price Gouging Laws

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From The OK Disaster Scam Prevention Packet, as prepared by OK Attorney General E. Scott Pruitt’s “Public Protection Unit”

Most states have laws that purportedly protect people from evil “price gougers” in the wake of man-made or natural disasters. Some are toothless and silly, affording publicity seeking politicians to give themselves some good press, while others are draconian or invasive.

One point to consider is that price gouging laws do nothing to address or fix the shortage of a certain commodity due to either high demand or diminished supply. They’re not a solution.

These laws impose a “finder’s keepers” marketplace, where those conveniently situated to suppliers can hoard much needed goods at what are effectively below-market rates, rather than a market-based economy where buyers and sellers can decide what prices they’d like to charge or the price they’re willing to pay.

Oklahoma’s law seems especially pernicious because it restricts the ability of prices to rise by 10% not just for the immediate time after the disaster, but for 30 days after – and for “dwelling units, storage space and goods related to home repair and restoration”, 180 days after.

While big-box stores like Home Depot and Lowe’s have the size and scale to absorb potential losses from such a prohibition, it’s doubtful that your local mom-and-pop hardware store will escape as unharmed.

Of course, there are individuals who would try and skirt the law, and that’s not hard to understand because it is a bad law. Jim’s Hardware could mark up all items by 55% immediately before the disaster, and presumably be able to better absorb the price shocks they’d experience afterwards. However, you can bet that your local “consumer reporter” would be all over that in about a New York minute.

Lastly, even if price gouging laws do result in savings before the shortages occur, it’s worth asking whether, on net, the prosecution of violators if price gouging laws ends up costing taxpayers more than the money the few who were lucky enough to stock up on D-Batteries and bottled water saved?

Put another way, can you put a price on feeling good that you weren’t “ripped off” — even if you are living in the dark and thirsty? Will that round out the balance?

Could it be that these laws harm more than they help?

Here’s a good video on the topic:

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