Hurricane Harvey has hit Texas and is doing a great deal of damage to both life and property. Which is exactly when we need, positively desire, there to be price gouging, instead of the laws we have against it. The basic underlying economics being that we want whatever scarce resources there are to be applied to their most valuable uses. Further, we want to encourage the provision of more supply of them--both of these being the things which the price system manages for us. That is, allowing prices to rise in the aftermath of a disaster does exactly what we want to happen.
So, why all these laws against it? As Texas does indeed have laws against it :
. @KenPaxtonTX : We will deal with price gougers as we find them @lauraingle | https://t.co/wHmuI25k1fMy own version of dealing with price gougers would be to thank them for the good work they're doing--I doubt that's what Ken Paxton has in mind there.
— Fox News Video (@foxnewsvideo) August 27, 2017
Ah, no, it's not what he has in mind :
Price gouging by Texas merchants in the path of Hurricane Harvey has drawn the attention of Texas Attorney General Ken Paxton, who said Saturday that his office is looking into such cases.He wants to punish such people. The economics of this is really terribly, terribly, simple. As a result of the disaster--of any disaster that is--some things are in short supply. Perhaps because some of the supply got damaged, or perhaps because people need to substitute. Floods could, for example, knock out the municipal water supply, leaving people needing bottled water. So relative to the available supply demand has risen. We now need some method of rationing that limited and scarce supply over that increased demand. Rationing by price is always the efficient way of doing this
“We’ve already found one big retailer that was charging $42 for a case of water,” Paxton told Fox & Friends. “Another, a gas station $99 for a case of water.”
"We’ll be dealing with those people as we find them,” he said.
We also want something else to happen--we want supply to increase as fast as we can manage that. As we know from our basic Econ 101 supply and demand curves the way to increase supply is for the price to increase. We want, for example, people to start trucking bottled water from Louisiana to Texas. More money to be made by doing so will encourage people to do so. And as that extra supply arrives then prices will go down again as demand is met.
We want people to use less of the scarce resource, we want people to supply more of the scarce resource, allowing the price to rise is the one known way of achieving both those goals. So, why is it that we have these laws against it all? The answer is that we're human, we are interested in both efficiency and equity and the people more interested in that equity are the ones who have written these laws. The balance, to my mind at least, going much too far toward that equity and against that efficiency.