Florida Senator Bill Nelson is seizing on the BP oil spill as an excuse to pass federal “price gouging” legislation. It’s certainly nothing new to see anti-market politicians stirring up populist rage with these so-called “price gouging” laws. Many states already have them on the books, and politicians are quick to warn greedy capitalists against “exploiting” disasters by raising prices. But these laws are really nothing more than price controls and, like all price controls, they distort markets and harm consumers.
“Price-gouging” laws generally prohibit “excessive” or “unconscionable” prices – both unconstitutionally vague concepts – immediately following disaster declarations. Prosecutions typically follow hurricanes, floods or other major events that knock out power and stress the availability of goods like ice and power generators.
Under normal circumstances, sudden increases in demand result in similarly sudden spikes in prices. As prices go up, entrepreneurs in nearby areas are motivated to buy goods at their cheaper local prices, transport them into the disaster area, and then sell them for a handsome profit. This is how price signals work to indicate where goods are most needed. The entrepreneurs make enough money to justify their efforts, and people in the disaster area are able to get the extra supplies they need. Yet despite the fact that everyone wins, many politicians have criminalized this behavior. Rather than cheering the entrepreneurs for bringing relief supplies that would not otherwise arrive to post-disaster areas, state government officials often prosecute, fine and even jail them.
Not satisfied with the fact that a majority of states already have these misguided price controls on the books, federal politicians have repeatedly tried to have them enacted nationally. A bill that would have criminalized charging market prices for needed goods passed the House in 2007, but failed to get the 2/3rd votes necessary to override President Bush’s threatened veto. Now, with a more sympathetic President Obama in office, such legislation could potentially return, and pass.
Bill Nelson’s state of Florida already unnecessarily perpetuates shortages after hurricanes and other disasters with misguided price controls. He shouldn’t force similar pain on the 20 or so states without price gouging laws.
