Hurricanes and Free Markets

by Robert Arvay, Contributing Writer

In 1992 I was outraged. Hurricane Andrew had devastated large areas not far from my home, and price gougers had moved in to take advantage. Flashlight batteries were selling for $10 each, and gasoline powered electric generators were selling for five or six times their normal retail value.

The government acted swiftly to prohibit people from profiteering on the tragedy that had befallen so many of my neighbors. I was glad to see the Federal Emergency Management Agency (FEMA) doing its job and protecting the ordinary citizen.

Except that there was one problem: the government made matters worse. It took a college professor to open my eyes to that fact. He made, what at the time I considered to be a cold hearted statement. He said that there should be no laws against price gouging. Indeed, he said, in counties where price gougers had been allowed to operate, the impact of the storm was far less than in counties where the law had been strictly enforced.

What had happened was this: immediately after the storm had left the area, price gougers were already moving in, some from over a thousand miles away. They brought with them all manner of emergency supplies, from flashlight batteries to power generators, and almost everything in between. Within 48 hours, the affected counties were so overloaded with emergency supplies that many items were being sold off for less than retail value.

A mere two weeks after the hurricane, FEMA was ‘Johnny on the spot,’ trying to give away emergency supplies that no one needed any longer. Two weeks.

This seems not to make sense, but it is an illustration of how the free market works, and how government programs do not. It is also an illustration of how seductive is the theory that socialism provides goods and services more efficiently than the private sector which, after all, is interested only in making a profit.

Even before Hurricane Andrew hit, price gougers from far away were already licking their chops (so to speak). They knew that in the aftermath of such a storm, there would be an intense need for relief supplies. They purchased these in quantity, loaded up their trucks, and timed their arrival in the storm area so that they showed up just as the storm departed.

What they found was that thousands of people were willing to pay five to ten times retail value for items which were otherwise unavailable, but were badly needed. Flashlight batteries sold for $10 each. Men with chain saws could charge hundreds of dollars for a few hours work clearing out driveways blocked by fallen trees. Carpenters could repair roofs for premium wages. Hundreds of people were profiteering from the hurricane.

One thing that did not sell very well was bottled water. Private charities, churches, and even ordinary citizens acting alone, brought it in by the truckload, and gave it away free of charge. Blankets, too.

The government would not arrive with supplies for two weeks. After all, you cannot force government workers to put in overtime.

But in at least one county, the sheriff was busy protecting people from overpaying for power generators. People who had medical needs for electric power were begging the sheriff to go away, so that they could get a generator to power their oxygen pumps and other medical devices. No way, the sheriff said. He would jail anyone who sold a generator for more than a 10 percent markup. The sellers protested to no avail. They had paid full retail, driven hundreds of miles, and could not cover their costs at ten percent. In the end, they went to nearby counties and sold their generators there.

The government had protected you.

To make a long story short, things are not always what they seem. Economic principles are not obvious to the ordinary person. It is far easier to say, “give a man a fish,” than to say, “teach a man how to fish, teach him how to create and preserve wealth, and to allocate it in the most productive way available.” No. Just give me a fish—every day—for the rest of my life.

Over the years, I have told this story, in detail, to several liberals. They all agreed that price gouging can actually speed relief supplies to the people most in need, and do so more quickly than the government can. There is one other thing upon which they agreed: Price gouging should be against the law.

Go figure.

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