Light On Dark Water

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.