The coronavirus has proven to be quite the world pandemic, affecting several segments of society. When events like this occur, the market is shocked, as people make runs on various stores and all kinds of shortages occur. Along with the shortages, consumers sometimes experience and complain about “price gouging” — intentionally raising prices on certain kinds of goods, resulting in “higher than normal” profits. 

Utah is one of many states with anti-price gouging laws on the books. The Attorney General’s office recently announced it is actively enforcing the law, encouraging people to report such behavior and imposing fines of up to $1,000 per incident on the violator. A law like this seems reasonable to many, but preventing price increases during times of shortages and high demand creates more problems than it solves — and the law should be repealed.

Currently, 35 states have anti-price gouging laws. It is easy to see why these laws are popular; in times of crisis, consumers want equitable and fair results. But artificially controlling prices means that consumers have little incentive to be rational about their purchases, contributing to a hoarder mentality — which we’ve seen lately with toilet paper, hand sanitizer and more. This exacerbates an unideal situation, with numerous shortages emerging and empowering hoarders to try and sell their goods for ludicrous prices

The government cannot efficiently allocate scarce resources in times of emergency. This simple truth suggests why anti-price gouging laws need to be repealed. If prices were to rise, then consumers would control their purchasing behavior and prioritize the things they realistically need in the short term. It also offers the opportunity for suppliers to ramp up production to meet the increased needs for their product. However, since prices cannot rise, then the surge in demand leads to a few people clearing out the supply fairly quickly. 

This is why whenever a disaster strikes, numerous stories emerge about panic runs on stores, completely wiping the shelves of basic goods that people need. When traveling to a local Walmart recently, I had a firsthand experience of the impact of anti-price gouging laws. Many of the aisles were empty — a rare sight. All the milk had been pulled out of the refrigerators, and people were standing by them, trying to lobby the employee for the next gallon of milk as he was trying to restock the inventory. 

Instead of many people being able to acquire a scarce good at a higher price, preventing an increase in prices often means that people can’t obtain the good at all. Chances are you’d be willing to pay more than the normal price for toilet paper during an emergency than use something else, but these laws complicate the matter by allocating goods to those who want to stock up, rather than those who sorely need them.

While anti-price gouging laws are good politics, they are bad economics. They make consumers happy — those who are able to access the scarce good before it runs out, anyway — and it benefits the politician as a result. As Thomas Sowell once said, The first lesson of economics is scarcity: there is never enough of anything to satisfy those who want it. The first lesson of politics is to disregard the first lesson of economics.” However, policy should not be aimed at making people happy, rather it should be targeted to doing the right thing.  

By allowing prices to fluctuate during times of shortage, consumption can be curbed because consumers ration their purchases. Without anti-price gouging laws, more people will be able to have access to goods and services who otherwise would be unable to due to hoarders. Spreading out scarce goods among many people certainly seems more “fair” than the current system.

The primary goal when disaster strikes should be to ensure that people have access to the basic goods and services they need. Laws that prevent so-called “price gouging,” contrary to conventional wisdom, do little to provide relief to consumers. Removing such laws offers a path to ensure that scarce products find their way into the hands and homes of those who need them the most. 

James Czerniawski is the technology and innovation policy analyst with the Libertas Institute, a free market think tank in Utah. He holds a master’s degree in economics from George Mason University.