In the previous post, we mentioned an economic fallacy that gets floated during major disasters. It is that “Storms Create Jobs.” The idea of price gouging is another example of erroneous economic thinking that creeps into the discussion, especially during natural- and government-generated disasters.
Writes Salon’s Matthew Yglesias:
… there are some things politicians of both parties can agree. Price gouging, for example, is wrong. New York Attorney General Eric Scheiderman, a Democrat, wants you to know it. But this isn’t just for soft-hearted liberals. New Jersey’s notoriously tough conservative governor, Chris Christie, also put out a weekend press release warning that “price gouging during a state of emergency is illegal” and that complaints would be investigated by the attorney general. Specifically, Garden State merchants are barred from raising prices more than 10 percent over their normal level during emergency conditions (New York’s anti-gouging law sets a less precise definition, barring “unconscionably extreme” increases).
Even a progressive like Yglesias is able to grasp some of the natural laws of economics. A sharp rise in prices to coincidence with reduced supply and an increased demand for a good signals the need to conserve scare resources:
The basic imperative to allocate goods efficiently doesn’t vanish in a storm or other crisis. If anything, it becomes more important. And price controls in an emergency have the same results as they do any other time: They lead to shortages and overconsumption. Letting merchants raise prices if they think customers will be willing to pay more isn’t a concession to greed. Rather, it creates much-needed incentives for people to think harder about what they really need and appropriately rewards vendors who manage their inventories well.
Still, some truths escape liberals (and most conservatives). Prices are the prerogative of private property.
In a free market, the institute of private property ensures that we have prices. “Prices are like a compass: pegged to supply and demand they ensure the correct allocation of resources. Without market prices, supply and demand cannot be brought into balance and, by extension, consumer needs cannot be satisfied. Conversely, in socialized systems there are no prices because there is no private property. Absent such knowledge, misuse, misallocation and mismanagement of capital are inevitable. Prices are the street signs of the economy.”
UPDATE (Nov. 1): Obama’s New BFF (Best Friend Forever):
Every day that Christie is rhetorically hugging Obama is a day when he’s not making the case for Romney. Christie went even further in an interview on Fox and Friends Tuesday morning, professing little interest when told Romney might visit to tour some of the damage in his state. “I have no idea” [if Romney is coming], “nor am I the least bit concerned or interested,” Christie said. “I have a job to do in New Jersey that is much bigger than presidential politics.”