“Price Gouging” = Nonsense

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Politicians like to condemn and attempt to outlaw "price gouging," whatever that is... A great example of this lies in the aftermath of Katrina, when prices for gas and water in New Orleans rose fairly sharply. Politicians were quick to bad-mouth the gas stations and water sellers for acquiring "excess profits" and wanted to immediately put into effect anti-"gouging" policies. If you want to punish the seemingly mean, greedy profiteers, then these laws would appear to be a good thing. But if you're one of the people that the laws attempt to "protect" from this "price gouging" thing, then you're not going to be very well off. Allow me to explain.

Let's assume for a second that you were a Katrina victim in desperate need of drinking water. You go to the local store to buy a bottle of water for $1, but there's a problem: all the water's gone. Everyone's already bought it all up. So you continue your journey until you finally run into the infamous monster known as the Price Gouger, who is now charging $20 per bottle for his water that was only $1 just last week. You pay the $20 in order to survive and enjoy your water as you go on your way.

You resent the Price Gouger, but if he hadn't "gouged" his prices, he'd have been all out of water, and you would have died. His "gouging" saved you because he was looking out for himself, because he was trying to make a profit. I cannot stress this point enough, as it seems to have its place in almost all my articles. One man's profiting allows everyone to profit. You are now better off (alive) because of the Price Gouger's seeming malevolence. Everyone else was out stocking up on water before you were, thus every store's water supply diminished. Only the Price Gouger had a small supply of water, because his seemingly high price allocated the water, a scarce resource in this example, to those individuals who wanted and needed it most.

A price is the best, most efficient way to allocate a scarce resource, which is one of the most basic principles of economics. Politicians don't seem to understand this. They think those who are helping society are actually hurting it somehow by being profiteers. Sure, some may give out of the kindness of their hearts, but we can't always depend on benevolence. As Adam Smith once stated, "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest."

See, it's all about supply, demand, and opportunity cost. Why would the carpenters and roofers and electricians and plumbers leave their homes in some other state to go all the way to New Orleans to work if they couldn't make more money than they were already making at home. It would make no sense. If they couldn't, they simply wouldn't go to New Orleans. Politicians just don't understand basic principles of economics. Sure, you may have the would-be heroes who want to come help for a low price, but as I said, we can't always rely on benevolence time after time. Those people have to eat too, ya know.

These anti-"gouging" laws are just another form of a price ceiling. If you force prices down, you force suppliers to stop supplying. If you let the free market work, suppliers are plentiful, and the prices are guaranteed to be as low as the competition in the particular market allows. As such, it is the "price gougers" who provide the water, gasoline, carpentry, and the like when necessary. The "price gougers" save lives.

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Tyler Williamson runs a site about motor car insurance brokers called Car Insurance Ireland .
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