The case for price-gouging
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Dealing with the aftermath of recent natural disasters, including Texas, Puerto Rico, and Florida, has left people heartbroken. Fearing for his citizens, the Attorney General of Texas Ken Paxton issued warnings to businesses in the area to not “price gouge,” stating this act was illegal. The Attorney General of Texas despises price gouging because he believes it is manipulating the vulnerable. The truth is, however, that giving businesses the freedom to raise prices in a time of crisis actually helps victims instead of harming them.
Hiking prices in the event of a natural disaster is commonly referred to as “price gouging.” Opponents of this practice often seek legislation, capping prices at a certain level. Pushing this law is certainly understandable, and often garners heavy support from the public. In many areas across the country, this practice is already prohibited. Unfortunately, artificially setting prices hurts consumers the most.
If victims of disaster see normal prices when they enter stores to purchase supplies, they often will not behave as if there is a scarcity of goods and buy their normal quantity. Even worse, the first people to make it to the store might choose to stock up at the low prices and buy more than they normally would just in case. Those late to the location may suffer from empty shelves.
Enacting this unnatural legislation denies the harsh economic reality of increased scarcity. The local companies, farms, and factories likely have been damaged to some degree. Furthermore, roads and transportation into the area might be flooded or damaged. With human needs of shelter, food, water, and other supplies skyrocketing, the demand from the consumer skyrockets as well. Coupling increased lack of products and a surge of desire from buyers naturally raises the cost of any product. Businesses need to be allowed to do so not only to stay profitable, but also to benefit the patrons of the business.
When prices rise, this incentivizes companies from outside the area to come in. These businesses are shipping goods farther distances, paying workers more, and risking capital as trucks drive into hazardous climates. All three of these factors raise the cost of production. People have immense love for their fellow citizens, which is why many give in times of need. But the only motivating factor for a businessman to ship goods into a dangerous location is profit; capping prices artificially erases any incentive to do so.
Once the prices can actually be lifted, the producer and consumer can properly negotiate to handle the exacerbated scarcity of goods. Skeptics of this action are fearful of all businesses collectively raising prices and manipulating the victims. Although prices will certainly rise, all it takes is one business to lower prices to out compete their economic rivals. If a business is charging too high of prices, customers will go to other sellers and that business will sell no products. Enabling this natural competition forces businesses to sell goods at prices customers are willing to pay.
Magic wands that make products appear simply don’t exist, and a natural disaster always creates an increased scarcity. Capping prices ignores the economic reality of a shortage, and gives businesses from outside the area no reason to enter the area. Letting companies raise prices forces victims to ration goods appropriately, and motivates outside companies to ship products to the inflicted area. In final analysis, price gouging is the savior for those in need, not their enemy.