Price gouging laws, indeed. Call it for what it is — price controls. For those with short memories, former President Nixon applied price controls in 1971 in an attempt to control inflation and what happened? Inflation skyrocketed, prices ballooned and the economy continued to slide.
When the government seeks to set an artificial ceiling on prices the retail market will always seek the highest possible level and stabilize there. The normal forces of supply and demand are preempted and the consumers wind up paying more than they would ordinarily have paid.
The recent call in Congress and the state houses for price gouging legislation is a politically motivated, knee-jerk reaction that will exacerbate rather than alleviate short-term price fluctuations. The market inherently corrects the spike when the supply problem that caused it recedes.
For example, had price gouging legislation been in force during the recent gasoline spikes that were a result of supply pressures from Hurricane Katrina, the price reductions that we are now experiencing would have been at best delayed and at worst eliminated.
And then you have the question of just how the determination of price gouging is going to be made. Some current laws and proposals have the governor of a state declaring an emergency during which price controls can be imposed. But some of the definitions of what constitutes gouging are nothing short of laughable. Terms like Florida’s “unconscionable price” standard on “essential commodities,” or Kansas’ “unconscionable act “ to “profiteer from disaster” are incredibly subjective and of questionable value.
Tinkering with the market, especially during and following natural or man made disasters, will only migrate prices to the highest allowable level for the maximum amount of time and further disrupt the supply chain.
Yes, prices can run wild in times of disaster; but they are born out of a rational response to shortages and high demand. Free markets, plus a little time — and not political expediency — are the only way to bring that wild ride to an end.