The Attorney General’s office is warning “price gougers” that they will be dealt with should they try to charge the “wrong” price for in-demand goods and services in the wake of Hurricane Irene. Sara Burrows reports on Roy Cooper’s news release and the reality of the economics at play when demand rises.
The release asks consumers to report potential violations of the price gouging law by calling 1-877-5-NO-SCAM or by filling out a
complaint form online. It then reminds businesses that Cooper has enforced the price gouging law in the past winning “thousands of dollars in refunds for consumers and penalties from violators.” The law says businesses can be charged a maximum of $5,000 per violation, and “injured parties” may seek compensation.Law hurts consumers
“Behind all of these laws is the presumption that under some circumstances the free market will generate a “wrong” price for certain products, and that politicians and bureaucrats can know the “right” price,” wrote Roy Cordato in his research paper for the John Locke Foundation North Carolina’s Price Control Laws: Harming Those They’re Meant to Help.
Price gouging laws actually harm victims of natural disasters, said Cordato, JLF’s vice president for research and resident scholar. “During times of disaster, when markets need to adjust as quickly as possible to changed conditions of supply and demand, price-gouging laws slow the process of recovery and prolong the agony.”
Putting a cap on prices creates a shortage of supply, explained Fergus Hodgson, director of fiscal policy studies at JLF.
“This is going to create lines of people waiting for goods, like the gas lines in the ‘70s,” Hodgson said.
My favorite real-world example of the “price gouging” law in action comes from Duke Professor Mike Munger in this classic commentary I call “they clapped. Munger tells the story of what happened following Hurricane Fran in 1995, and he tells it with his legendary wit and easy-to-understand explanation of economic forces.
