Friday, September 24, 2004

Hurricanes and Price Gouging

The power of nature can be awe-inspiring at times; of course, when one finds themself in the path of a hurricane, as have many Floridians this season, the majesty may be lost to you. Having personally witnessed the aftermath of hurricane Charley, I can well appreciate the dangers that can be posed: a storm that can bend steel light poles like blades of grass is a force to be respected for its capacity for destruction.

In the preparations for the storm and in its aftermath, consumers will adjust their behavior in order to weather it with as little trouble as possible. Goods with particularly high utility for such circumstances will tend to be sought more aggressively - that is, they will be more dearly valued. Items such as plywood for boarding up windows, generators for electricity, and foodstuffs, amongst others, will commonly undergo this variation.

Ultimately, as the value of these goods rises, market prices will tend to rise along with them in the short run. The present supply is limited, and before additional demand can be met, shortages may occur. Higher prices will offer additional incentives for entrpeneurs to rush the desired goods in quantity to the region where the price spike occurs; ultimately, the price will reach equilibrium as supply increases to meet demand.

All here seems well and good, except that in Florida, this process does not occur. The State, in its benevolence and wisdom, has made it a crime to engage in the vile act of "price gouging," taking advantage of the misfortune of others.

While perhaps well-intentioned, the ultimate effect of such a law can only be to slow the flow of desired goods to the emergency zone. If shortages are called kindness, then I shudder to think of what the wrath of a government would bring.

Furthermore, this misguided policy serves to punish entrepeneurs for their foresight, having successfully predicted the increase in prices of the goods that they had previously stocked. In doing so, it diminishes the benefits of successfully reading the future state of the market, and limits the incentive of a consumer to be future-oriented enough to foresee their future needs. In essence, this regulation results in a rise in general time-preference; present goods will be consumed more readily in favor of future goods, leading to a general trend of "decivilization" (in the terms of Hans-Hermann Hoppe).

Lower rates of time-preference correlate with lower levels of investment, riskier personal behavior, increased incentives for crime, and a general shift towards present-orientedness that seems to offer little to the project of establishing and maintaining the norms necessary for society and cooperation.

So the question must be asked: is such a policy truly just or fair? Isn't it exactly the sort of thing we ask for, regardless of the consequences, from our government?

Hail to the chief, baby.

1 comment:

Tim said...

The really interesting thing is how normative contraints against price-gouging will differently affect local sellers (bound to repeated interactions with local consumers) and opportunistic entrepeneurs from out-of-town...