Texas Price Gouging Law is Backfiring

Halea Walker and I have an op-ed appearing in the Dallas Morning News explaining that Texas’s anti-price gouging law comes with some unintended consequences.

What I most want to say about price gouging laws is, in effect, “if you mess with price discovery, you’re going to have a bad time.” Unfortunately, that claim does not resonate deeply with non-economists.

In the op-ed, we give two examples of ways the state’s enforcement of the law post-Hurricane Harvey is giving Texans “a bad time”: first, the law likely protects hoarders able to stock up fast more than it protects consumers actually distressed by the hurricane; and second, the law ends up disadvantaging small businesses to the benefit of big business.

Here is the first part of the op-ed:

In the aftermath of Hurricane Harvey, a photo of a case of bottled water selling for nearly $43 at a Houston-area Best Buy quickly became the target of social media outrage. Consumers under stress from the storm were quick to object to higher prices, and store representatives quickly apologized.

When an emergency is declared by the governor, it becomes illegal in Texas to sell fuel, food, medicine or other necessities for an excessive price. The law is meant to protect distressed consumers from being taken advantage of. Unfortunately, Texas’s price gouging law is backfiring.

We see this backfire effect at work in the attorney general’s enforcement actions. Last month, the attorney general’s office announced the resolution of 48 Harvey-related price gouging cases involving gas stations. The owners of these stations will pay more than $166,000 into a restitution fund for consumers who bought gasoline from the stations.

None of the 48 gas stations is in the hurricane-struck region. Instead, 42 of them were in the Dallas-Fort Worth area and the others in central Texas. Likely, the folks getting refunds will not be those who actually fled the storm, but people living far down Interstate 45 who rushed out to fill their gas tanks before prices rose or stations ran out.

Some reports had people loading gas cans into the back of their SUVs, under blue skies and wispy clouds in North Texas before the storm even made landfall 300 miles away.

Recommended reading, of course!

By the way, the op-ed was influenced by Dwight Lee’s essay on “The Two Moralities of Outlawing Price Gouging,” although for reasons of clarity and space he does not get cited.

The 48 gas stations settling with the state are mapped at this link: Gas stations settling with state. The color coding indicates the amount of settlement for each station automatically generated by BatchGeo, red is largest and blue is lowest. Click on the map markers for locations and other details on the stations.

For readers who don’t remember the details of Hurricane Harvey, the relevant point here is that it meandered slowly up the coast from Corpus Christi to the Texas-Louisiana border, causing extensive flooding and billions of dollars in damages along the area within about 100 miles of the coast–most especially in the Houston area. Around Fort Worth and Dallas area, with most of the price gouging enforcement action, they saw a little rain from the storm.

(Halea Walker is an undergraduate research fellow at the Center for Growth and Opportunity at Utah State University. I spent six weeks this summer in Logan working with Halea and other students with CGO at Utah State.)