Price Gouging Isn’t a Real Thing

Kamala Harris’s favorite attack on businesses is to accuse them of price gouging (although she says ‘price gauging’). She’s not alone. Pretty much every wannabe socialist politician ever has tried to blame their own inflationary policies on businesses by accusing them of unfairly raising their prices. But I’m here to tell you that there is literally no such thing as Price Gouging. It’s a political term with no real basis in economics. The concept hinges on two ideas: 1) That prices for a given good are higher than they should be, and 2) That the price is somehow unfair. So let’s look at when or whether either of these things is really true.

Hurricanes & Power Generators

Understanding that price is a fluid thing is the first step in understanding why price gouging is not a real concept. Whenever a disaster like a hurricane occurs that does a large amount of damage to an area, such as knocking out power lines, there is usually a surge in the sale of power generators to that area. Enterprising people will literally buy up power generators from states away and drive them to the affected area for resale at a higher price. This happened during Hurricane Katrina, and is sure to be happening right now in North Carolina thanks to Hurricane Helene.

Is it unfair for people to place a higher price on generators in these situations? That’s what the price gouging claim alleges. You might even say the right thing to do is to lower the price instead because people really need the power. But then what would happen if someone really did that? Then either those with relatively more money on-hand would buy a second, maybe third generator and others who need them would miss out. Every incentive would be for them to just repeat the scheme by raising the price and reselling the extras. So lowering the price doesn’t prevent the same market dynamic from reemerging. The fairest thing to do is to set a high price, because a high price helps to sort out those who really direly need the power and discourages hoarding.

What people really seem to miss is that the price must be raised in order for there to be a fair allocation of goods. Thomas Sowell blasted price gouging by pointing out that the price of a generator during a disaster is the right price, even if it is higher than in normal times, because the market conditions have changed. In the market conditions of a disaster, all kinds of subeconomies tend to develop. People who could get a generator charge small rates to share power with those who couldn’t. Groups pool their resources to buy them and share the power. By keeping the price high to prevent hoarding, these subtler ways of fair exchange are enabled. We could all do to remember that what is fair isn’t always what is cheap.

Monopolies & Government

Whether or not the market is impacted by a disaster, there is always the presence of competition to help suppress prices. Markets are very resilient in this way because they can allow for wild price fluctuations in response to myriad urgent or scarce conditions without getting completely out of hand. In that sense, there’s no such thing as an unfair price, whether it’s high or low. The market is always a complex negotiation, and you are free to walk away from a purchase. However, free competition isn’t always the case. If there is any such thing as true price gouging, we have to lay the blame for this on politicians like Harris because they set the stage for monopoly conditions and actively support them.

The monopoly is the only market scenario where you can make any argument that a price is unfair. If there is no competition to suppress prices then what is to stop a Mega Corporation (I’ll use leftist language here for fun) from raising them indefinitely? The answer is nobody. The funny thing is that you never hear politicians call this price gouging. They blame capitalism as a whole — why is that?

The answer lies in how a monopoly forms. Milton Friedman wrote that there are no examples of a monopoly in the world that was not backed by the government. All monopolies either have the tacit blessing of government through tax leniencies not offered to smaller competitors, or through direct contracts with the government, or by capturing and becoming the government — think East India Co. or De Beers, or small towns where one family owns the major mill and holds political office too. It’s always through one of these dynamics that a monopoly is able to take hold, starve out competition, and then control the market. Whether they set a low or a high price, it’s always unfair because the buyers have no choice from whom to purchase. Politicians can’t call this price gouging because they are involved. So the negative affects of monopoly get blamed on “capitalism” instead.

Taxation is Theft

The final forms of what might be called legitimate price gouging are taxation and regulation. Together these have either the direct impact of arbitrarily raising prices on consumers, or they support monopoly creation as described before. How can anybody not call taxation a form of price gouging? It bears all the hallmarks of what politicians say is unfair about price gouging: It’s arbitrary, buyers have no option to avoid its effects, and it makes things more expensive. But what does someone like Harris say about taxation? That she wants more! Not just direct taxation, but also the invisible tax of inflation through government spending, which has the same impact on prices and should be laid at the feet of politicians like her as the worst example of so-called price gouging.

Closing Thoughts

I hope this helped you get a little clarity on the issue of price gouging, which is fundamentally a political concept that obscures real economic dynamics of pricing. In addition, I hope this shone a light on the true hypocrisy of politicians who level the accusation on the marketplace, when they are usually the architects of the closest things we have to actual price gouging.