In the summer of 2004, Hurricane Charley roared out of the Gulf of
Mexico and swept across Florida to the Atlantic Ocean. The storm
claimed twenty-two lives and caused $11 billion in damage. It also left
in its wake a debate about price gouging.
At a gas station in Orlando, they were selling two-dollar bags of ice
for ten dollars. Lacking power for refrigerators or air-conditioning in
the middle of August, many people had little choice but to pay up.
Downed trees heightened demand for chain saws and roof repairs. Contractors
off red to clear two trees off a homeowner’s roof—for $23,000.
Stores that normally sold small household generators for $250 were
now asking $2,000. A seventy-seven-year-old woman fleeing the hurricane
with her elderly husband and handicapped daughter was charged
$160 per night for a motel room that normally goes for $40.2
Many Floridians were angered by the inflated prices. “After Storm
Come the Vultures,” read a headline in USA Today. One resident, told it
would cost $10,500 to remove a fallen tree from his roof, said it was
wrong for people to “try to capitalize on other people’s hardship and
misery.” Charlie Crist, the state’s attorney general, agreed: “It is astounding
to me, the level of greed that someone must have in their soul
to be willing to take advantage of someone suffering in the wake of a
hurricane.
Florida has a law against price gouging, and in the aftermath of the
hurricane, the attorney general’s office received more than two thousand
complaints. Some led to successful lawsuits. A Days Inn in West
Palm Beach had to pay $70,000 in penalties and restitution for overcharging
customers.
But even as Crist set about enforcing the price-gouging law, some
economists argued that the law—and the public outrage—were misconceived.
In medieval times, philosophers and theologians believed
that the exchange of goods should be governed by a “just price,” determined
by tradition or the intrinsic value of things. But in market societies,
the economists observed, prices are set by supply and demand.
There is no such thing as a “just price."
Thomas Sowell, a free-market economist, called price gouging an
“emotionally powerful but economically meaningless expression that
most economists pay no attention to, because it seems too confused to
bother with.” Writing in the Tampa Tribune, Sowell sought to explain
“how ‘price gouging’ helps Floridians.” Charges of price gouging arise
“when prices are significantly higher than what people have been used
to,” Sowell wrote. But “the price levels that you happen to be used to”
are not morally sacrosanct. They are no more “special or ‘fair’ than
other prices” that market conditions—including those prompted by a
hurricane—may bring about.
Higher prices for ice, bottled water, roof repairs, generators, and
motel rooms have the advantage, Sowell argued, of limiting the use of
such things by consumers and increasing incentives for suppliers in
far-off places to provide the goods and services most needed in the
hurricane’s aftermath. If ice fetches ten dollars a bag when Floridians
are facing power outages in the August heat, ice manufacturers will
find it worth their while to produce and ship more of it. There is nothing
unjust about these prices, Sowell explained; they simply reflect the
value that buyers and sellers choose to place on the things they exchange.
Jeff Jacoby, a pro-market commentator writing in the Boston Globe,
argued against price-gouging laws on similar grounds: “It isn’t gouging
to charge what the market will bear. It isn’t greedy or brazen. It’s how
goods and services get allocated in a free society.” Jacoby acknowledged
that the “price spikes are infuriating, especially to someone
whose life has just been thrown into turmoil by a deadly storm.” But
public anger is no justification for interfering with the free market. By
providing incentives for suppliers to produce more of the needed
goods, the seemingly exorbitant prices “do far more good than harm.”
His conclusion: “Demonizing vendors won’t speed Florida’s recovery.
Letting them go about their business will.
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