Last week, the Internet lost its mind as a video of a woman pumping gasoline into a grocery store bag went viral, much to the shock and horror of viewers.
Ya’ll got anymore of those bags of gas? pic.twitter.com/TLUJd8nni8
— Friendly Neighborhood Skeletor (@UpBeatSkeletor) May 11, 2021
When the Colonial Pipeline shutdown caused shortages up and down the East Coast, people rushed to fill their tanks and, apparently, every other container they had at hand. Stations dutifully sold customers all the gas they wanted at roughly the same prices as prior to the outage, according to crowd-sourced data from GasBuddy.
That is, until the stations ran out.
On Monday, users of the GasBuddy mobile app reported that huge numbers of gas stations in seven states and D.C. were still out of fuel. In both North and South Carolina, approximately half of all stations remained empty, while drivers in Washington reported a whopping 83 percent were dry.
- Washington, D.C. – 83%
- North Carolina – 57%
- Georgia – 43%
- South Carolina – 49%
- Virginia – 33%
- Maryland – 28%
- Tennessee – 27%
- Florida – 18%
On Thursday, President Joe Biden warned, “Do not, I repeat, do not try to take advantage of consumers during this time.”
“Nobody should be using this situation for financial gain. That’s what the hackers are trying to do. That’s what they’re about, not us. That’s not who we are.”
Anti-Gouging Laws to the Rescue
While there are no federal laws preventing price gouging, most states have some sort of statute on the books. Only 15 states do not.
Notably, all the states listed above have such laws.
These laws prevent sellers from significantly raising prices to profit from shortages, particularly during regional or national emergencies.
For example, during the pandemic last year, The New York Times reported one seller in Florida was offering 15 N95 face masks for $3,799, a store in Massachusetts sold milk for $10 a gallon and a Minnesota shop charged $79.99 for 36 rolls of toilet paper.
Proponents of these laws point to such exorbitant prices as justification.
However, Steven Horwitz, an economist at Ball State University, argues that price-gouging laws lack clear, specific economic descriptions as to what constitutes “price gouging” and simply outlaw “exorbitant” or “dramatically higher” prices.
“Without a clear definition, law enforcement officials have a great deal of discretion in determining whether price gouging is occurring and, more important, who they will charge with the crime,” Horwitz said.
“The anecdotal evidence on this question is fairly clear: large firms are highly unlikely to be charged with gouging. Instead, the smaller, independent sellers frequently bear the brunt of prosecution.”
Price Controls Break the Free Market
A capitalistic economy relies on an open and free exchange where prices are set to what the market can bear. Natural supply and demand ensures that products and services cost exactly what people are willing to pay for them.
Anti-gouging laws not only restrict the right of business owners to set prices but, more importantly, break the free market’s ability to provide products to those who most want them. These laws, instead, require business owners to sell their products to the lucky few who show up first and clear out the shelves.
This is what drivers observed all throughout the East Coast last week. Whoever got to the gas pump first — a Costco in D.C. charged $2.73 on Monday — filled up their tank, containers, jars and whatever else they could find until the pump was dry.
If the market were allowed to move freely, the exorbitant price of fuel would have automatically and naturally restricted the amount purchased, allowing others to fill up as well — until supplies were restored and the price adjusted to normal levels due to competition.
In essence, free-market pricing automatically enacts a form of natural rationing. It results in the efficient use of scarce resources, making them as widely available as possible at ever-increasing costs inversely proportionate to their supply. Products and services will always be available on the open market due to the very nature of their accurately priced costs.
But What About Rationing?
Rationing laws historically have been blunt instruments that rely on war ration books or digits on a license plate to enforce. However, history is rife with abuses that make a mockery of any attempt to impose rationing.
An Indiana University study about rationing during World War II found that fully 20 percent of all sales of meat — a highly rationed commodity — occurred on the black market. Eight percent of all oil was purchased illegally.
In the study, psychologist Robert Cialdini discussed World War II-era rationing and the infestation of black markets.
“When goods are scarce, individuals want the goods more,” he said. “Many citizens hated denying themselves to help the war cause.
“Despite the rhetoric and social pressures of sacrificing for the war cause, the self-centeredness of human nature often won out.”
And when rationing programs are enacted, a slew of bureaucrats and investigators have to be employed and funded to ensure adherence to often complex systems.
Essentially, when the economy is already suffering from scarcity, the government further hobbles it by adding another weighty bureaucratic layer of enforcement on top.
History Does Not Have to Repeat Itself
People will always want to buy the products they desire. But when rationing is enforced, rather than enriching manufacturers and supply lines through higher prices, consumers instead bankroll criminals and bootleggers who create black markets — with an increase in crime as criminal organizations jockey for position.
— CBSDenver (@CBSDenver) April 10, 2020
A year ago, if free-market economics were allowed to work, yes, toilet paper would cost more — probably a lot more. But you would have been able to buy it.
And the higher prices would have eliminated a lot of hoarding.
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