Price Gouging Let’s Your Grandmother Live

As many in the US know, hurricane Harvey hit the southeast pretty bad, with particularly devastating effects around the Houston population center. And with it, comes a lot of blow-back against “price gouging”, where sellers drastically raise the price of certain goods in response to a significant increase in their demand. This issue has been beaten to death by many economists much more intelligent than I. However, I find that such economists also have difficulty in trying to relate the humanity of what they’re actually arguing for.

So going back to an analogy. Let’s assume you are living in an area where disaster strikes. Furthermore, let’s assume you have a loved one, a grandmother, who’s desperately sick. She needs to stay adequately hydrated, or else she’ll die. So you hop on down to your local grocer to buy some water, since your sink isn’t working.

Two scenarios. First, let’s say that the mayor has declared that all bottled water be sold at the price before the disaster hit. I suspect when you walk into the grocer, you would find the shelves to be empty. If prices don’t rise in response to people in a greater quantity wanting to buy that good, then people have a disincentive to conserve, and the good depletes faster. Going back to my oasis scenario from last time, if the price is too low, nobody conserves, the water dries up, and your grandmother dies.

Second scenario, the mayor says nothing, and let’s sellers raise the price. In such a situation, only the people who really need the water, such as those trying to save their grandmothers, would be willing to pay the higher price. Thus, when you get to the store, water is still on the shelves. And yes, you might feel cheated having to pay more for water, but isn’t that a small price to pay for grandma?

You could say “well this is a contrived scenario, people wanting to use water to save their grandmothers is rare, it’s much more likely that someone will need to use the water but won’t be able to pay for it because of the higher price”. And I could point out that that too is a contrived scenario, most people have enough money to spare for water, even expensive water.

However, I think that there is a larger point that needs to be made. As Heinlein put it, TANSTAAFL (There Ain’t No Such Thing as a Free Lunch). We live in a world of scarce resources, and in order to get something, you need to give something. So while I might agree that a person who has no resources, through no fault of their own, can create an obligation on their community to give up their own resources in aid. I don’t see how keeping people from reacting to scarcity (such as raising prices during a disaster) does anything other than feed your own pride.