Price Gouging

After Hurricanes Charley and Frances hit Florida, Gov. Jeb Bush (R) was quick to point out that price-gouging is illegal in Florida, and issued a strong warning to those who might think about charging exorbitant prices for necessary goods. Likewise, in Ivan's aftermath, Alabama Attorney General Troy King (R) issued the following news release:

MONTGOMERY)— Attorney General Troy King today warned unscrupulous
contractors and businesses that he will be vigilant against those who seek to
profit illegally at the expense of Alabamians who suffer damage and others who
seek refuge in our state from the ravages of Hurricane Ivan. He cautioned
consumers to be wary of those who would victimize them a second time through
home repair frauds. He further noted that state law protects consumers from
price gouging when a disaster is so severe that a state of emergency is declared
by the Governor.

“The good people of Alabama stand together in times of
crisis, and we have laws to protect against those who would profiteer and take
advantage of their fellow-citizens,” said Attorney General King. “It is wrong
and against the law to charge outrageous amounts for necessities that people
must have in times of emergency. While this storm may inflict harm on our
people, we will not tolerate allowing anyone to inflict further harm on those in
Alabama. I have directed my Family Protection Unit to be on standby to respond
and assist consumers with the hardships imposed by this destructive weather, and
to respond aggressively to reports of wrongdoing.”

The state law that prohibits “unconscionable pricing” of items for sale or rent comes into play
when the Governor has declared an official state of emergency. An unconscionable
price is defined as one that is 25 percent or more than the average price
charged in the same area within the last 30 days, unless the increase can be
attributed to a reasonable cost. The penalty is a fine of up to $1,000 per
violation, and those determined to have willfully and continuously violated this
law may be prohibited from doing business in Alabama.

I can certainly understand the motivation behind this type of law. There is a sense of fair play that says raising prices to profit from others' losses is wrong. But, try as we may, we can't repeal the fundamental rules of economics.

Anti-gouging laws like Alabama's essentially set a maximum price for goods and services. These types of legal price controls provide tremendous disincentives to moving goods and services into the disaster areas where they are needed most.

Price controls have a long history, and have always and everywhere resulted in the same predictable consequences. For example, the Roman Emporer Diocletian implemented them in the Fourth Century to restrain high inflation. The resulting shortages of goods often led to conflict, sometimes violent, between citizens competing for scarce goods. This same economic lesson has been repeated over and over again in the centuries since. Unfortunately, the people in Alabama's gulf coast communities may be about to learn it again firsthand.