Shortages of a number of items happen after major disasters or disruptions. Katrina was a particuarly good example, as it effected a large area.
You know, there are these things called roads, and things called trucks move goods along them. If prices are kept stable, people are less likely to bid up pricing in a panic. Which allowing the prices to float encourages.
Bidding up prices is what you want. It causes people who don't really need something desperatly to not get it at that moment. More importantly it encourages supply to move in across the roads. If I've got ice or generators or whatever half way across the country, and I can't get any extra for them by moving them to the disaster area, then the only incentive I have is possible charitable impulses. If I can get twice as much for them then I have a large incentive to move them. Prices increases signal where the real demand is, and they encourage supply.
I've already posted a link to a personal account of how gouging laws caused problems after Hurricane Fran
"...Hurricane "Fran" smashed into the North Carolina coastline at Cape Fear at about 8:30 pm, 5 September 1996. It was a category 3, with 120 mph winds, and enormous rain bands. It ran nearly due north, hitting the state capital of Raleigh about 3 am, and moving north and east out of the state by morning. The storm also dropped as much as ten inches of rain. In some counties, nearly every building was damaged; total reconstruction cost and damages were later calculated at $5 billion (2006 $).
In the Triangle (Raleigh, Durham, and Chapel Hill), more than a million people were without power the next morning. Humidity made everything sticky. Hundreds of homes had roofs damaged by falling pines and powerful winds. Few residences had any kind of back-up power. Many roads were blocked by large fallen trees. Within hours, food in refrigerators and freezers started to go bad. Insulin, baby formula, and other necessities immediately became susceptible to spoilage in the 92+ degree heat.
The damage was so widespread, and communication so sketchy, that no one had any firm idea of when power would be restored. More than a million people needed ice. And they needed it now.
Resources on the Move... Not
One might think that thousands of entrepreneurs in the surrounding areas, little touched by the storm, would load trucks and head to the disaster area. After all, they owned, or could obtain, all the things that the residents of central North Carolina needed so desperately. Ice, chain saws, generators, lumber, tarps for covering gaping holes in roofs... we needed it all. I say "we" because my family lived in North Raleigh. No power, and 36 large pine trees smashed down like God's own pick-up-stix. We couldn't get out of our immediate Mungerhood, and my underpowered chain saw burned out on the first tree I tried to cut.
But no such mass movement of resources to their highest valued use took place. North Carolina had an "anti-gouging law," which made it illegal to sell anything useful at a price that was "unreasonably excessive under the circumstances." This had been widely interpreted to limit price increases to around 5% or less. Each instance of violation of this law could result in a fine of up to $5,000. So, ice that happened in Charlotte, stayed in Charlotte. Why drive three hours to Raleigh when you can only charge the Charlotte price, plus just enough for gas money to break even?
The problem for Raleigh residents was all about price, at that point. The prices of all the necessities that I wanted to use to "preserve, protect, or sustain" my own life shot up to infinity. Within a day after the storm, there were no generators, ice, or chain saws to be had, none. But that means that anyone who brought these commodities into the crippled city, and charged less than infinity, would be doing us a service.
Some service was, in fact, on the way. Four young men in the town of Goldsboro, an hour east of Raleigh and largely untouched by the storm, noticed that the freezers at the Circle P's, the Stop Marts, and the Handee Sluggos were brimming with ice. Convenience stores had stocked up, expecting a more easterly course for the storm. Now, there was an ice surplus in Goldsboro, and a shortage in Raleigh. These young men rented two small freezer trucks, paid $1.70 each for 500 bags of ice for each truck and set off, filled with a sense of charity and the public good.
Okay, I made that last part up. They were filled with a sense of greed. They may have been bad human beings, real jerks. But who cares? If there had been a benevolent, omniscient social planner, she would have been yelling: (1) Raleigh is desperate for ice. (2) If you have ice, take it to Raleigh. Of course, there could never be a social planner with that level of information and authority, as Hayek (1945) argued so persuasively. But these yahoos acted as if they heard one anyway, speaking through the price system: cheap ice in Goldsboro was expensive ice in Raleigh, so they could make money.
Our icemen came to the outskirts of Raleigh, and headed for the interior, where the citizens waited, icelessly. The path was blocked by fallen trees, but these were yahoos, not idiots. Yahoos have chain saws, big ones. They rolled the cut logs off the road so their trucks (and, by the way, other cars and emergency vehicles) could pass.
One truck apparently parked in Five Points, near downtown, and another parked a bit west, near wealthy St. Mary's Street, and opened for business. I have not been able to find a definitive claim about price, but it was more than $8. (All three of my personal "sources" knew someone who saw events, but... I'd love to be able to ask the sellers if they knew of the anti-gouging law, but we'll never know, I guess.)
On reaching the front of the line, some customers were angry that the price was so high, but almost no one refused to pay for the ice. I have also been told that the sellers limited purchases to 4, or 6, bags per customer, but I'm not sure. If it is true, it reflects the altruism of the native North Carolinian, even ones who are just trying to make a buck.
But the police are charged with upholding the law, even the dumb ones (laws, not police). Someone must have made a call, because two Raleigh police cars and an unmarked car pulled up to the Five Points truck after about an hour. The officers talked to the sellers, talked to some buyers, still holding their ice, and confirmed that the price was much higher than the "correct" price of $1.75 (the cost of a bag of ice before the storm). The officers did their duty, and arrested the yahoos.
Apparently the truck was then driven to the police impoundment lot in downtown Raleigh, as evidence. The ice may or may not have melted (accounts vary), but it certainly was not given out to citizens...
econlib.org
Thats not some obscure theory from some text book. That's real life, its how supply and demand and the profit motive operate, except in this case the police stopped this voluntary transaction which was benefiting both sides. |
