Opinion: Daily Journal

North Carolina’s anti–price gouging law makes things worse, not better

The forecast for Hurricane Florence looks bleak. It’s hard to imagine as of this writing, but if the storm proceeds the way it’s predicted to go, then by next week people’s lives and neighborhoods in many areas of the state, from the coastal towns to the central Piedmont, will be radically altered.

In the next few weeks, as recovery begins, normally plentiful goods will be hard to come by. Already shelves are emptying of water, bread, batteries, and other survival necessities. Gasoline will also be hard to find. Elsewhere across the country, consumer products will be readily accessible as normal.

But who’s going to bring those necessities to North Carolina if they can’t afford to?

Bottled water suppliers, bread makers, and gasoline distributors are people, and they have families, and they need to be able to take care of their families first. If they see our needs but can’t redirect their supplies into North Carolina while still being able to take care of their families, they won’t do it.

What do you mean, if they can’t afford to bring us water and gas?

Because North Carolina has a law against “price gouging.” It outlaws “excessive pricing during states of disaster, states of emergency, or abnormal market disruptions.”

Gov. Roy Cooper declared a state of emergency on Friday, and now Attorney General Josh Stein is warning about retailers who “take advantage of people’s desperation” by charging prices that are “out of whack from what they should be” — as determined by the attorney general’s office and ultimately the courts.

WRAL has instituted a special “price gouging” tag on its website, suggesting the news service intends to start tracking “gouging” incidents. Reporter Gerald Owens, in his interview with Stein, implied it is “the worst of people” and talked of folks being “scammed.”

Scams? No, signal flares calling for more supplies

Rather than being scams taking advantage of desperate people, higher prices are exactly what we need to ensure we don’t run out of necessities like water and gas. They are like flashing red lights to bottled water suppliers, bread makers, and gasoline distributors in other states, telling them Yes! You CAN redirect your stuff to North Carolina because you can still take care of your families when you do!

“Rising prices are like signal flares,” as economist Art Carden puts it. They’re saying, Bring supplies from where they’re plentiful to where they aren’t!

In fact, Carden was talking about a “price gouging” example from Raleigh after Hurricane Fran, which he heard about from economist Mike Munger, who was at Duke University at the time.

Look at it from a supplier’s perspective. It costs money to change supply plans, to disrupt your expected distribution of goods, to ship stuff longer distances. If you can’t at least break even doing it, you’d lose money — and that means you’d hurt your family’s interests.

If you’re going to make a switch, you’ll do it when you can get more money in return for taking on greater personal costs. That means going where prices are higher.

You’ll get more money in an area with greater desire for your stuff (this is what economists call “demand”). People are going to be more willing to spend money on bottled water than people who still have access to tap water.

Or see things as your local retailer. You’re not sure when your next shipment will arrive. What you have on hand might be all you have left. Plus, you don’t know who has a “real” need and who’s just hoarding. The better way to make sure the people who need it the most are still able to get it is to charge the higher price that reflects your greater, temporary inability to access fresh supplies. This discourages hoarding and leaves necessities more available to those with greater needs.

Those shelves are empty because of our anti–”price gouging” law

Prices are signals, and when that signal is too low for conditions on the ground, people will buy too much. When that happens, we run out.

A state law that forbids pricing based on conditions on the ground — and backs that up with threats of fines and being taken to court! — makes it harder to bring in fresh supplies after that same state law helps us run out of existing supplies.

But what about people being “taken advantage of”?

The thing is, when the government dictates prices to prevent consumers from being “taken advantage of” by higher prices during a natural disaster, it’s telling suppliers they’re going to be taken advantage of. Laws against “price gouging” are laws that tell suppliers they can’t break even.

In practice, they’re signal flares telling suppliers, Stay away from there!

A better government response

Government can’t outlaw the temporary, greater scarcity driving the higher “out of whack” prices. But government can control some of the costs of supplying goods: regulatory costs.

In 2016, responding to the temporary gasoline supply shock from the Colonial Pipeline shutdown, Gov. Pat McCrory signed an executive order lightening state regulations on gasoline suppliers. In 2017, Cooper did the same following Hurricane Harvey.

Friday, when Cooper declared the state of emergency, he also issued an executive order suspending several truck driving, weight, size, etc. restrictions, registration requirements, and fines for utility service trucks and trucks carrying food and essential supplies. This could help offset the bad effects from the anti–price gouging law.

Cutting regulatory costs is the right call to make.

Jon Sanders (@jonpsanders) is director of regulatory studies at the John Locke Foundation.

  • Rdm42

    Thus it happens everywhere you try to repeal the laws of reality in favor of liberal pieties.

  • Lasciata

    How could such an article be published in this day and age? It’s badthink.

    • Mike Bossman

      It’s called supply and demand clown, google it.

    • Menns

      Proving once again that sarcasm is hard to communicate in writing.

    • civilwar 12

      Obviously your comprehension is lacking.

  • gunsmithkat

    The Law of Supply and Demand trumps anti-gouging laws.

  • Ugasailor

    In 2005, John Shepperson of Kentucky took time away from his normal job to buy 19 generators, rent a U-Haul truck, and drive it 600 miles to the Katrina-damaged area of Mississippi. John offered to sell his generators at twice the price he paid, to help cover his costs and make a profit. Instead his generators were confiscated by the local police, Shepperson was arrested for price gouging, held in jail by police for four days, and the generators kept in police custody for evidence. Sadly, the valuable and much-needed generators never made it to consumers with urgent needs who desperately wanted to buy them at the price Shepperson was asking.

    • Jhn1✓ᵀʳᵘᵐᵖ

      Somebody crunched all the numbers (generators and gas cans for them, U-Haul w/insurance, gas for the U-Haul and generators, meals, one night lodging each way) and he was going to make less than he would have to stay at home and go to his normal job.
      And wasn’t there a bit where the Police used the generators themselves instead of ,, you know, not tampering with evidence. I seem to recall that is what got him out of jail instead of conviction and serving a felony. You know, the police stealing his generators bit.

    • civilwar 12

      Police state!

  • Jay Smith

    Prime example of how price controls don’t work. Ven. Govt. set price of T.P. below the cost to produce, distribute, and market it so that everyone could afford it. Yes, today everyone can afford to buy T.P. except there is now none to buy. Socialists view this as success. Wonder how much an old telephone book is going for in Caracas?

    • John Stephens

      Why buy a telephone book, when they can cut out the extra step and use the currency?

  • The Grand Schemathings

    Progressive busybodies: “Let’s run another doomed-to-fail social experiment in unintended consequences. This time during states of emergency!”

  • John Stephens

    The people have no food? Then let them eat their Anti-Gouging laws. No sympathy.

    • civilwar 12

      They have no food because they are stupid!

  • CalvinPi

    Economic ignorance knows no boundaries. Hawaii has the same stupid law. I saw news reports at the time that we imposed the same stupid law in Iraq after we invaded. Price controlled gasoline was ‘cheap’. So cheap that gas lines were 24 HOURS long. How’s that figure cost of someone’s time to get gas? Black marketeers aka Evil Price Gougers drove gas in from elsewhere and sold it for big bucks to people who weren’t willing to waste 24 hours waiting for ‘cheap’ gas.

  • jimbino

    Prices in an open market are needed to allocate scarce resources so satisfy the highest and best uses of the resources. In an open market, people with a half-tank of gas and an old generator won’t run out to compete with those who have an empty tank, no generator and no electricity. Otherwise, they’ll just top off the tank and buy that second generator. Why not?

  • richard40

    The main benefit of allowing normal market based price hikes, even if they appear to be extreme, like say twice the normal price, is it decreases demand and increases supply enough so some goods are always there, and you dont get the really bad price gouging, like 10x the normal price (since you can probably find somebody still selling at 2x the normal price). If they are really worried about abusive price gouging, and insist on getting some kind of law, at least set the limit at some very high level, like 5x the normal price, and let the market work below that.