Higher prices help prevent empty shelves during natural disasters

Store shelves at a Publix supermarket in Winter Haven, Fla., before Hurricane Irma struck in September 2017. Photo by Andrew Heneen (CC BY 4.0).
Store shelves at a Publix supermarket in Winter Haven, Fla., before Hurricane Irma struck in September 2017.
Photo by Andrew Heneen (CC BY 4.0).

As Hurricane Florence reaches the eastern seaboard, people in the storm’s path have gathered necessities to ready themselves for potential disaster. These preparations have also brought a litany of warnings about price gouging. This is understandable — after all, an emergency situation is when most people are least able to afford quickly rising prices for essential goods. Laws that forbid gouging, however, inevitably hurt the people they’re designed to help.

“Not only is price gouging good, the alternative can be death and deprivation,” said Libertarian National Committee Executive Director Wes Benedict. “In the face of natural disasters like Hurricane Florence, which is now ravaging the Carolinas, the supply of potable water, food, and shelter may be beyond the capability of charitable organizations to provide enough for everyone — and we all know the lamentable track record of the Federal Emergency Management Agency (FEMA).”

When people find themselves in dire circumstances, it’s important that crucial goods are available to them — but store shelves are often empty during times of crisis. It’s admirable to see how many corporations, churches, civic groups, and individuals rally to transport and distribute necessities on a charitable basis. Charity alone often fails to meet all needs, though, and so do government-directed emergency efforts.

“Nearly 3,000 people died from Puerto Rico’s Hurricane Maria fallout in 2017,” Benedict said. “We can only guess how many perished from thirst while 20,000 pallets of water — tens of thousands of bottles — sat lost in an administrative snafu on the tarmac of the Ceiba International Airport. Bureaucratic government agencies like FEMA and overstretched charitable organizations mean well, but entrepreneurial businesses have a financial incentive to make heroic efforts to deliver needed supplies to disaster victims. They provide the extra food and water to people in peril who are inevitably missed by government and charity during emergency situations.”

The single most important method of keeping necessities available during a disaster is simple, even if it’s counter-intuitive to many people: We must allow prices to rise. Rising prices are the difference between available goods and empty shelves.

Prices are not arbitrary numbers, set by whim, or by the greed of the seller. In competitive markets, prices measure intersecting supply and demand — in the same sense that the size of your shadow is determined by your height and the position of the sun. When a good becomes scarcer, or more difficult to provide, this constriction of supply naturally causes an increase in price. Similarly, if demand for a good suddenly outstrips its supply, this also causes an increase in price. Emergencies tend to produce both phenomena, causing market prices to jump as more people clamor to buy goods that are suddenly in short supply.

Laws that forbid gouging don’t prevent prices from rising — they only alter the type of price that customers must pay. If sellers aren’t allowed adjust their price tags, increased demand leads to shortages and interminably long lines. These are both a form of price increase that people pay for through wasted time and effort rather than with dollars. When demand suddenly spikes but prices don’t rise along with it, people don’t moderate their own purchases. They buy more than they need. This kind of first-come-first-served scenario means that people who are quick, well-connected, or lucky get more than enough of what they want, but latecomers pay the highest price when nothing is left for them.

Many people remember the days of gasoline price controls during the 1970s, which led to corresponding shortages, sales caps, and endless lines at the pump. There was no economic mystery there. Gasoline prices were set below market level by legislative fiat, so people had no reason to limit their own purchases. People who needed gasoline more had to waste hours waiting for it, if they managed to get any at all. If gasoline prices had instead been allowed to rise to their natural market-clearing levels, this would have provided an incentive for some people to buy less and would have left plenty of fuel for people with the most crucial needs.

Higher prices not only signal to consumers that they should be more prudent about their purchases, they also serve as a signal to producers. When the price of a good suddenly rises, the profit motive spurs entrepreneurs to produce and transport more of it to the people who want to buy it. This increased supply is exactly what’s needed in times of crisis. An expanded supply not only keeps stores adequately stocked, it also helps bring those high prices back down to ordinary levels. The more we allow flexibility for prices to fluctuate, the sooner supply can meet demand and prices can return to normal.

When legislative price caps cause shortages, on the other hand, the less fortunate must depend solely on the good will and charity of others, or government assistance. Charity is admirable, but it is unfortunately often in short supply. Government assistance necessitates taking by force from some people in order to have something to distribute to victims. Neither option can substitute for the power of price incentives and the bounty that functioning markets provide.

It’s notable that the most famously efficient organization at adapting to inclement weather is a commercial entity. Waffle House restaurants have become so good at this that they rarely close in even the most extreme situations, instead switching to a limited menu and fielding a “jump team” of managers experienced in operating restaurants under adverse conditions. Waffle House has become so efficient at this that it doesn’t even need to raise prices in order to stay open during emergencies, and FEMA has adopted a “Waffle House Index” as an on-the-ground indicator of the severity of a natural disaster.

The economist Steven E. Landsburg illustrated the importance of rising prices in his book Fair Play, in a section that gives economic advice to his young daughter: “Cayley, if you are ever in the position to sell water for $7 a gallon I want you to charge $7 a gallon and not a penny less. That’s not because I want you to make a lot of money. … It’s because it’s your social responsibility to get that water to those who need it most desperately, and if you charge less than the market will bear then the wrong people will claim the water.”

Which is worse during an emergency: expensive water, or no water at all?

The word “gouging” is a misleading, loaded term. Ultimately, real market prices allow people to plan and prioritize their needs in a rational way. Higher prices in times of emergency ensure that markets continue to function even amid disaster, curbing careless purchases of crucial goods and giving businesses a practical incentive to continue fulfilling real demand when it’s most needed. If prices aren’t allowed to rise, though, and the “wrong” people buy up all the necessities, the needs and priorities of the most vulnerable are undermined.

In times of crisis, maintaining access to necessary supplies is more important than worrying about rising costs. The Libertarian Party platform notes that “A free and competitive market allocates resources in the most efficient manner.” Correct market prices help ensure that resources are allocated efficiently and that shortages don’t occur. This can’t be stressed enough, especially during emergencies.

The balancing of supply and demand in unusual circumstances is a basic economic principle, and the 800 Libertarian candidates running for local, state, and federal office this year understand economics far better than Democrats and Republicans demanding price controls in the form of disastrous anti-gouging laws.