Home News Politics Economists: Federal crackdown on price gouging may do more harm than good

By Jeff Mordock of The Washington Times.

"More than 6,000 complaints of coronavirus-related price gouging have flooded into state attorneys-general offices across the country, according to The Washington Times’ analysis of publicly available data.

All told, 6,247 complaints were filed last week against retailers who reportedly raised prices for such essential items as hand sanitizers, face masks, toilet paper, and disinfectant wipes, according to the Times’ analysis.

Pennsylvania topped the nation with 1,600 complaints. Michigan was second with 800, followed by New Jersey with 600 complaints.

The total number of complaints nationwide is likely much higher because several large states, including California and Massachusetts, did not release their numbers.

Government officials have been sternly warning retailers not to raise prices during the pandemic and aggressively fining those who do.

Increasing prices during an emergency may seem like cruel profiteering, but free-market economists say the crackdown could do more harm than good.

As they see it, essential items fly off the shelves faster when government-mandated price controls keep prices artificially low. By letting the market dictate the cost, some consumers buck the price tag leaving more supply available. Thus higher prices prevent panic buying, according to economists.
“The choice is between low prices with no availability and nothing to buy, or high prices where the supply is going to be available,” said Mark J. Perry, a scholar at the American Enterprise Institute and professor at the University of Michigan’s Flint campus.

Most states have price-gouging laws on their books, although the threshold to declare increases as “gouging” varies. Some states bar retailers from inflating prices by 10% during an emergency.

Free-market economists argue that market forces should be allowed to decide the cost of products. In their view, so-called price gouging encourages suppliers to rush into the market with much-needed supplies thus lowering prices anyway.

As law enforcement ramps up its efforts to combat price-gouging, retailers are beginning to push back. They say the cost of fines and battling lawsuits could cause more harm to their business than the coronavirus pandemic.

A liquor store in Fresno, California, was fined $10,000 for jacking up the price of bottled water. The store was selling a 24-pack of bottled water for $16, according to the City Attorney’s Office. Typically, a pack of water retails between $4 and $5.

Officials in Jersey City, New Jersey issued 9 fines totaling $90,000 to one discount store they say inflated the price of rubbing alcohol and disinfectant wipes.

New York City has issued more than $275,000 in fines for alleged price gouging.

“Those stores operate on very thin profit margins and fines of $50,000 or $60,000 could bankrupt smaller retailers,” Mr. Perry said, adding that larger retail stores like Target or Walmart don’t usually raise prices because they fear damage to the company’s reputation.

Mr. Perry said the finger should be pointed at greedy consumers rather than store owners.
“Consumers who had no thought about their fellow Americans bought up al the toilet paper they didn’t really need,” he said. “Price gouging laws won’t do anything to address the panic buying because if prices stay low, then the toilet paper is going to get bought up by the people who get there first.”

The solution, he says, is for stores to restrict the number of items a customer can buy. By limiting customers to two bottles of hand sanitizer or one pack of toilet paper retailers can combat panic buying.

“Quotas are the way to correct the problem rather than sending law enforcement or attorneys general out to fine companies,” he said."