Texas' attorney general will prosecute anyone who, according to his office, is “(s)elling or leasing fuel, food, medicine or another necessity at an exorbitant or excessive price” in the aftermath of a natural disaster. Most people applaud “price gouging” prohibitions, which most economists, including me, bemoan. Are we economists heartless creeps? Absolutely not.
In Texas, Hurricane Harvey destroyed or damaged many homes, inventories and supply lines. This is deeply unfortunate, but also indisputable. South Texans have diminished access to building materials, food, fuel and other goods. Absent government intervention, prices of these goods rise to reflect this reality. But this rise in prices also performs two tasks to ease suffering. First, unusually high prices inform suppliers around the world that the devastated area is in unusually dire need of additional supplies; second, higher prices incite suppliers to rush much-needed goods there.
Long experience has taught me that this explanation persuades very few people to regard these price hikes as healthy responses to natural disasters. Most prefer moralizing over thinking seriously about the situation's economics. So let's probe the situation's morality by considering three individuals.
Smith lives in Topeka, Kan. Upon learning that a hurricane will hit the Gulf Coast, she spends her own money filling her flatbed truck with plywood, bottled water and other supplies, then drives through the night to the ravaged region. Upon arriving, Smith gives all of her supplies, free of charge, to hurricane victims.
Jones lives in Tulsa, Okla. Upon learning of the hurricane, he does the same as Smith. But upon arriving, Jones sells all of his supplies at prices far above “normal.” If caught, Jones will be prosecuted for “price gouging.”
Williams lives in Taos, N.M. Upon learning of the hurricane, he remarks to his wife, “That's so sad,” then does nothing further. He continues his daily life, far from the hurricane's havoc.
Everyone agrees that, of these three, Smith is the most praiseworthy. She generously donated time and resources to help strangers in need. The world needs more Smiths.
But what of Jones and Williams? Williams did nothing to get more supplies to victims and won't be prosecuted for his inaction. In contrast, Jones did get more supplies to victims, yet for his troubles, he'll be prosecuted. And when the public passes judgment, Jones will be condemned while Williams will not. (The vast majority of us, after all, behave as Williams does.)
I don't understand this morality. Unlike most people, I regard Jones as a greater benefactor to hurricane victims than Williams. Williams' inaction is neither unethical nor praiseworthy. But Jones' action, while not ethically praiseworthy like Smith's, is also not unethical. Jones forced no one to pay the high prices he asked. More importantly, had Jones not acted as he did, hurricane victims would have had fewer much-needed supplies.
By condemning and prosecuting Jones, the world does not get more Smiths; it gets more Williamses.