I wanted to follow up on Frank’s earlier post regarding his fear that we would soon start hearing of “price gouging” in the literal wake of hurricanes Bonnie and Charley. First, I should note that Dwight Lee’s piece (which is linked to Frank’s earlier post) articulates the economics of “price gouging” very clearly … and for that reason, I will not try to “re-invent the wheel.” I would, though, like to relate a few observations of a very frustrated economist who just recently experienced both a near-miss of a hurricane based catastrophe and a direct hit of counter free-market “social engineering” related to a misplaced fear of “price gouging.”

Let us examine the specifics of the Florida law as described by Florida Attorney General Charlie Crist in the days proceeding hurricane Charley’s coming ashore along Florida’s south-west coast. The 4th paragraph of the linked document outlines the Florida law related to “price gouging” after an officially sanctioned state emergency. Florida law identifies those guilty of the heinous act of “price gouging” as “anyone who seeks to charge unconscionable prices for vital goods” (emphasis added) and warns that such individuals if prosecuted “will face the full force of Florida law.” The state of Florida also, conveniently, defines what is meant for the price of a commodity to be “unconscionable” as a price that possesses “a ‘gross disparity’ from the average price of that commodity during the 30 days immediately prior to the emergency.”

It is ironic that the state of Florida defines price changes related to extreme demand shocks as “unconscionable” … a word defined in the dictionary as “beyond prudence or reason” when consumers are obviously signaling with their voluntary willingness to pay their specific (reasonable) subjective valuation of the worth of such scare resources. This argument does not even address the dynamics of efficient resource re-allocation from neighboring (and distant) markets to the community “in need” that results from free moving prices. This argument also does not address the unconscionable (and inefficient) non-price mechanisms that, by necessity, result when price controls are implemented – most notably queues, favoritism towards friends, racism, and violence (to name a few). Many of these points are more than adequately addressed in Dwight Lee’s comments.

With the specifics of the Florida statute laid out and the economics of the issue adequately outlined, I wanted to briefly relate my particular Florida experience from Tampa Bay. IF Charley had come right up the bay, as was predicted, it would have been devastating. Keep in mind that we do not typically get Hurricanes on this quadrant of the Florida coast and, so, folks do not listen very carefully when they are mandated to evacuate. Further, there are nearly 2.5 million persons living in the St. Pete, Clearwater, and Tampa area which is especially flat, typified as reclaimed wetlands, and which possess the highest population density center in all of Florida, St. Pete. Why do I mention all of this detail? I only want to make clear that I can relate to the pain this community was anticipating and do not want to seem “heartless” in my following remarks.

What was most inconceivable to me in the 36 hours leading up to Charley’s anticipated landfall was the extent of the fear campaign pursued by the State of Florida warning people even thinking about adjusting prices to adequately ration scare resources, a.k.a. “price gouging,” to anticipate prosecution. This campaign was mated with a constant mantra chanted on local radio and television broadcasts asking every rightful citizen to “turn those profiteers in.” Then, in the hours following Charley’s landfall, we were all comforted by an announcement from the State that they were sending a team of officials down to thwart any threat of local merchants “profiting at the expense of the victims of the hurricane.”

Why does this bother me? For one thing, the thought of my tax dollars going to fund a team of officials that actually task themselves in saving ourselves from … uh … ourselves … makes me wilt. And then there is the not-so-subtle social engineering that is going on to train the citizens of Florida (which includes some of my students) that market forces are sometimes immoral and therefore should be, at times, unlawful.

The evening before the storm I stood in line at the Home Depot (with duct tape and bottled water in my basket) and found myself listening-in as a man in line before me relayed to the man in front of him a story of a fella out near St. Pete beach being arrested for selling plywood at twice the lumber yard rate out of the back of his pickup and I inadvertently smirked. I was then confronted with the very honest question … “what … do you have no heart?” Why, yes I do … thank you very much.

Why does the State of Florida not just let folks decide for themselves what is unconscionable and allow the market and its many, many individual participants (with their own particular subjective valuations) decide what is the best use of its litany of scarce resources? Yes it is frustrating for us to have to pay $12 for a bag of ice to chill our soda after a storm knocks out all local power and local grocers buy up all that is in order to keep their meat section from spoiling, but the price in this situation clearly communicates the opportunity costs of the resource.

By the way, private citizens found guilty of the State of Florida’s price gouging statute are subject to civil penalties of $1,000 per violation (with a maximum fine of $25,000 per 24-hour period). Man … that helps me sleep better at night (sarcasm intended).

We have a lot of work to do my friends …

(Note: I do not know if this story of the plywood entrepreneur is, indeed, true).