Never appeal to a man’s "better nature." He may not have one. Invoking his self-interest gives you more leverage. — Robert Heinlein
It’s summer again in Florida. Weathermen are in their glory. Floridians are wondering how the patio doors will hold up in a 200 mile an hour breeze. The Florida legislature granted a brief sales tax holiday to help us prepare for hurricanes. Smart move. Letting us keep a little of our own money shows an understanding of economic incentives that is rare in politicians.
Hurricane supplies are plentiful and cheap now when we don’t need them. The tax holiday encourages us to prepare early. Well stocked cupboards ease panic buying and tend to stabilize prices.
It’s hard to believe the authors of the tax holiday, who obviously understand price incentives, are the same economic pinheads who proudly outlaw “price gouging” during emergencies. Disaster brings out the Joe Stalin in public officials. Politicians love free enterprise and free markets when trolling for votes but mysteriously morph into Soviet commissars when the lights go out.
That is because politicians respond to incentives just as consumers respond to prices. Widespread public fear provides a powerful incentive for political action, no matter how dumb the act. For governments large and small catastrophe means opportunity. There’s nothing like a disaster to expand a public agency’s influence and budget. Smoldering ruins are the perfect foundation for political power.
For a good example, look no further than the explosion in budgets and bureaucrat counts that followed the 9/11 attack. Governments grow by spreading fear and selling protection. Life is dangerous. It always will be. As long as there is something to fear we will always need more protection.
After an attack we need protection from terrorists. After natural calamities we need protection from unscrupulous businessmen. The same, irresistible, seamless logic that persuades us we are safer when numbered like cattle, frisked like felons, and watched like toddlers also convinces us we can escape the cost of hurricane recovery by simply banning high prices.
We believe such nonsense because we desperately wish it were so. If you are happy with “price gouging” laws, there are smiling bridge salesmen who want to talk to you as soon as the lights are back on.
Laws against “price gouging” may save us a few bucks but they cost us dearly in time, taxes and dignity. They delay or prevent the arrival of supplies, equipment and labor, punish victims with prolonged suffering and transfer power to public agencies.
After last year’s storms, Bubbas and Juniors all over the South made plans to rent big trucks, load them up at the local Wal-Mart and head on down to make a fortune helping hurricane victims — until they heard about the price gouging laws. Then they stayed home.
Scores of contractors from nearby states stayed home with their equipment and men because the cost of working hundreds of miles from home would mean they had to charge higher than normal prices. The risk of prosecution for “price gouging” wasn’t worth it.
Without higher prices wholesalers had no incentive to divert disaster supplies away from regular markets where they were selling just fine at their regular prices and without risking fines and confiscation.
Price gouging laws affected the locals, too. A report in the August 30, 2004 St. Petersburg Times described a local restoration company that refused to bid on hurricane projects. A spokesman explained that expenses would be much higher than usual. The company would have to charge much higher prices. They would be an easy target for unhappy homeowners who would expect a new roof in 24 hours for a price they would have paid before every roof in town had been blown into the next ZIP code.
Artificially low prices encourage hoarding and do not protect the poor. Without higher prices Junior and Bubba are not trucking the batteries down here anyway. With no supplies at all, those who can afford to buy them not only can’t help themselves, they can’t help anyone else either. Price controls just make sure everyone suffers equally while filling out forms for a welfare handout.
Price gouging laws punish victims by making shortages worse and delaying recovery. They do so in exact proportion to the severity of the laws and the magnitude of the disaster.
If Florida’s lawmakers really wanted to help Floridians cope with hurricane disasters they would repeal all “price gouging” laws, then declare sales tax, licensing, and permitting holidays for 90 days after any hurricane. Entrepreneurial relief would flood into disaster areas faster than you could say “unconscionable profits.” Mountains of supplies, equipment and labor would quickly force prices back to normal or even sub-normal levels. There is no way Junior and Bubba are going to truck all those batteries and blankets back home.