On a recent morning my email brought three different messages from strangers each expressing, in family-unfriendly language, a wish that I meet a hideous, horrible end. One of these correspondents also asked what price I charge billionaires for my soul. This correspondent helpfully included a link to an October 2017 piece of mine in the Wall Street Journal, which made clear just why these strangers were motivated to offer me their not-so-well wishes.
Google then informed me that this Wall Street Journal essay was also mentioned in some overnight tweets, all critical. The essay’s title – which I didn’t choose, but of which I approve – is “‘Price Gouging’ After a Disaster Is Good for the Public.”
So I write here a heartfelt plea, addressed to everyone who truly cares about the well-being of ordinary people, to listen – to truly listen – to the economic case against government prohibitions on price increases, especially those price increases that occur in the wake of hurricanes and other natural disasters.
I understand the satisfaction gained from yelling at bad guys – the gratification enjoyed from publicly calling out those persons whose mean-spiritedness, narrow-mindedness, obstinate stupidity, or greed contributes to the suffering of innocent people. Indeed, I will join with anyone in criticizing all such creeps. They deserve it.
But surely, rather than rush to accuse individuals of being evil, it’s incumbent upon us first to do our best to ensure that we have our facts and analyses straight, as well as to interpret those with whom we disagree in the most favorable light possible. If we refuse to take these initial steps, we are ourselves guilty of wrongdoing. The individuals at whom we aim our ire deserve it only if they really are guilty of the charges that we level against them.
So am I and the many other economists who oppose government prohibitions on so-called “price gouging” really and beyond-doubt guilty of callousness toward the poor and needy? Is it plausible that the only possible motivation for opposition to such government-imposed prohibitions is mercenary service to venal billionaires or corporate interests? Is it unbelievable that these government interventions, however nobly motivated, might unintentionally harm the very people who they are meant to help?
Please, please listen. If after listening you disagree, that’s okay. But I hope that you’ll at least recognize that the disagreement that we have with each other isn’t over values or ends. The disagreement, instead, is over means. Our disagreement reflects different assessments, by well-intentioned people, of how the economy operates. I concede that my assessment might be mistaken and yours correct; after all, I’m only human. But please give me and the many other economists who share my assessment the benefit of the doubt that our intentions and motivations are no less sincere and well-meaning than are yours, for I do genuinely believe that your intentions are good.
I begin by stating what shouldn’t need, but apparently what must, be stated: My economic analyses and the policy recommendations that I draw from these are not done at the behest of billionaires or corporate bigwigs. Nearly everything that I write about prices and price controls is found in any randomly chosen ECON 101 textbook, even ones written by left-of-center economists. And I came to the understanding that I have today about prices and price controls when I was an undergraduate. I came to this understanding because of what I learned in my study of economics, not because oligarchs slipped money into my pockets in exchange for my intellectual obedience. No such exchange was ever offered – and had one been, I would have refused it.
Now to the substance of price movements and government-imposed restrictions on these movements.
When natural disasters strike, inventories are destroyed, and supply lines for delivering new goods to wholesalers and retailers are obstructed. Floods make stocks of lumber waterlogged as they also render roads impassable. Power outages cause refrigerated and frozen foods to spoil and make gasoline in retailers’ tanks impossible to pump. Strong winds and fallen live power lines make travel more hazardous. Factories go dark and fewer delivery-truck drivers and other workers are available.
At the same time, people’s desires to get particular goods and services intensify. Roofs destroyed by hurricane gusts must be patched and then repaired using plywood, shingles, nails, and workers that, had the hurricane not hit, would not have been sought after to be used for such patching and repairs. Households without power will seek to cook more with propane. Leakages of municipal water systems raise people’s demand for bottled water. Individuals injured by the disaster need medical supplies.
The natural disaster simultaneously decreases the supplies of goods and services and increases the demand. This reality is as indisputable as it is unfortunate. But given this unfortunate reality, describing the outcomes that everyone of goodwill wishes is easy. We want individuals with the most dire needs – people who need water lest they suffer intense thirst, homeowners who need plywood to patch the roofs over their children’s bedrooms, families who need blankets to stay warm – to have prospects as great as possible to satisfy these needs. The relevant question is: How best to ensure these outcomes that we all want?
Most economists say that allowing monetary prices to rise is key to making these desirable outcomes as likely as possible. We don’t say this because we’re obsessed with money, because we believe that prices are all that matter, or because we’re pawns of corporate interests. We say this because we understand (or, at any rate, we sincerely believe that we understand) that money prices set on markets reflect as accurately as possible existing economic realities. And in economic matters no less than in noneconomic matters, acting with accurate knowledge of reality is far more likely to prompt people to act wisely and to everyone’s mutual advantage than is acting without knowledge or with ‘knowledge’ that’s highly inaccurate.
Natural disasters worsen underlying economic realities. The higher prices of goods and services reflect this reality. These higher prices reflect the sad reality that natural disasters, while causing families to be in more desperate need for the likes of plywood, propane, and generators, at the same time diminish readily available supplies of these goods. Put differently, these higher prices reflect the unarguable fact that in regions devastated by natural disasters goods have become more scarce and, thus, their market values higher. It follows that government-imposed ceilings on the prices of these goods prevent information about these increased scarcities and higher market values from being reflected and communicated as accurately as possible.
Importantly, prohibiting monetary prices from rising to reflect goods’ decreased abundance does not make the goods more abundant. Nor does prohibiting prices from rising to reflect goods’ true market values bring goods’ true market values down to the government-stipulated maximum prices. This crucial point seems to be missed by proponents of price controls. Governments can control the monetary prices at which goods are exchanged, but they cannot control the values that market participants place on those goods. If, say, lots of people are willing to pay up to $200 each for the same tanks of propane that before the natural disaster sold for $40, the market value of each tank of propane is $200 even if merchants are prohibited from charging a price this high.
Relatedly, the amount of money that merchants paid yesterday to acquire each of these tanks no more determines the value of each tank today than does the amount of money paid in 1997 for a house determine the value of that house in 2024. That value is determined by the amount that buyers are willing to pay now – an amount that itself reflects the urgency of acquiring the good now. With fewer supplies of the good now available, and with the need for the good made more urgent by the natural disaster, the amount that people now are willing to pay rises.
By censoring this important information, price ceilings spread information that’s false.
The false information spread by price ceilings alone goes far to explain economists’ objection to price ceilings. Because more information is better than less, there ought to be at least a rebuttable presumption that the wisest policy is to permit prices to rise in order that they truthfully inform sellers and buyers of the prevailing, dire economic situation. As in all other aspects of life, people are more likely to act in ways that minimize harms or maximize benefits – and that reduce personal conflicts – the more accurate is the information that motivates their actions.
Higher prices in the wake of natural disasters not only accurately inform people of the reduced availability of goods, these higher prices also incite people to take appropriate ‘corrective’ actions.
Having to pay unusually high prices for goods such as propane and plywood is indeed unpleasant, yet this unpleasantness is a feature, not a bug. Unusually high prices discourage people from purchasing these items for relatively low-valued uses. These goods thus remain available to satisfy more urgent needs. Mr. Jones, who would have bought an extra tank of propane at $40 to keep as a spare, is less likely to purchase that tank when propane sells for $200. The tank that Mr. Jones doesn’t buy is now available to someone who desperately needs propane to cook. The sheet of plywood that Ms. Smith would have purchased for $25 to repair her gazebo is a sheet that she chooses not to buy when it sells for $50 – thus increasing the availability of plywood for people who will use it to patch the roofs of their homes.
These unusually high prices also incite suppliers to exert unusual effort to bring additional supplies to the areas damaged by natural disasters. With many roads impassable, the time and risks of transporting supplies into affected areas are greater than they were before the natural disaster. Are delivery-truck drivers greedy for demanding higher pay in order to spend this extra time and to incur these greater risks? Or is the greed really of consumers who expect suppliers to exert extra effort to bring supplies to them but who also don’t wish to pay higher prices to compensate suppliers for this extra effort?
Much more can and should be said about the role that rising prices play when natural disasters hit, as well as about the consequences of prohibiting these price increases. But I hope that enough here has been said at least to persuade fair-minded individuals that those of us who oppose prohibitions on “price gouging” are not ogres in the pockets of oligarchs but, instead, well-meaning persons with plausible arguments.
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