Worstall: Hurricane Harvey Is When We Need Price Gouging

Tim Worstall reminds us of the value of relying on prices to help get resources to where they are most useful:

The economics of this is really terribly, terribly, simple. As a result of the disaster–of any disaster that is–some things are in short supply. Perhaps because some of the supply got damaged, or perhaps because people need to substitute. Floods could, for example, knock out the municipal water supply, leaving people needing bottled water. So relative to the available supply demand has risen. We now need some method of rationing that limited and scarce supply over that increased demand. Rationing by price is always the efficient way of doing this.

We also want something else to happen–we want supply to increase as fast as we can manage that. As we know from our basic Econ 101 supply and demand curves the way to increase supply is for the price to increase.

A map showing which states have price gouging laws is available here: Which states have price gouging laws? For much more on price gouging, this link will bring up all price gouging posts on Knowledge Problem.

Some of my favorites:

• Price gouging-moral insights from economics
• New ideas for combating price gouging
• The one-sided debate over price gouging
• Are ‘outsiders’ more likely to be accused of price gouging?
• Zwolinski: “Is price gouging immoral? Should it be illegal?”

You might check out my longer piece in Regulation magazine, “The Problem with Price Gouging Laws”. Econ students especially invited to examine economics research topics in price gouging from odd-even rationing to guilt and shame.

UPDATE: The Tim Worstall column has been pulled from the Forbes site and the link above is not working. See Michael Hiltzik’s column about the Worstall piece here for related commentary: http://www.latimes.com/business/hiltzik/la-fi-hiltzik-forbes-worstall-20170830-story.html.