Economic Misconception #1342: Price Gouging

One thing most people get their panties all in a wad over is price gouging.  Seriously, I really believe that all government skools should require an economics course based on Thomas Sowell’s Basic Economic before they can graduate.  It would probably resolve a lot the general ignorance when it comes to economic matters.

Now, I’m no expert on the subject, but I’m no fool either.  I know enough about economics to know when the so-called ‘experts’ are lying and when they are providing an honest analysis.  Just in case you need some help in telling who is being truthful and who is probably lying, pretty much any economists in the mainstream press is on the Federal Reserve’s payroll.  You really have to listen to the people who don’t get regular airtime on television.

Anyway, with price gouging, it is often the case that anything out of the ordinary when it comes to prices is considered to be greed and therefore bad.  Usually it comes up when there’s a major disaster that has struck and people are scrambling to pay for services and products they need.

The most common example I’ve read about is about how many hotels and motels will raise their prices when there’s a hurricane evacuation going on.  Usually this is frowned upon by the dumb masses because it’s perceived as nothing more than the hotel owners taking advantage of the homeless masses.  In reality, you need to understand that while the owner’s motives may be based on greed, it is also justified through the raised demand in rooms.  And as the prices go up, more people end up sharing rooms in order to save money, so more people get shelter.

Prices, you see, are just a way of managing scarce resources that have alternative uses.  When you consider supply and demand, prices are reflective of the limits of both.  If demand remains static and supplies go up, then prices will go down.  Conversely, if supply remains static and demand goes up, prices will go up as well.  The later is why hotel owners raise prices during an unusual influx of customers.  Their supply is static but the demand goes up.

Economics is the study of scarce resources that have alternative uses.  When you consider that everything in the material world is finite and, in effect, scarce, you have to understand that everything will have a value based on the scarcity of that particular item.

I remember posting an article by John Stossel about a man who bought a bunch of generators and traveled to New Orleans in order to sell them.  When he got there, however, they were confiscated from him because he was selling them at double what he purchased them for.  The state government there considered what he was doing to be price gouging since he was selling them at double what he bought them for.  But when you consider not only the purchase, but the travel expenses, the room and board expenses, and the other miscellaneous expenses, I doubt his profit margin would have been higher than 20%.  Instead, because he wasn’t donating them or selling them at a lower cost, but at the cost he felt was fair given the circumstances, the Statists decided that he needed to be punished.

The forum I posted this example on was a conservative forum and there were a good number of conservatives who sided with the state of Louisiana.  It is unfortunate because many conservatives don’t seem to grasp even basic economic concepts or accept that the individual should be allowed to buy and sell things as he or she sees fit, provided it is honest and peaceful.  As far as I could tell, this man was looking to take advantage of a business opportunity, even though the circumstances were unusual.

Now that gasoline is going up again, we are probably going to see Obama and many other Leftist leaders in Congress demand that the gasoline companies stop their price gouging.  But this will be ludicrous and a major distraction from the real issues at play.  The Federal government excels at two things: exerting force in order to remove our liberties and blaming the private markets for their own failures.  When they start doing it, and they will come June or July, don’t be fooled.  They are lying about the problem and will look to pass legislation that will result in more economic turmoil and devastation.

It’s what the Statists do and through the ignorance of the dumb masses, they get to appear as saviors from things like the non-existent price-gouging.