October 2, 2017

The Morality of Price Gouging

Patrick McLaughlin

Senior Research Fellow

Stephen Strosko

Program Coordinator
Summary

Cracking down on price gouging in the aftermath of disasters can do more harm than good.

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As new stories surrounding hurricanes continue to surface, it is amazing to hear how so many people are pulling together to help the people impacted by these storms.

However, for every story like that of J.J. Watt raising over $30 million to support the victims of Harvey, there is a troubling counterpart. For example, Texas Attorney General Ken Paxton cracked down on price gouging during the hurricane's aftermath, with fines reaching as high as $200,000. This may sound justifiable, but it does more harm than good.

It's fine for Paxton to play the morality card when asking Texans not to raise prices during a disaster. Yet what politicians typically view as price gouging during a catastrophe is actually a necessary function for allocating scarce goods to the people who need them the most. Both sides of the coin – morality and gouging – are needed post-disaster.

Price gouging is never an easy topic to discuss. When an individual raises the price of a necessity like water or gas during a natural disaster, it is very easy to dismiss such an action as heinous. In reality, however, such an action is better described as price "gauging" than price "gouging." In fact, without the information produced by price gauging, the victims of natural disasters would be even worse off.

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