In the wake of Hurricane Sandy there is concern that people may be price gouging. Gov.Â ChrisÂ Christie has said he will come down hard on culprits caught price gouging.
During emergencies, New Jerseyans should look out for each other â not seek to take advantage of each other. The State Division of Consumer Affairs will look closely at any and all complaints about alleged price gouging. Anyone found to have violated the law will face significant penalties.
Mark J. Perry, though, schools theÂ governorÂ on market dynamics:
With that statement, the New Jersey governor demonstrated a fundamental lack of understanding about how markets actually work. Â SellersÂ alwaysÂ try to take advantage of consumers, in the sense that they always charge âwhatever the market will bear,â and this condition of a well-functioning market doesnât change because of a natural disaster.
Just like earthquakes, hurricanes, or floods donât change the fundamental physical laws of gravity or aerodynamics, those natural disasters also donât change the basic laws of supply and demand. Â If sellers of electric generators in New Jersey are guilty of illegal âprice gougingâ for charging market prices after a major disruption to the market like Hurricane Sandy, then sellers of all products at all times are guilty of âprice gouging.â Sellers always charge âwhatever the market will bear,â and in that sense are always trying to âgougeâ and âtake advantage ofâ buyers to the maximum extent possible. Â To act any differently would be foolish and even disruptive to our economic system based on market prices.
Iâm very confident that the last time Governor Christie personally sold one of his own homes, shares of stock, or cars, he sold his possessions for the highest price possible and not a penny cheaper, and in the process he did his very best as a seller to âtake advantageâ of the buyer.Â Thatâs how markets function.
Rising, market-based pricesÂ following a disasterÂ are the most effective method possible of allocating scarce resources, eliminating shortages, and attracting essential supplies to the areas that need them the most. Â In fact, market-based prices are also the most effective method possible of allocating scarce resources, eliminating shortages, and attracting essential supplies to the areas that need them the mostÂ before a disasterÂ â wind and rain donât change that reality.Â Governor Christie and others fail to recognize that the coordinating role of market prices becomes even more important following a disaster, not less important.Â To prevent the price system from operating following a disaster with price gouging laws will make the situation worse, not better.Â Thanks to the strict enforcement of their stateâs price gouging laws, New Jerseyans should expect possible shortages of fuel, food and generators.
Itâs only in the fantasy world of politics that the âanointed elected officialsâ think they get to be the âprice deciders,â and determine if sellers are guilty of âprice gouging.â In the real world of the marketplace itâs much different and much more democratic â the impersonal market forces of supply and demand become the âprice deciders,â and weâre all much better off with those market-determined prices than with the artificial prices determined by politicians and bureaucrats.