Short Stack: No Such Thing As Price Gouging

There is no such thing as price gouging. When markets are free and unregulated, supplies go up and prices go down at the most important times. Political elites don't seem to understand this.

Let everyone know they can stop searching for renewable energy sources. I have found the perfect one: Stupidity.

Stupidity burns hot, and unlike wood, coal, or natural gas, the more stupid burns, the more there seems to be!

Exhibit A: Kamala Harris and “Price Gouging.”

It is embarrassing to revisit this topic, as I have written and spoken about it many times before, and many economists have addressed it even more: There is no such thing as price gouging.

I write this, again, because Kamala Harris is out there pushing the old bogeyman of price gouging, and presenting herself as the slayer of it. It’s utter nonsense.

Let’s skip directly to the most obvious scenario: Imagine a widespread disaster—a fire, flood, or hurricane—leading to a sudden shortage of clean drinking water for a large population in the path of the disaster.

Scared folks, whose lives have been turned upside down, value clean drinking water more than they did before, when it was relatively easy to get and therefore inexpensive to buy.

Are you with me?

Following the disaster, the supply of clean drinking water is greatly diminished. When the supply of any economic good decreases and demand either remains constant or increases, prices rise.

This happens because some individuals—those who can afford it—are willing to pay higher prices for clean drinking water after the disaster, when there’s less of it. They value water more when supplies are limited than they did before the disaster, when water supplies were abundant.

Recognizing the opportunity for profit, an entrepreneur might rush to the scene of the disaster, where people now place a higher value on drinking water, and offer bottles for $30 each, maybe more.

Some thirsty individuals will agree to this trade, valuing a bottle of clean water more than the $30 in their wallets. They are happy to hand over $30 in exchange for a bottle of water.

Still with me?

Others may decline the offer, opting to keep their $30 and go without water—or maybe they don’t have $30—hoping that more water will soon be available.

And that’s precisely what happens when the misnamed activity of “price gouging” happens: Supply increases when it is most needed. More valuable inventory becomes available quickly.

What Would You Do?

Let’s make this more personal to avoid abstractions. Suppose you own a large inventory of bottled water—perhaps an entire warehouse full of fresh drinking water.

In normal market conditions, your bottled water sells for about $2 per bottle. When the fire, flood, or hurricane strikes—remember the disaster with which we began this thought experiment?—you discover that others are selling bottled water for $30 per bottle, fifteen times your usual price.

What do you do? You load your bottled water onto trucks and head to the disaster zone as speedily as possible.

Upon arrival, you find someone already selling clean water for $30 a bottle. If you price yours at $40 or $50, no one will buy it. Why would they when they can grab water for $30?

How do you compete with the $30 vendor? You price your water at $20 per bottle.

Here’s the catch: You’re not the only one bringing truckloads of bottled drinking water. Many others are doing the same, eager to profit by selling their supplies at elevated prices.

As soon as you set up your stand and announce your price of $20 per bottle, someone else puts up a stand just a few feet away and offers water for $12 per bottle.

Soon, another vendor sells water for $10, and another for $6.

This fierce competition leads to two opposite results: The supply of clean drinking water in the disaster-stricken area increases at precisely the moment when people most value clean drinking water. When markets are free and unregulated, large quantities of clean water flow in right when it is most desired.

Additionally, while the price of clean drinking water may spike initially, it will quickly drop until an equilibrium is reached, as long as suppliers are free to bring in as much water as they want and offer it for whatever price they choose.

That’s what a market is all about: Competition.

Still following?

Price Controlling Kamala

Now, imagine, just as the fires are doused, the floodwaters recede, or the hurricane passes, that Kamala Harris and unelected bureaucrats from her Federal Office of Price & Wage Controls arrive. They announce that drinking water will be sold for exactly $2 per bottle—no more, no less. They further state that anyone caught selling water for more than $2 will face ten years in prison and a $50,000 fine for the crime of “price gouging.”

You can already sell your water for $2 per bottle at the local Quickie Mart, just a few blocks from your warehouse. Will you rent trucks, hire drivers, load thousands of cases of bottled water and transport them to the disaster zone—potentially hundreds of miles away—if you can only sell it for what you already sell it for locally?

Maybe, if you genuinely want to help others in need. But realistically, you have no financial incentive to rush your water to the disaster area. Your best economic interest is to stay put and continue selling your water at the Quickie Mart.

Whether in a post-disaster scenario or normal circumstances, the best way to keep prices (of anything) down is to keep supply high.

Every regulation, every license, every fee, and every price control, reduces supply by disincentivizing productivity. And when supplies go down—assuming all else remains constant—prices go up. Let that sink in.

If politicians genuinely cared about rising prices—be it food, housing, education, or bottled water after a disaster—the most effective action they could take would be to lower taxes, reduce regulations, eliminate licenses, abolish price controls, subsidies, and any other barriers that disincentivize productivity, competition, and the creation of valued goods, and get out of the way.

The economic ignorance fueling the flames of bad policy ideas is profoundly evident in Kamala Harris and her campaign. This economic ignorance has persisted among American progressives for decades, and they never learn. They continue to recycle the same tired economic fallacies, usually while proclaiming their belief in “science” at the same time. It is embarrassing.

At this point, after so much evidence has been recorded and studied, their ignorance can only be chalked up to sheer stupidity.

Should Kamala assume the role of National Economic Policy Czar as President, we will regress to the 1970s and the failed policies of Jimmy Carter. The 1970s mirrored the failed policies of the 1930s and 1940s, which were marked by Franklin Roosevelt’s central planning and the misguided economic theories propounded by socialists, communists, and other progressive academics and activists of the 19th century.

The stupidity continues to burn. If only we could harness it to light our homes and power our cars, we truly would have the perfect renewable energy source, probably forever.