Anti-Price Gouging Hysteria Reflects Anti-Business Sentiment

There's public inconsistency on price hikes during emergencies

An emergency hits and causes the demand for an important product to soar. That surge in demand would usually cause the product’s price to shoot up. Yet most of the public hates sellers who increase prices significantly during emergencies. They deem such acts unfair “price gouging” and back government laws that limit how much sellers can charge during crises.

Or do they?

Alexander Reese and Ingo Pies remind us of what happened at the start of another emergency, the pandemic. New York City was being ravaged by COVID-19. The demand for nurses and other healthcare professionals to treat coronavirus patients there had skyrocketed. What happened? Well, some travelling nurses were able to earn $5,000 to $10,000 or more per week treating sick COVID-19 patients, all the while obtaining free accommodation and car rentals. Their remuneration was astronomical compared to their normal pay rates, given the dire need for healthcare personnel in that emergency.

Did we see articles denouncing “pay gouging” by nurses? No. In fact, if anything, those healthcare workers were seen as heroic, putting their wellbeing on the line to ensure that an essential service was delivered. For some nurses who were relatively unbothered about the risks of COVID-19, this was a great opportunity to make money. For others who were bothered, the effective hazard pay was perceived as a just reward for delivering on society’s needs. Either way, we understood that the higher pay was a helpful incentive for encouraging people to increase the quantity of nursing supplied to meet higher demand.

In principle, the same dynamics apply to certain merchants before hurricanes. A company reacts to extra demand pressure for bottled water or plywood by raising their price, in line with market forces and people’s willingness to pay. For some firms with fixed marginal costs, this simply delivers higher profits per unit. For others, the higher market price helps compensate them for organizing new shipments, paying for more truckers, or running overtime to get essential supplies to the area affected. Either way, the higher price again provides a helpful incentive to increase the quantity supplied of these essential goods to meet higher demand. Yet businesses, unlike healthcare workers, will usually stand accused of taking advantage or unfairly profiting from others’ difficulties in these very same circumstances.

When it comes to selling goods during emergencies, fellow economist Dwight Lee has said we expect a “magnanimous morality” of companies – we are only content if they effectively provide charity in the emergency conditions, making an active sacrifice for the greater good. When it comes to individual nurses commanding higher pay, we praise their moral fiber and value their commitment to serve.

Why the inconsistency? Both businesses and nurses are responding to the same forces—a surging demand for the good or service in extraordinary circumstances. It’s difficult not to conclude that the impulse against “price gouging” isn’t really driven by any inherent aversion to prices going up. The emotional distaste for merchants’ “gouging” instead reflects a more deep-rooted skepticism of business and entrepreneurs that doesn’t apply to workers.

For more on anti-price gouging laws and other government controls on prices, order The War on Prices here.