Oct 292012

Blue tarps after a hurricaneHurricane Sandy, also called Frankenstorm, is getting ready to wreak havoc on the East Coast. There is nothing anyone can do to stop a storm like this. All anybody can do is prepare. It will cause, without doubt, tremendous damage and create multiple hardships. There will be thrill seekers who will face danger to get a picture or shoot some video. One of the most difficult aspects of the post-storm activity will be the loss of basic goods and services (i.e. water, sanitation, delivery and logistical) and necessary conveniences (i.e. electricity). There is one way to be absolutely sure that the goods and services get to where they are needed most: allow price gouging.

How utterly repulsive you might say. How dare someone not help their fellow man by getting the necessities in a time of hardship? It, somehow, seems wrong to charge someone a premium for something that they desperately need. The moral compass goes haywire when we think of gouging the thirsty man stranded in the desert for a drink of water. But, to the thirsty man that water is priceless. A 12 ounce bottle of water may cost $.50 next to a fresh water spring, but $50.00 to the man in the desert. But, why deny the man in the desert the water?

The same is true after a natural disaster. There is no better way to get the goods and services to where they are needed than to allow those with the goods and services to allocate those resources for a premium. Not only is there an incentive to get the goods and services, there are those willing to pay the premium. All of these market incentives are destroyed when the government prohibits the free market forces from working.

Let’s look at the market for blue tarps; a product that is at a premium after a hurricane. These tarps are used by homeowners to cover damages roofs and is some cases as shelter itself. Now let’s look at a system allowing the blue-tarp market forces to dictate supply and demand. Cleveland Hardware in Cleveland, Ohio has 1000 blue-tarps in stock priced at $15.00 each. Any Clevelander (if that’s what they are called) can go buy a blue-tarp and take it home. Long Island however, will need 35000 blue tarps after Hurricane Sandy and the local supply will be woefully insufficient. How then do you get the tarps from Cleveland to Long Island?

Under the current laws, which prohibit charging a premium, there is no economic incentive to get the blue-tarps from Cleveland to Long Island. Why would the store owner ship 1000 blue-tarps to Long Island if the price will be $15.00? Why would he incur the costs of shipping, labor, logistics, distribution when the owner can avoid all of those costs locally. Now, allow the store owner to charge whatever he wants to the Long Islanders, $30.00, $50.00, $100.00, then it becomes economically feasible to take the risk of getting those blue-tarps from where they are sitting in inventory to where they are needed. How inhumane it is to get what people want to the place they need it!

Remember as well, that the Cleveland store owner may be competing with Detroit, Atlanta, Dallas, Oklahoma City who are also trying to price capture by charging the blue-tarp premium price. When more goods come into the market with more competitors, price falls and the concept of, “price gouging” goes away, quickly. The market takes care of the profiteering. The goods get from where they are sitting dormant to where they are needed. But, with the government prohibition on profiteering, everyone loses. The store owner does not sell his tarps and the homeowner does not get his tarp. The market is skewed and destroyed by the do-gooders in elected office who cater to emotion and what they perceive as morals. When in fact it is immoral to deny the products to where they are so desperately needed.

The blue-tarp can be expanded to power generators, shovels, water purifiers, wood, carpet, fans, batteries, gasoline, and numerous other items that will be in shortage. But, they will remain in shortage because the market forces are not allowed to work and the products and services are not allocated because government force has made it illegal.

Adam Smith, the Classic Liberal Economist and Philosopher wrote in The Wealth of Nations: “Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only.” Smith continues, “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.” It is self-interest that overcomes those shortcomings, both in man’s benevolence and in the need for blue-tarps after a hurricane.

The moral argument is that the well off will be able to afford while the poorer will not be able to get any products. This is the same exact difference in non-emergency situations. That is, that the wealthy can afford what the poor cannot. So, the government making profiteering illegal is to prohibit anyone from being comfortable because everyone can’t be comfortable. How utterly ridiculous to punish the rich because the poor don’t benefit. Wait, that describes what the government is doing every day.

  One Response to “Why “Price Gouging” works”

  1. As yes, comrade, the socialist disguised as a democrat.

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