"Price Gouging" = Nonsense

Washington loves to condemn "price gouging," whatever that is... A great example lies in the aftermath of Katrina, when prices for gas and water in the area rose sharply. Politicians were quick to bad-mouth the gas stations and water sellers for acquiring "excess profits" and wanted to immediately implement anti-"gouging" policies. If you want to punish the seemingly mean, greedy profiteers, then these laws would appear to be a good thing. But if you're one of the people that the laws attempt to "protect" from this "price gouging" thing, you're not going to be very well off. Allow me to explain.

Let's pretend for a second that you were a Katrina victim that is in desperate need of water. You go to the store to buy a bottle of water for $1, but there's a problem:  all the water's gone. Everyone's already bought it all up. So you continue your quest until you run into the infamous monster known as the Price Gouger, who is charging $20 per bottle for his water that was only $1 just last week. You pay the $20 to survive and enjoy your water as you go on your way.

You hate the Price Gouger, but if he hadn't "gouged" his prices, he'd have been all out of water, and you would have died. His "gouging" saved you because he was looking out for himself, because he was trying to make a profit. I cannot stress this point enough, as it seems to permeate all my articles. One man's profiting allows everyone to profit. You are now better off (alive) because of the Price Gouger's seeming malevolence. Everyone else was out buying water before you were. Everyone stocked up, thus every store's water supply diminished. Only the Price Gouger had a small supply of water, because his seemingly high price allocated the water, a scarce commodity in this example, to those who wanted and needed it most.

A price is the best, most efficient way to allocate a scarce resource, which is one of the most basic principles of economics. Politicians don't seem to understand this. They think those who are helping society are actually hurting it by being profiteers. Sure, some may give out of the kindness of their heart, but we can't depend on benevolence. As Adam Smith once said, "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."

See, it's all about supply, demand, and opportunity cost. Why would the carpenters and roofers and electricians and plumbers leave their homes in some other state to go all the way to New Orleans to work if they couldn't make more money than they were already making at home. It would make no sense. If they couldn't, they simply wouldn't go to New Orleans. Politicians just don't understand basic principles of economics. Sure, you may have the would-be heroes who want to come help for a low price, but as I said, we can't depend on benevolence week after week. Those people have to eat too, ya know.

These anti-"gouging" laws are just another form of a price ceiling. If you force prices down, you force suppliers out. If you let the free market work, suppliers are plentiful, and the prices are guaranteed to be as low as the competition allows. As such, it is the "price gougers" who provide the water, gasoline, carpentry, and the like when necessary. The "price gougers" save lives.