Hurricane Dorian: Economists pan price gouging laws as storm nears

Published: Wednesday, September 04, 2019 @ 9:49 AM

Hurricane Dorian: Economists criticize price gouging laws as storm nears

Georgia Gov. Brian Kemp has kept a brisk and proactive pace as Hurricane Dorian nears the coast, issuing mandatory evacuation orders and emergency declarations and authorizing a call-up of the Georgia National Guard.

He’s also enacted price controls in affected areas.

“Businesses may not sell, or offer to sell at retail, any goods or services identified by the Governor ... at a price higher than the price at which the good or services were sold or offered for sale before the declaration of the State of Emergency,” according to the state’s law meant to combat price gouging. 

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Economists say it’s exactly the wrong approach.

“Restrictions on price gouging make the problem worse by creating shortages,” said Art Carden, associate professor of economics at Samford University’s Brock School of Business. “They actually make it a lot harder for people to get their hands on supplies. The reason we have shortages of bottled water and plywood is we don’t allow the price to change.”

The state encourages residents to report suspected price gouging by filling out a form on the Georgia Department of Law’s Consumer Protection Division’s site

“We do appreciate as much detailed information as you can provide and copies of any and all relevant documentation, including pictures,” the instructions read.

Carden calls this a “socially corrosive” measure that “siphons people’s attention from responding to the disaster to snitching on each other.” When the state forces prices to remain static despite a surge in demand, he added, “You almost certainly get black markets. It encourages hoarding.”

Kemp’s post highlighting the price-gouging law was met with thanks and support from many responders on social media. 

“Now if we can get a gouging ban in Florida,” one post read. “Still down the road from a (gas) station that’s $6.99 a gallon.”

“Thank you SIR!” another read. “Does this affect HOTEL ROOMS too? Because the HOTEL ROOMS went up really high during hurricanes!”

That’s actually for the best, Carden says.

“If hotel room prices don’t change, maybe a large family (fleeing the storm’s path) comes to Atlanta and they get two rooms,” he said. “If the price of rooms doubles, that family might say, ‘OK we need to bite the bullet and stay in one room.’ That frees up another room.”

Steven Horwitz, distinguished professor of free enterprise at Ball State University’s Department of Economics, likens long queues for gasoline or plywood in hurricane zones to Soviet bread lines. Disaster conditions can create free-market opportunity if the government will resist intervening, he said.

“If the goal is to get more water or ice or whatever, letting the price rise is the best way to do that,” he said. If selling bottled water or other commodities suddenly becomes more profitable, he explained, those conditions may entice enterprising sellers to enter the temporarily hot market.

“The more suppliers come in, and compete with each other, the more prices come down,” he said. 

Retailers that charge extortionate rates during a crisis face the longterm wrath of consumers afterward, he added.

Both Carden and Horwitz pointed to the goodwill Walmart engendered after Hurricane Katrina 2005. Rather than raise prices, the big-box discounter responded with cash donations, free merchandise and meals. Similarly, Atlanta-based Home Depot mobilizes its Disaster Response Command Center, which works with various nonprofits, when dangerous weather threatens.

But small businesses in storm-ravaged areas usually can’t afford to stroke seven-figure checks or give away mountains of inventory, Horwitz noted.

“These price gouging laws end up hurting small businesses, the people who can least afford to be prosecuted for breaking the law,” he said. “They make things worse.”