Attorney General Roy Cooper issued a press release yesterday warning businesses not to take advantage of consumers during Hurricane Irene. Charging “too much” for critical goods and services is against the law, he said, and violators will be punished.
Because Gov. Bev Perdue has declared a state of emergency due to Hurricane Irene — scheduled to hit North Carolina sometime this evening — the state’s “strong price gouging law is now in effect,” Cooper said.
“We’re warning price gougers that you can’t use a crisis as an excuse to make an unfair profit off of consumers,” he said.
But economists argue that price gouging laws and other price control measures harm consumers — the people the laws are supposed to protect — in a number of ways.
Price gouging – or charging “too much” in times of crisis – is against North Carolina law during declared states of disaster or emergency or abnormal market disruptions.
Upon a triggering event, the law says, it is illegal to sell goods or services consumed as a direct result of the emergency or “to preserve, protect, or sustain life, health, safety, or economic well‑being” at an “unreasonably excessive” price. The law defines “unreasonably excessive” as exceeding the average price of the good over the 60-day period before the emergency.
The price gouging law remains in effect for 45 days after the triggering event, unless the governor renews it.
“Most businesses pull together in a time of trouble to help their community,” Cooper said. “If you think that someone is trying to use Hurricane Irene to justify ripping you off, let my office know about it.”
The release asks consumers to report potential violations of the price gouging law by calling 1-877-5-NO-SCAM or by filling out a
complaint form online. It then reminds businesses that Cooper has enforced the price gouging law in the past winning “thousands of dollars in refunds for consumers and penalties from violators.” The law says businesses can be charged a maximum of $5,000 per violation, and “injured parties” may seek compensation.
Law hurts consumers
“Behind all of these laws is the presumption that under some circumstances the free market will generate a “wrong” price for certain products, and that politicians and bureaucrats can know the “right” price,” wrote Roy Cordato in his research paper for the John Locke Foundation North Carolina’s Price Control Laws: Harming Those They’re Meant to Help.
Price gouging laws actually harm victims of natural disasters, said Cordato, JLF’s vice president for research and resident scholar. “During times of disaster, when markets need to adjust as quickly as possible to changed conditions of supply and demand, price-gouging laws slow the process of recovery and prolong the agony.”
Putting a cap on prices creates a shortage of supply, explained Fergus Hodgson, director of fiscal policy studies at JLF.
“This is going to create lines of people waiting for goods, like the gas lines in the ‘70s,” Hodgson said.
Instead of capping prices of goods needed during a natural disaster — like water, food, and gas — Hodgson said allowing prices to rise is what would help consumers the most. Higher prices give producers from other areas incentive to ship goods in to the affected area to meet the heightened demand.
“The people who push for price controls are saying ‘we don’t want people to not be able to get a hold of necessary goods,’” Hodgson said. “I’m saying you’re creating the exact opposite effect, because you’re going to have fewer goods available.”
In addition to increasing supply, higher prices slow demand, Cordato writes. “Higher prices during emergencies aren’t about the exploitational greed of businesses, but instead are about protecting consumers from the hoarding behavior of their fellow citizens.”
Allowing the government to set prices never works, Hodgson added. “It’s central planning. It’s un-American.”
Sara Burrows is an associate editor of Carolina Journal.