Sunday Night Journal — September 11, 2005
Sunday Night Journal — September 25, 2005

Sunday Night Journal — September 18, 2005

Is There Such a Thing as Price-gouging?

As usual when there’s a hurricane, the topic of price-gouging has come up, and, also as usual, I’ve come across a few columns by libertarian free-market purists saying, in essence, that there’s no such thing, and that what we may call price-gouging is just the natural operation of supply and demand. The latter part of that sentence may well be true; if it is, it is a confirmation of the fact that the law of supply and demand is not sufficient as an ethical guide.

I’m very much a proponent of economic liberty and believe that, speaking broadly, we’re better off if prices are set by market forces rather than legal mandate. But I emphasize the speaking broadly part. There are certainly situations in which prices can be set unreasonably and unethically high. To the libertarians who would argue that no price is unreasonable if buyer and seller agree on it, I would say that your definition of reasonable is unreasonable.

Let me tell you about two businessmen and our recent spate of hurricanes. Both these men are in the home construction and remodeling business. One of them is the husband of a co-worker of mine; let’s call him Barry. The other is known to me only via the story I’m about to tell; let’s call him Harry.

Barry, like a lot of people in his line of work, finds, in the days before a hurricane, that his services are in great demand for boarding up windows. Before Hurricane Dennis, I was one of those who asked to be put on his list; we’ve never been consistent about boarding, had never kept the supplies on hand, and decided it was time to do it right. Barry had all the work he could handle, and in fact had to turn people away. He made money off the hurricane, money which I do not begrudge him in the least. He left his prices at their usual reasonable level, and took people more or less on a first-come-first-served basis, with perhaps some exceptions here and there for people whom he saw as having a stronger claim than others, such as several elderly widows who have come to rely on him. If he made more money than he might have in a normal week, he certainly earned it.

In fact, Barry embodied in that week the virtues that would give all businessmen a better name if they were more widely practiced. He worked himself to exhaustion, trying to service as many people as he possibly could, and made no attempt to jack up his prices to exploit the situation.

One reason I’ve never boarded up my house is that I didn’t know how to do it easily and effectively. It’s a brick veneer house, with the windows set back several inches into the brick. I wasn’t sure how to do it without a lot of drilling into brick and other things which seemed a little too much for my limited knowledge and skill. But some clever soul invented Plylox, and if he’s gotten rich off his invention I’m happy for him. It’s a brilliant solution to the problem consisting of spring steel clips which lock a sheet of plywood into place, making it pretty simple to put up and take down your plywood once you’ve cut it to the right sizes. Barry planned to use these on my house, but they were in short supply. Calling around the area, he located a store which still had some, and, since it was close to where his wife and I work, he sent her—let’s call her Ann—to buy them.

It was there that Ann encountered Harry, who got there just before she did and scooped up all the Plylox still in stock. They were selling for somewhere around fifteen dollars for a bag of eight or ten clips. He made the mistake of bragging that he intended to charge his customers thirty dollars a bag for them. A bit of an argument ensued. In the end, I think partly by appealing to the store manager, Ann was able to get a reasonable share of the Plylox.

It might be said that Harry was merely being a rational economic actor. Well, maybe, but he was also being a jerk, and what he was doing was wrong. No amount of abstract economic theory can convince me that it’s right to snatch the entire supply of a scarce commodity for the sole purpose of extracting an unusually high price from people who really need it. And any theory which leads to the conclusion that it is right has got some problems, most likely with some of its fundamental axioms.

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