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February 19, 2021 Reading Time: 5 minutes

Galatians 6:2 tells us to “bear one another’s burdens.” One of the beautiful things about the price system is that it encourages us to do exactly that–unless we meddle with it, of course, and actually make things worse. 

Death and taxes are the only sure things in life, but I suspect we could add a third: price gouging prosecutions after natural disasters or in other extreme circumstances. The winter storm that has rocked Texas has been no exception. News stations are reporting about price gouging on things like hotel rooms and milk. Politicians and others are rattling sabers about businesses “taking advantage” of the vulnerable. One Texas official issued a price-gouging warning while at the same time ordering businesses to use less electricity. Officials are, in short, imposing knowledge embargoes that keep resources from flowing to their highest-value uses and that prevent people who are a little more removed from on-the-ground emergency conditions (like me, and like, I suspect, most readers) from taking decisive action that will actually help people.

In very broad terms, we know what people need during disasters. They need food. They need water. They need shelter. They need fuel. These are very broad categories, though. What kinds of food? In what quantities? “Water” seems straightforward enough, but what sizes are appropriate to conditions in the affected area? Do people need cases of 20-ounce bottles? Gallon jugs? Are five-gallon jugs like you put in a water cooler the “right” size, or do their bulk and weight get in the way? After all, a five-gallon jug of water weighs over 40 pounds. Are people so desperate that it doesn’t matter? Moreover, are there more pressing concerns like warmth?

We could argue about it all day, and I suspect at least one person reading this or something like this is outraged at the very notion of considering costs and benefits during such a time as this. That misses the point, though: I can sit in my comfortable office and opine about what people hundreds of miles away really need. You can sit at a computer somewhere and type nasty comments about how economists like me are truly horrible people because we think price controls cause more harm than good and think it’s okay when prices rise after a disaster strikes. Neither actually gets goods into the hands of those who need them most.

Prices, however, do. As a lot of people have pointed out, high prices for water, gas, and building supplies are like signal flares specifically saying “Send water, gas, and building supplies!” Importantly, a sudden high price for bottled water in New Braunfels raises the cost of selling bottled water in New Mexico, New York, or New South Wales: the relevant cost of selling bottled water in one of these places is the now-higher price people in New Braunfels are willing to pay. Even if it’s cost-prohibitive to remove water from shelves in New South Wales and ship it to New Braunfels, higher prices will tell merchants and customers in New South Wales to expect to pay more in the future and, therefore, to conserve what they have today.

Notice how the price would transmit crucial information to people far from the situation, like people in New Mexico, New York, and New South Wales. Before googling it a few seconds ago I wouldn’t have been able to locate New Braunfels on a map. Before googling it a few seconds ago I wouldn’t have known how badly New Braunfels has been hit. Slightly higher water prices, however, would encourage me to do exactly what I should do in this situation: consume less water so that it can go to where it is most urgently needed. I don’t even know if that’s New Braunfels. Economics studies limitless wants and limitless means, and I confront a practically infinite number of ways to use water to make the world a better place. Higher prices for things like water, gas, and building supplies in the wake of a natural disaster mean that people in another state (New Mexico), another part of the country (New York), or on the other side of the world (New South Wales) pick up at least some of the burden resting heavily on the shoulders of people in New Braunfels.

Instead, we have price gouging laws making it so that hardly anyone gets the right message. I have family in Houston and friends all over Texas, and while I work to tread lightly in any case, I have no idea what is most urgently needed where, when, and for whom. A slight uptick in gas prices in Birmingham, for example, would tell me very quickly that I need to conserve gas because people in Texas need those next few gallons a little more than I do. Without the information prices convey, I’m reduced to well-intentioned groping in the dark because price gouging laws have basically turned off the lights.

A lot of people object to higher prices because they think higher prices are immoral or because they worry that only the rich will be able to afford the right supplies after disasters. There is some merit to this objection, but I don’t think it’s as strong as people think (someone with a big house and a well-stocked pantry may be better positioned to wait in a gas line than someone of more modest means). In addition, this is where the institutions of civil society are important. As Adam Smith wrote, there is a great deal of ruin in a nation. However, there is also a great deal of good. Churches, charities, and organizations like the Red Cross are on the front lines of relief, and they usually have the local knowledge that people who are far from the disaster area lack. I think we see some of the most pernicious effects of price-gouging laws in what they do to the social fabric. In some ways, love is like a muscle that gets stronger the more you use it, but “compassion fatigue” likely sets in at some point. In addition, price gouging laws encourage us to spy and snitch on one another instead of helping people who need it.

A lot of companies launch dedicated relief efforts when disaster strikes. Anheuser-Busch, for example, started an emergency drinking water program in 1988 and donates cans of drinking water to disaster-stricken areas. This passage from their website is especially revealing: “Every year, we periodically pause beer production in our Fort Collins, CO, and Cartersville, GA breweries to apply our production and logistics expertise to can clean, safe drinking water that is ready to distribute when disaster strikes.” (emphasis in original). Tide detergent’s “Loads of Hope” program makes it easier for people to do laundry after disaster strikes. Companies like Anheuser-Busch, Walmart, and Procter and Gamble have unparalleled “production and logistics expertise.” A cynic might say that they’re just doing it to get good attention–after all, I’m writing about their efforts in this paragraph–but disaster victims can’t slake their thirst with or wash their mud-caked clothes in the fact that I mean well.

I’m sure we’ve all had those close to us say “Is there anything I can do?” in the wake of a personal tragedy. Compassion like that is absolutely necessary when a loved one is hurting. When it comes to getting supplies to where they are most urgently needed, prices are absolutely necessary. Strangers on the other side of the world might not be texting to ask if they can help us specifically, but when they confront higher prices for water, gas, and building supplies and decide to make do with a little less, they are helping us in our time of need and bearing our burdens with us.

Art Carden

Art Carden

Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama and a Research Fellow at the Independent Institute.

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