Sometimes, one gets the impression that knowledge of economics has progressed. It can be guessed that proportionately fewer people than in the 17th century now think that trade wars are good (except within some backward governments). At other times, it seems that knowledge has not progressed much: take “price-gouging” laws, whose effects the California power blackouts illustrate again. In rich California, the preventive power blackouts created many shortages, in the proper sense of non-availability of goods at current, legal prices: Within the Bay Area blackout zones, residents were rushing Tuesday to buy food, water and electric generators–almost as if a hurricane were approaching. Stores including Rite Aid and Target across Oakland had run out of flashlights and
Pierre Lemieux considers the following as important: emergency, Free Markets, gouging, Incentives, Political Economy, price
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Sometimes, one gets the impression that knowledge of economics has progressed. It can be guessed that proportionately fewer people than in the 17th century now think that trade wars are good (except within some backward governments). At other times, it seems that knowledge has not progressed much: take “price-gouging” laws, whose effects the California power blackouts illustrate again.
In rich California, the preventive power blackouts created many shortages, in the proper sense of non-availability of goods at current, legal prices:
Within the Bay Area blackout zones, residents were rushing Tuesday to buy food, water and electric generators–almost as if a hurricane were approaching. Stores including Rite Aid and Target across Oakland had run out of flashlights and most batteries. (Providence Journal, October 9)
Lines for gas snaked around the block … When Costco opened Wednesday morning, the rush immediately began anew. The store had 20 generators for sale. “They were gone in five minutes,” Mr. Bohn said. (Wall Street Journal, October 10)
By sunset, the house was getting cold as the outdoor temperature dropped into the 40s. She took her 2-year-old son, Hunter, out to get food at Toni’s, one of the local restaurants running on a generator. She found the place mobbed; the wait for a cheeseburger was 90 minutes. (Wall Street Journal, October 10)
Mairie Raxakoul was trying to keep her inventory of cheeses cool with dry ice at Raxakoul Coffee and Cheese. She tried to rent a generator, but none was available, she said. (Wall Street Journal, October 10)
During the blackouts, Californians waited in long lines for essentials like gasoline, batteries and ice. (Wall Street Journal, October 13)
Why didn’t entrepreneurial suppliers rush in from Arizona, Nevada or Oregon with goods that were not in short supply in their states?
Consider what happened a 1996 hurricane that hit Raleigh (North Carolina) hard. A hundred miles away from Raleigh, four young entrepreneurs thought that they could make some money by selling ice there. They rented two small freezer trucks, bought 500 bags of ice at $1.70 each, and drove to Raleigh’s downtown area, chopping fallen trees in their way. They set up to sell their ice for perhaps $8.00 a bag, adding supply where there was none.
It did not work for long. North Carolina’s price-gouging laws rapidly stopped the useful price gougers. In my review of an anthology of Philosophy, Politics, and Economics, I summarized Michael Munger’s description of the outcome:
Enterprising ice sellers were arrested as they sold at higher prices something that hurricane victims could not otherwise obtain and for which they were obviously happy to pay more. These same customers applauded when their suppliers were led away by police before their eyes! “They clapped,” Munger writes in disbelief.
The problem does not seem to be very complicated. It is better to have something available and more choice than nothing and no choice. Expanding supply would gradually push prices down until the normal supply chain can be reestablished.
This sort of entrepreneurial relief is also banned in California, as in two-thirds of American states. It is instructive to read Section 396 of Title 10 (interestingly titled “Of Crimes Against the Public Health and Safety”) of the California Penal Code; a few quotes:
Upon the proclamation of a state of emergency declared by the President of the United States or the Governor, or upon the declaration of a local emergency by an official, board, or other governing body vested with authority to make that declaration in any county, city, or city and county, and for a period of 30 days following that proclamation or declaration, it is unlawful for a person, contractor, business, or other entity to sell or offer to sell any consumer food items or goods, goods or services used for emergency cleanup, emergency supplies, medical supplies, home heating oil, building materials, housing, transportation, freight, and storage services, or gasoline or other motor fuels for a price of more than 10 percent greater than the price charged by that person for those goods or services immediately prior to the proclamation or declaration of emergency.
It is unlawful for an owner or operator of a hotel or motel to increase the hotel or motel’s regular rates, as advertised immediately prior to the proclamation or declaration of emergency, by more than 10 percent.
A violation of this section is a misdemeanor punishable by imprisonment in a county jail for a period not exceeding one year, or by a fine of not more than ten thousand dollars ($10,000), or by both that fine and imprisonment.
A violation of this section shall constitute an unlawful business practice and an act of unfair competition within the meaning of Section 17200 of the Business and Professions Code. The remedies and penalties provided by this section are cumulative to each other, the remedies under Section 17200 of the Business and Professions Code, and the remedies or penalties available under all other laws of this state.
Many local governments rapidly proclaimed states of emergency, such as Santa Clara County, Sonoma County, the City of San Jose, and the City of Santa Rosa. A bit later, on October 11, the governor of California also proclaimed a state of emergency in Los Angeles and Riverside counties.
One thing is important to understand. Each time somebody pays a market price, he wins a bidding competition in an invisible auction. This is why the rich own the vast majority of Porche, but also why even anti-Second-Amendment billionaires cannot bid away all private guns or all the steel. This is why mothers can buy milk for their children instead of all the milk-making resources moving to the beer and wine industries. Every time you buy or sell something, there is so-called “price-gouging,” and you are very happy that there is.
It’s nice to have altruism and benevolence around, but only up to a certain point. Suppose that, during an emergency, you want to give away your generator and that every household in your family already has one. How do you know who needs it most? How many hours or days are you willing to spend finding out? Self-interest generally works better for prosperity and human flourishing.
Perhaps it is not as much ignorance that has persisted, as coercive values that have advanced. If more people believe it is better that nobody gets something if not everybody can have it, or that goods would be better morally allocated by queues or by lottery than by willingness to pay, then price-gouging laws become acceptable—to those people.