Please state the nature of the economic emergency: a note on price gouging laws

Michael Giberson

The moral intuition that undergirds price gouging laws may be described as “it is wrong to take advantage of people in distress for personal economic gain.” In states with price gouging laws, the laws are typically in force only during officially declared emergencies. This limitation – that they are enforced only during declared emergencies – is intended to tailor application of the law to just the kinds of price increases that seem most objectionable morally*, while otherwise allowing markets to function normally. This link to official declarations is also intended to make clear to merchants and consumers just when the state government may decide to penalize a merchant for a price which seems unfairly high.

But there is a bit of slippage between the concepts “officially declared emergencies” and “periods during which people are in distress,” meaning that the laws are not as well tailored as you might think.  For example, North Carolina Gov. Bev Perdue declared an emergency on January 10, 2011 “due to the expected impact of an approaching winter storm.” The storm came and went, closing schools for a day or two and a few thousand people were without power for a while, and also until February 8 it is illegal in North Carolina to charge a price which is “unreasonably excessive under the circumstances” for any good or service covered by the law.  Is anyone still imperiled by the storm? Probably not, but the price gouging law remains in effect. (Sometimes the declaration is even less connected to immediate peril – in July 2006 the Governor of North Carolina declared an emergency in response to a December 2005 ice storm that hit the western part of the state. The declaration was needed to access federal disaster relief funds.)

Similarly, on December 21, 2010 Texas Gov. Rick Perry declared an extreme fire hazard emergency covering most of the state, so the state’s price gouging law will be in effect until later this week. The absence of much rain means the fire hazard remains and may lead the declaration to be renewed for another 30 days. No people are actually in distress because of this emergency, so the moral considerations that undergird price gouging laws are not activated, but the law itself has been activated.

My point here is a rather small one: just that linking price gouging laws to declared disasters leads the price gouging laws to be in effect many times during which there is no real distress.  So far as I know, no price gouging complaints have been initiated in either North Carolina or Texas during these not-too-distressful emergencies. In fact, state attorneys general appear to have a great deal of discretion over how and when they will pursue price gouging complaints, so perhaps they use that discretion to more completely tailor application of price gouging laws to their moral intuitions. But this “discretionary tailoring” means that merchants and consumers don’t have completely clear information about when the state may prosecute a merchant for too-high prices.

NOTES:

North Carolina Retail Merchants Association, “How do I comply with North Carolina’s revised price gouging law?

For much more on price gouging, click here to search the KP archives.

*Note that my characterization of moral views here is intended to be descriptive of commonly held moral views, not an endorsement of the described view.

CORRECTION: The misspelling of a governor’s first name has been corrected above.

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3 thoughts on “Please state the nature of the economic emergency: a note on price gouging laws

  1. Mike,

    NC governor is BEVERLY Perdue.

    Your point about “discretionary tailoring” is the key problem with “price gouging” laws. I would expect an increasing portion of merchants to avoid any risk of prosecution, to the likely detriment of those affected by the “emergency”.

  2. I meant to type “Bev Perdue”, since that is how the Governor’s website has it, but either I mistyped as “Beth” or maybe the spell check fixed it for me? Anyway, I’ve corrected it above.

    In addition to inducing overly conservative merchant operations, one possible problem with discretion is that it could be used more frequently against merchants who happen to be immigrants or otherwise seem to be not as much part of the community that they serve. I’d love to have the data to examine that particular issue.

  3. Mike,

    Good point regarding immigrants. However, I suspect the merchants most affected would be the regional and national chains, which might well have the “muscle” to make a difference during an “emergency”, but also have the “deep pockets” which would make going after them worthwhile for an AG, particularly if an election loomed. (Please don’t ask why the name Andrew Cuomo just popped into my head.)

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