Sunday, September 21, 2008

Hoarding and Gouging

In the first two days after Hurricane Ike hit the Houston area, I could not find a store open within 3 miles of my home. It wasn't that I was in need of anything, but I wanted to know what was available. On Monday a few stores opened, all of which I believe were powered by generators. The first gas was not available until Tuesday.

During this period government officials were regularly warning businesses to refrain from gouging customers. When stores opened or gas was available, long lines quickly formed. I heard reports of people waiting up to 4 hours for gas.

Much of the demand for gas was created by people topping off their tank. Under normal circumstances, I doubt that many people do this. They know that they can purchase gas easily and do not care to spend the time and effort to put a few gallons in their tank. However, after Ike individuals wanted to be certain that they had as much gas as they could get. In other words, they were hoarding gas.

This hoarding was not limited to fuel. Brian Shelley at Freedom is the Solution relates an experience he witnessed in a grocery store:
As I picked up a few items at a recently opened store near my home, I witnessed food hoarding going on as well. A woman added nearly a dozen packages of hot dogs to her cart already half-full with bags of frozen chicken breasts, and other packaged meats. She then turned to advise the other two women she was with to grab some. Each added half a dozen packages to their carts. I don’t know their situation back home, but since the shelves were mostly bare already, it probably meant that other people arriving later would have to go without. If the store had hiked the prices of certain items even a few dollars, food types in short supply could have been enjoyed by more people not just the lucky few who discovered that the store had recently restocked.

In the aftermath of Ike, demand for many items spiked. Many people lost food when their electricity went out and they were seeking to restock. Those with generators needed additional gas. Those who had neither electricity or a generator needed ice. All of these items were in short supply. Because those who had these items had been warned about gouging, they could not raise their prices to curb demand.

All resources exist in a limited supply, even under normal conditions. There is never enough of any product or service. Prices moderate demand and ration products and services to those who most value them. When demand spikes, but prices do not rise, consumers will hoard.

Economically, anti-gouging laws make no sense. Morally, they are unjustifiable. Every economic transaction is a voluntary exchange. Each party benefits, or else he will not take part in the transaction. If he finds the price too high for the value he will receive, he can simply decline the transaction.

This was true the day before Ike hit, and it remains true in the days after. No matter what the product, those who own it have a moral right to establish the price for which they will sell it, even if that price seems outrageous. So long as the business does not force anyone to buy its products, and I have heard no reports of this ever happening, the consumer is free to look elsewhere.

In normal times, most consumers recognize their freedom of choice. They recognize that they have the right to take their business to someone else. But in emergencies many believe that it is proper and just to compel businesses to act as if an emergency did not exist.

The right to property means the right of use and disposal. It means that the property owner can determine the conditions and price for which he will sell his property. On the flip side, consumers who highly value a particular product can bid up the price. If a seller can find a willing buyer, and a buyer can find a willing seller, nobody has been harmed.

The rationale behind anti-gouging laws is that businesses will take advantage of consumers during desperate times. This implies that consumers cannot make wise decisions during emergencies. It implies that consumers have a right to purchase food, water, ice, and plywood at a particular price. No such right exists. In this context, there is only the right to choose.

At root, anti-gouging laws infringe on the rights of every individual. Because anti-gouging laws interfere with the voluntary exchange of property they harm both the producer and the consumer.

Imagine the uproar if the government imposed restrictions on the quantity of gas, ice, water, food, plywood, or any other product that could be purchased after a hurricane. The outrage would be justified because it would interfere with the voluntary exchange between two willing parties. The same outrage should be expressed anytime government interferes in a voluntary exchange, whether it is aimed at consumers or businesses.


Renee Katz said...

I find it odd that the woman you mentioned was hoarding meat and told everyone to grab some. Meat is usually not the ideal 'hurricane food.'

A Girl From Texas said...

I agree 100% with your point here unless these vendors are being helped by the city. For example, if the city is making special efforts to be sure that routes are cleared so that goods can be delivered to their stores. Or, if the city is making sure that commercial power is restored prior to residential communities. If these vendors are being given extra care by the city, I believe the city has the right to make such a request.

That being said, I'm not sure they can enforce it.