Price Gouging – Markets Aren’t Immoral

After hurricane Sandy, the mainstream media decried “evil price gougers”.  That actually is what happens in a free market.  When there’s a shortage, prices rise.

Suppose the “normal” price for an item is $10.  During a crisis, the “fair” price may be $100 or more.

When there’s a shortage, prices should be allowed to rise.  That rewards people who had inventory prior to the disaster.  Higher prices also provide an incentive to import supplies.

By banning “price gouging”, the State prevents normal functioning of markets.  When prices are not allowed to rise, you have shortages, lines, and rationing.

One example is gasoline rationing.  It would seem evil if the price of gasoline were allowed to rise to $10/gallon.  By not raising prices, instead there are shortages and rationing.  If prices were higher, there would be an incentive to import gasoline from other states, by truck if necessary.  If prices were higher, people would be more cautious about using gasoline, reducing demand.

Even though it was illegal to raise prices, some people did it anyway.  They made under-the-table deals.  Those people aren’t criminals.  Actually, they are agorists helping to meet demand, even though they didn’t think of themselves as practicing counter-economics.

How should resources be allocated in an emergency?  The only reasonable answer is a market.  Otherwise, there’s shortages and rationing.  By forbidding price increases during an emergency, the State prevents normal functioning of markets.  Price increases provide an incentive to import supplies.  Price increases send a signal to customers that they should use supplies carefully.  Government exacerbates the problem by imposing price controls, and then people who work around the bad law are treated as criminals.

People who raise prices in an emergency aren’t evil.  That’s the way markets should function.

One Response to Price Gouging – Markets Aren’t Immoral

  1. Only the State fascist oligarchy is allowed to raise prices!! The State hates competition of any kind against its monopoly of violence and economics.

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