The first of four essays written for Money, Markets, and Morals where I argue that arguments in favor of price gouging rely on some assumptions about market forces that may not be valid during times of crisis.
Should it be illegal to raise prices of essential goods (water, flashlights, gasoline, motel rooms) in the aftermath of a natural disaster?
In Florida, it is illegal in emergencies to sell essential items like water, lodging, and lumber for prices that “grossly” exceed their average prices . Using terms like “greedy” and “exploitative”, Florida has prosecuted price surgers, such as hotels that charged triple of their normal prices after hurricanes, under such laws. But adamant critics of price surging laws are quick to assert that raising the price of any item, even essential items, when demand increases and supply decreases, is simply good economic sense. In fact, critics claim that allowing price gouging is morally justified, as market forces will lead to the more moral distribution of resources. Unfortunately, these arguments in defense of the morality of price gouging rely on the assumption that the circumstances surrounding practices of price gouging allow standard market forces to operate as normal. But because basic economic theory breaks down during times of emergencies, appeals to the morality of economic efficiency are invalid. As such, moral claims against price gouging go unanswered, giving moral weight to the laws Florida and other states have passed in order to curb the practice of price gouging.
Price gouging is the practice of raising prices on essential items during times of emergencies. Both the item and circumstance in question differentiates price gouging from market mechanisms like price surging, which concerns raising prices on non-essential goods during times of increased demand. The practice of price gouging will be argued to be immoral in two parts. The first is that price gouging is an immoral exploitation of others, where exploitation is not characterized by lack of information or unfair coercion, but rather marked by the unnecessary increase in the price of a good. The second part will concern the characterization of this unnecessary increase in price. Normally, most moral defenses of price gouging hold that price gouging allows market forces to lead to best possible resource allocation. But during times of emergencies, it is unreasonable to assume that market forces operate according to economic theory. Thus, “necessary” increases in price to allow market forces to operate are no longer necessary because markets are unable to operate normally.
First, the immediate effects of price gouging are undesirable. Price gouging in the restricted context harms consumers more than it is necessary for the supplier to do so. Consider the two scenarios that occur as a result of price gouging. Because price gouging concerns only essential goods, acquiring them is nonnegotiable. Thus, despite increased prices, people are forced, due to circumstance, to purchase essential goods. If they are unable to afford such the increased prices, they are forced to go without, at great expense. In both outcomes, the consumers are worse off than compared to the merchant selling the goods at fiscally responsible prices at which the supplier does not generate a loss. Defenders of price gouging do not deny that price gouging leads to prices that are beyond what is necessary for current suppliers to sell the good. Rather, they acknowledge that the increased price is necessary because it signals to suppliers that otherwise would not supply the good to supply it.
Indeed, proponents of price gouging assert that the increased incentive to sell goods leads to increased supply in the market, allowing more people to get access to the good, a more moral result. This line of reasoning works best in a vacuum, where market forces are the only forces at work in the larger ecosystem. It also assumes that market forces function in the proper manner. In reality, these assumptions are unlikely to be realized. For instance, market forces such as signaling and economization and perfect information are unlikely to be realized, at least to the same level, in an emergency as in other circumstances. Consider the idea that the higher prices price gouging allows for, signals to suppliers that there is economic profit to be made by supplying the good. This is unlikely to be the case in an emergency, when economic information travels slowly due to external circumstances. This same concern applies to the idea that consumers will have good enough knowledge to make decisions, as market principles would suggest. But consumers, who are pressured by the urgency of the emergency situation, are unlikely to gather all of the prices of bottled water by all of the suppliers before purchasing water. The other assumption that is made is that markets are the only forces that are at work in times of emergency. By limiting suppliers to only private forces, such analyses unfairly simply the circumstances. In reality, many forces are at work to supply critical goods to the market. Government, non-profit, and even some private forces are all working, sometimes in tandem, to provide goods to people in emergencies. Because both assumptions made by critics are likely to be invalid in times of emergencies, the moral validity of market forces and the moral standing of price gouging is held in question. Because while economics may work in the long run, it may do a very poor job of describing what occurs in the short term, especially in emergencies.
As such, it is seen that condemning the practice of price gouging is warranted because the individualized practice of price gouging unnecessarily harms individuals in need. In addition, price gouging is unlikely to lead to more moral distributions of good because the assumptions made in order to lead to this conclusion are flawed. It follows that the laws set in place by Florida and other states have moral merit. Evaluating the actual regulation and effect of such laws is outside the scope of the research of this argument. Perhaps it is impossible for law to properly discriminate between scenarios where the free market functions and does lead to the most morally acceptable result and scenarios in which market forces are stymied by the reality of an emergency. Or perhaps laws are unable to capture the sheer ambiguity about what a fair price is. Regardless of the realities of writing and enforcing laws, the current laws that do exist express a morally acceptable position and it is hoped that the writing and enforcement of such laws are done with the same delicate moral reasoning. So while rationale economic forces may lead to the best distributions in the long run, in the words of Keynes, “In the long run we are all dead”. Thus, there is a need for laws to ensure that, in the short run, everyone is treated correctly.
First, your thesis should have been made more explicit. I take your thesis to be, “But because economic theory breaks down during times of emergencies, appeals to the morality of economic efficiency are invalid. As such, moral claims against price gouging go unanswered, giving moral weight to the laws Florida and other states have passed in order to curb the practice of price gouging.” Saying that anti-price gouging laws have “moral weight” is ambiguous. You should have made it more explicit that you were arguing in favor of these laws. This instance also suggests that you’ll want to be careful when using metaphors.
Moreover, one could question your first argument against price gouging, that such actions are “unnecessary” increases in the price of basic goods. The fact that rising price levels increase supply is only one argument that economists make in favor of price gouging. There is also the argument that increased prices are fair because they compensate sellers for the considerable risks they are taking in staying open for business during emergency situations. This suggests that rising price levels in an emergency are not unnecessary, because they signal the true cost of the good in an emergency context. We can ask if it is only appropriate that sellers be compensated for the additional risks they face. If so, maybe higher prices are in fact permissible.
In addition, a stronger paper would have considered if the government has the right to tell sellers that they can’t raise the prices on goods that they already own. Is this a violation of the freedom of the seller? Is it a violation of their property rights? You might say that the freedom to sell can be rightly restricted in emergency situations, however you would also need to defend this claim.
Finally, you write, “The other assumption that is made is that markets are the only forces that are at work in times of emergency. By limiting suppliers to only private forces, such analyses unfairly simplify the circumstances. In reality, many forces are at work to supply critical goods to the market. Government, non-profit, and even some private forces are all working, sometimes in tandem, to provide goods to people in emergencies.” I’m not sure what you are trying to get at here, but I’m not sure if it helps your case. Doesn’t the fact that multiple institutions work to help people in emergencies suggest that people who can’t afford goods because of higher prices are still served by other institutions? This might suggest that we should leave the private sector alone and simply ensure that public institutions help those who are priced out. However, this isn’t the argument you want to make since you’re writing explicitly against price gouging laws.