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.