Price Gouging Saves Lives (Insert Deep Breath Here)

Everyone is virtue-signaling about how awful oil companies are to raise gas prices in flooded Texas.

Here’s my response to a reasonable, good friend on Facebook:

Bryan, that’s not how markets work. As demand goes up or supply goes down, prices will go up. The laws of economics and human nature do not change because of a hurricane.

If a third party (e.g. government), or if even the oil companies themselves voluntarily lowered prices, it would create shortages. Why? Because by charging too little for the limited supply/increased demand, it would convey to customers that it’s business as usual. Shortages would rapidly ensue.

Remember the gas lines of the 1970s? (I know you’re old enough, like I am!) Government placed price controls on gas in the Nixon and Carter years. Shortages immediately ensued, resulting in gas lines. The market got the blame for that too, but it’s simple economics. You can’t get around this reality. By raising prices after a hurricane, it forces people to conserve during a tight time generated by the unfortunate disaster. I don’t have stock in oil companies and don’t really care about them one way or the other, although I want them to function so I won’t have to live in a third world country without energy.

Here’s how the free market Mises Institute puts it:

The “problem” of “price gouging” will not be cured by imposing rationing along with price controls, either. Rationing of price-controlled ice would still maintain an artificially low price for ice, so the day after the storm hits there would still be no economic incentive for ice vendors to scramble to keep ice available given limited supplies that cannot be immediately replenished. And while it is true that rationing might prevent the person casually purchasing four bags of ice from obtaining all four of those bags (at least from one store with a particularly diligent clerk), the rationing would also prevent the person who desperately needs four bags of ice from getting it.

So you see? Price gouging can, quite literally, save lives. It’s because pricing mechanisms force people to act as rationally as possible under both normal and unusual circumstances.

It’s so easy to sit on your social media perch and condemn what businesses do after a natural disaster to the electronic applause of your progressive friends. Facts and logic will continue to assert their relevance, no matter how much you choose to ignore them.

If you’re really prepared to condemn what you call price gouging of oil companies after a hurricane, then you’d better be prepared to apply this principle to your own business or paycheck. If somebody else needs something more than you do, then you should be prepared to give up anything that might be considered excessive, such as multiple televisions, an extra car, multiple computers or extra pairs of shoes. If you reduce all of your material goods to the very barest of minimums, I still won’t agree with you. But I’ll at least respect you. So unless or until you’re prepared to do that, why not reconsider your condemnation of all things profit-oriented?


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