The Problem with Anti-Price Gouging Laws

Many people on both ends of the political spectrum would agree that price controls on goods and services during normal times are a bad idea. If prices are not allowed to fluctuate according to supply and demand, businesses that are just scraping by will no longer find it profitable to sell at the artificially low price, thus reducing the supply of the regulated product or service. The artificially low prices also increase the demand for the product, which creates a shortage. Price controls under emergency conditions, or “anti-price gouging laws,” are seen as an exception to this economic principle. What could be more immoral and exploitative than allowing greedy business men and women to profiteer off people suffering from a disaster? The economist Walter E. Williams disagrees with this moral stance, arguing that anti-price gouging laws do nothing to help disaster victims and are just as harmful as price controls under any other circumstances. Williams observes that since the tendency is for people to hoard scarce supplies during a disaster—leaving some people with too much of a product and others with none at all—allowing prices to rise freely during an emergency is beneficial for two reasons: first, customers are forced to economize on scarce resources, which leaves more available for everyone else, and second, the higher prices encourage businesses to divert more resources to the disaster area for profit. Williams concludes that “Anti-price gouging laws disrupt these two very important functions of the marketplace and enhance and prolong a disaster.” 

Reference

Walter E. Williams (2020). “It’s not gouging; it’s the free market”. NWF Daily News. Retrieved from: https://www.nwfdailynews.com/story/opinion/columns/2020/04/05/walter-e-williams-its-not-gouging-its-free-market/1404506007/