Price Gouging is a Good Thing

Before and after every hurricane we see obligatory media stories about a gasoline station or a grocery store that is accused of “price gouging” for charging too much for gasoline, bottled water, bread, milk, etc.

We also see many stories about gasoline stations that have been pumped dry by panicked motorists or grocery stores with empty shelves.

These two events – shortages and price gouging – are inversely related. Fox News reported during and after Hurricane Florence:

Gasoline shortages continued to spread Friday in states impacted by Hurricane Florence, as more than half of stations in some North Carolina cities were out of fuel.

Evacuations along the East Coast and “panic buying” among consumers worried about running out of fuel for cars and generators have contributed to shortages in parts of North Carolina, South Carolina and Virginia. The worst outages could be found in Wilmington, North Carolina, where an estimated 56 percent of gas stations had run out of fuel by Friday afternoon, according to Gas Buddy. In the Greenville-New Bern-Washington market, 52 percent of stations were without fuel.

And on and on. This happens since motorists tend to buy as much gasoline as possible in emergency or panic situations in order to ‘stock up’ rather than limiting their purchases to conserve fuel so that everyone can have some gasoline.

This leaves other drivers without gas. It also leaves gas stations dry since new supplies are virtually impossible to obtain during an emergency situation like a hurricane.

Yet where are the media sob stories about thousands of people left without gasoline or bottled water?

There are none. Zero. This happens since these stories are not germane to the liberal template while “price gouging” fits a Fake News narrative to create controversy from a leftist point of view, i.e., only evil capitalists raise prices in a time of emergency. Meanwhile empty store shelves make good photo-ops for media reports.

Gasoline stations could stretch their fuel supplies in two ways:

*Stations could limit how much gasoline any one motorist can buy – rationing – to perhaps four gallons per customer; or

*Stations could be allowed to charge a high price like $15 a gallon for fuel. This would tend to naturally limit how much fuel that drivers would buy to only the amount that they absolutely needed.

It would be difficult to control gasoline rationing. A station might have to switch every pump to limited output which would require re-programming the computers. But even if the pumps were re-programmed, a motorist might just sit there and fill and fill over and over again, four gallons at a time.

And nobody could stop drivers from going from one station to another, or returning to the same station an hour later.

Rationing also might require that a gas station employee, or several employees, act as monitors at the pumps. This would cost the gas station a lot of money and certainly would be uneven and lead to conflict in an emotional time of emergency (“you put in five gallons! …. no I didn’t!”… etc.)

The best way to ration gasoline is naturally by price, to allow stations to charge whatever they wanted, even $15 a gallon. Because drivers would be willing to pay that higher price temporarily for necessary fuel but would conserve it naturally because of the high price.

But no, the media and the government “watchdogs” focus incessantly on any station that may have overcharged by two cents.

The fact is that $15 a gallon for gasoline during a hurricane is a natural response to a limited supply. We all know the fundamental economic law of supply-and-demand – when supply runs low or demand runs high, prices rise naturally. It has been true for thousands of years since the first herdsmen traded apples for milk.

In a time of emergency, motorists are simply willing to pay more temporarily. And thus the price of gasoline or bottled water should be allowed to rise naturally as a hurricane approaches or after the hurricane has done its damage since demand suddenly goes way up while supply falls further and further and eventually to zero, with no re-supply possible.

But liberals and their media cronies won’t allow prices to rise even though it is a perfectly natural economic reaction.

Why not? It is because liberals score political points when they go around publicly arresting ‘price gougers’ to demonstrate how they are protecting “the little guy”. It always seems to become one of the big standard stories of every hurricane. Yet the same liberals are utterly silent when “the little guy” gets screwed because there is no gasoline left, which is a vastly worse situation than paying a high price.

In other words, a small amount of expensive gasoline is better than no gasoline at all. It may even be a life saver, i.e., a few gallons of gasoline can get you a hundred miles out of the hurricane’s danger zone. In short, $50 can save your life.

Liberals also fall back on the old canard that “the poor” get hurt by higher prices. But first of all, most Americans are not “poor”. Second, these price spikes are only temporary and they are reactions to dire situations. Third, all economic classes get hurt when gasoline and food run out… rich, poor, middle class, everyone. Yet we are only supposed to feel sorry when “the poor” are affected.

Here is an interesting case from conservative journalist John Stossel:

John Shepperson was one of the “gougers” arrested. Shepperson and his family live in Kentucky. They watched news reports about Katrina and learned that people desperately needed things.

Shepperson thought he could help, so he bought 19 generators. He and his family then rented a U-Haul and drove 600 miles to an area of Mississippi left without power.

He offered to sell his generators for twice what he had paid for them, and people were eager to buy. But police confiscated his generators, and jailed Shepperson for four days. The police kept his generators.

Did the public benefit? No.

So this guy had willing customers who would pay twice the price. Yet the government stepped in to halt the transactions. Why? What business is it of the government if two people want to make an economic transaction that both knowingly and willingly agree to?

It is not anything that the government should stick its big nose into.

Andy Matthews president of the Nevada Policy Research Institute wrote about another commodity in demand as a hurricane nears:

If a gallon of (bottled) water went from $1 to $5 or even $10, customers at the front of the line would be forced to decide how much water they really needed to survive the storm, and would purchase accordingly. This would leave more resources for the customers at the back of the line.

Now in this case, the business owner would start making a large profit. And this is a very good thing. Just like high prices serve as a signal to consumers that a particular product is in great demand, profits signal to an entrepreneur that he or she can make money by providing more of that good or service.

So allowing high prices is the most efficient way to ration goods, and allowing high profits incentivizes others to provide more of those goods – which will eventually drive prices down.

This is another advantage of higher prices: In the case of gasoline, a high temporary profit of thousands of dollars for a gasoline station gives the owner leverage to pay a premium price for a new delivery of gasoline in dire situations like an approaching storm or right after the storm.

He might say to the gasoline company, “I will pay you $2,000 extra to deliver fuel”. That certainly would do the trick; money talks. This would increase the supply which is what we wanted in the first place. If the cycle repeats itself, the supply stabilizes and there is gasoline for all.

It’s amazing how the economy can react perfectly naturally to fix itself. It is called “capitalism”.

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