Over the years, the government and the consuming public have vilified individuals and businesses that take part in the practice identified as price-gouging. Ostensibly, we are told that these people take advantage of a devastated public during a crisis by charging astronomical prices for products and services. We are told they do this out of greed.
The news media hops on this bandwagon and continually gives certain brands bad names for charging higher prices throughout a flooding or a hurricane. Of course, one shouldn’t expect the media to even grasp the most rudimentary elements of economics – remember, a lot of journalists took liberal arts studies and hung on to every word of their Marxist professors.
With that being said, the latest example of this supposed evil of price gouging that occurred in Sydney, Australia on Monday when a gunman took people hostage at a café. At the height of the crisis, Uber, the ride-sharing company, was reportedly charging users a minimum fare of $82 to help people leave the city center.
Apparently, there was a huge demand for the cab-hailing service during the hostage-taking – the exact same thing took place during Hurricane Sandy in New York City in 2012 when there was a surge in demand for rides.
Indeed, the users who participate in Uber were willing to face the danger and help people out by exiting from the madness. They also risked their vehicles, which could have been damaged in the event of a city-wide attack (in today’s world of mass hysteria it’s hard to blame people for thinking that a massive terrorist attack is taking place).
Rather than being celebrated for aiding others, Uber is now being vehemently criticized for price-gouging. Due to this unwelcomed branding – Uber has been facing a public relations crisis for the past year – the company is now offering free rides and refunds for Monday’s incident.
Supply & Demand
The important question to ask is: why are businesses and people condemned for saving lives?
Public officials, like New Jersey Governor Chris Christie, have made price-gouging illegal and culprits who institute this practice face stiff penalties and perhaps imprisonment, even if they’re helping the vulnerable and saving lives of their fellow man.
At times of natural disasters, the demand for certain goods skyrockets, while the supply remains the same. In other words, there isn’t enough for everyone. The measure of increasing prices during a crisis is just, humane and helpful.
Here is what Andrew Mitchell of the Mises Institute wrote in 2007 on the subject:
“Both consumers and producers are facilitated by the ‘jacking up’ of prices. Their interests are in harmony here. Higher prices are painful for consumers, but a vital and corrective tendency. It means that those who most urgently desire goods will be able to get them — they won’t just show up at stores and find nothing left for them. Those who less urgently desire these goods have a guide for rational economic calculation. Some will find the new prices make the consumption of the good less beneficial than foregoing it and purchasing some other, cheaper substitute.”
Furthermore, akin to prices sending supply and demand signals to the rest of the economy, they also are imperative calculators during a disaster. When there is a dramatic shift in the supply or the demand, prices will signify this and immediately transmit this information to the rest of the economy.
If a storm ruins an entire crop of fruit or vegetables, which diminishes the supply, the result will be higher prices and the market would relay this to producers, grocers and other market forces.
Here is what economist Murray Rothbard wrote on the matter of greed and gouging:
“In fact, pricing on the market is not an act of will by sellers. Businessmen do not determine their selling prices on the basis of whether they feel greedy or ‘responsible’ that morning. The entire apparatus of economic theory, built up over centuries, is devoted to demonstrating a great truth: that prices are set only by the demand of purchasers (how much of a good or service purchasers will buy at any given price), and by the supply or stock of the good…”
Initiative & Voluntarism
Let’s look at this case: one man decides to travel to another state and purchases a series of power generators. He returns to the damaged area with his own vehicle and risks facing harm and danger. He finally arrives to the devastated town and sells these generators for a higher price with willing customers. The exchange was mutual and voluntary and he allowed families to have power and be safe for the time-being.
How is this wrong? Without raising prices then there is no incentive for any vendor or person to go to these lengths during a natural disaster.
When the Red Cross or the government fail at helping the people – remember Hurricane Katrina in New Orleans? – only the free market can rescue us.
Anti-gouging laws will only hurt consumers, households and families. Why does the government hate the people so much?
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