Price gouging: At the intersection of emotions, ethics, and economics

Michael Giberson

Usually, with annual Spring price increases, we hear the perennial allegations of gasoline price gouging from politicians. Despite all the talk about high gasoline prices, there hasn’t been a lot of talk about price gouging this year.

The precise meaning of the term “price gouging” is sometimes hard to pin down, but a paper forthcoming in Business Ethics Quarterly tries to fix it enough that the meaning can be carefully examined. In “The Ethics of Price Gouging,” Matt Zwolinski describes price gouging as “a practice in which prices on certain kinds of necessary items are raised in the wake of an emergency to what appear to be unfair or exploitatively high levels.”

The definition includes three key elements that recur in most of the state laws against price gouging: an emergency period, necessary goods, and unfair price increases. Zwolinski surveys state laws to arrive at his definition, and while not every state law has all three elements, these three elements make up the core concept.

After defining price gouging, Zwolinski seeks to rebut three common beliefs about gouging: (1) that laws prohibiting price gouging are morally justified, (2) that price gouging is immoral, even if it is legal, and (3) that price gouging reflects poorly on the persons who engage in it, even if the act itself is not immoral. All three of these beliefs are wrong, or at least questionable, in Zwolinski’s view.

His position emerges from a basic understanding of economics, and particularly the role of prices in society. Zwolinski argues that anti-price gouging laws work to prevent individuals already in a vulnerable position from entering into what would be a beneficial exchange. Further, drawing on Hayekian notions about prices as information and coordination devices, Zwolinski asserts that anti-price gouging laws discourage extraordinary (or perhaps even ordinary) efforts to aid persons in need, because the laws interfere with information about scarcity and reduce incentives to act.

All in all, I found myself generally in agreement with Zwolinski. But, since he starts with generally libertarian foundations and flavors his ethics and policy examination with a heavy dose of economics, what is not to like? I was sympathetic from the beginning.

Still, I think most proponents of anti-price gouging laws, even if they agreed point by point with Zwolinski’s analysis, would still feel that price gouging was morally wrong, and would not oppose anti-price gouging laws. I’m increasingly convinced that morality is fundamentally a social manifestation of emotions.* Zwolinski’s point-by-point rebuttal of anti-price gouging positions barely touches on the emotional component. I suspect opponents of Zwolinski’s view would feel he just doesn’t “get it.”

So while Zwolinski is doing useful work – as are various economists who patiently explain the value of permitting “gouging” (or impatiently, and here, and here) – something more will need to be done before the anti-price gouging folks will finally “get it.” To understand the feelings behind price gouging, economists need to delve into the broader mysteries of emotional reactions to prices and allocations. Most economists don’t want to go there, and so they are left only to scratch the surface of the problem they want to resolve.

*NOTE: I’m slowly reading Jesse Prinz’s book on the subject, The Emotional Construction of Morals. More on it later.


4 thoughts on “Price gouging: At the intersection of emotions, ethics, and economics

  1. Mr. Giberson,
    I should like to contradict you in your agreement with said economist, and for the following reasons.
    As someone who agrees with anti price gouging laws, I should like to state my opinion on it.
    When one looks at economics, one has to completely remove any and all emotion. One has to take the meanest, most inhumane view possible in order to properly predict how the “invisible hand” will operate. The problem with their view is that it is so cold that it does not allow for the formation of society or any type of polite interactions between individuals.
    If we all looked at everything through the eyes of an economist, then starvation would be a good thing, as it is simply bringing the market back into balance where everyone can afford food… Until the population increased again, and then the poorest elements would starve to death and thus the cycle would repeat. This is perfect economics… The invisible hand of market forces is bringing everything into balance.
    We could also look at slavery as a good thing, as this would allow labor to be well-nigh free, thus contributing mightily to our overall GDP, though I guess the position of the slaves (or those starving from the earlier example) are never considered, and never will be. Their deaths will be viewed as a positive contribution to the overall well-being of the market.
    If you feel that people should be able to increase their profit margins by immense amounts immediately following natural (or man-made) disasters, then I ask you what you would do if you were unable to afford food for yourself, your children, or your spouse? What would you do when the gas station refused to sell you gas because they wanted to hold it until after the crisis and you were unable to get your family our of the path of a major storm? Or, how about paying $50.00 a gallon for gas, with a maximum purchase of 2 gallons? There has to be a finite limit to what we allow businesses to charge, even in light of extraordinary demands, or we are in essence saying that only the rich have the right to live or be happy in the free market.

    Best regards.

  2. What rdl does not explain in his accusation of the economist’s cold view is how shortages can therefore be warm. What should be done to alleviate the shortages if supplies are disrupted? If the warm world of emotion is so wonderful, then why do shortages manifest themselves when the price is controlled?

    Surely, warm emotions would cause people to forgo the temptation to take more than needed. If this is not the case, then why not let the price rise to its needed level? And if a price mechanism is just fine during normal operation, why discard it during times of crisis? How do shortages help anyone and why is it warm and good for governments to enact price controls?

    I seriously doubt that too many economists see starvation as a good thing. In fact, most economists look for ways to avoid starvation and one of those ways is through the price mechanism. Those wonderfully warm, emotional communists didn’t like prices so they got rid of them and, wouldn’t you know it, people started to starve.

    Such Malthusian rhetoric where there will be overpopulation which causes starvation has been around for centuries. The cold economists argued against such an occurrence and have been proven correct. More population means a larger division of labor which has been proven beneficial to mankind.

    Slavery has, indeed, been considered by economists and it isn’t free. Forcing people to work for nothing causes poor performance. Also, there are the costs of sustaining and securing the slaves. Slavery was culturally acceptable and therefore people were allowed to use the force of government to perpetuate such a system.

    In a society where everyone has the right to be free, it is necessary to have economic calculation through the price mechanism. Any forced deviation from such a system (governments are the only ones to have such force) will cause surpluses (waste) or shortages (want). If governments appeal to those warm emotions for votes, and they do, then it is emotion that brings about waste and want.

  3. “There has to be a finite limit to what we allow businesses to charge, even in light of extraordinary demands, or we are in essence saying that only the rich have the right to live or be happy in the free market.”

    You assume that the rich will take more than what is needed even when they have the ability to do so. Also, there are only so many people rich enough who can afford not to ration with the rest of us in order to afford the higher prices. And those few rich people only have so much storage capacity. By demanding that prices be held artificially low enough to cause shortages, then you are advocating that only the quick-to-act and those well-connected to the controlling monopoly of force have the right to be happy.

    You can not change the fact that the supply dynamic has changed and that consequences are inevitable. You’re only swapping one demographic for another.

  4. “There has to be a finite limit to what we allow businesses to charge, even in light of extraordinary demands, or we are in essence saying that only the rich have the right to live or be happy in the free market.”

    You assume that the rich will take more than what is needed even when they have the ability to do so. Also, there are only so many people rich enough who can afford not to ration with the rest of us in order to afford the higher prices. And those few rich people only have so much storage capacity. By demanding that prices be held artificially low enough to cause shortages, then you are advocating that only the quick-to-act and those well-connected to the controlling monopoly of force have the right to be happy.

    You can not change the fact that the supply dynamic has changed and that consequences are inevitable. You’re only swapping one demographic for another.

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