Russell Roberts wrote this essay yesterday in response to the devastating fires in Los Angeles: “Profits versus Love”
A few years back we thought about building a deck or a porch on the back of our house. But we decided against it when the estimates started coming in. They were about double what the architect had told us it would cost. Double! Had the architect misled us as a way of encouraging us to proceed with the project? No, six months earlier the Mississippi had overflowed its banks and destroyed a lot of houses in the St. Louis area. Carpenters and builders had no time to build a back porch or a deck. They had bigger fish to fry. To get them to build a porch, you had to pay a premium.
We delayed the project for a couple of years, and prices came down. That delay was an example of the hidden benefit of high prices. When prices are high, the least-urgent projects get delayed, freeing up resources for more urgent projects. The porch just isn’t worth it. So the wood I would have used instead gets set aside to rebuild a washed-away house. The carpenter I would have kept busy now works on building that new house.
As you may have noticed, my claim that Russell Roberts wrote that essay yesterday was a lie. He wrote it twenty-one years ago in 2003. Unfortunately it might as well have been written yesterday because some people never learn. On 12 January 2025 the Governor of California, Gavin Newsom, tweeted about measures he is taking in an effort to help the victims of the fires:
NEW: Just issued an Executive Order that will allow victims of the SoCal fires to not get caught up in bureaucratic red tape and quickly rebuild their homes.
We are also extending key price gouging protections to help make rebuilding more affordable.
The responses are full of people making the obvious point about red tape. A lady calling herself “Orange County MAGA” says, “So you’re saying California has too much bureaucratic red tape? Gee, if only there was an elected leader who we could call…”
Criticism of Newsom’s “price gouging protections” is much rarer, despite the harm they do being more immediate and severe than the long-term harm done by excessive building regulations. That is par for the course. Patrick Crozier’s post from 2015, “People are ignorant about economics”, contains this anecdote from Mike Munger:
…there was a hurricane in Raleigh, North Carolina. The roads were blocked, there was no electricity and there was a shortage of ice.
Ice may not sound that important but it is. Not only does it help to preserve food but it also helps to preserve some medicines like, for instance, the insulin needed by diabetics.
Some “yahoos” – Munger’s term – saw an opportunity to make money. They got themselves a truck, loaded it with ice and some chainsaws and proceeded to drive towards the centre of Raleigh. If they found the road in front of them blocked they chopped up the fallen trees and carried on.
When they got to the centre of town they started selling the ice. Usually, ice sold for $2 a bag. They were selling it for $12. Very soon a queue appeared. Then the police arrived. Citing price-gouging laws they arrested the men and impounded the truck.
And here’s the kicker: as the truck was towed away the people in the queue applauded the police.
Here are some more posts from the Samizdata archives about how “price-gouging” helps people hit by natural disasters:
As Hurricane Milton makes landfall, a reminder about price-gouging
“The good news,” Cuomo said of the promised 12 million gallons, “is it’s going to be free.”
A Quote of the Day from Tim Worstall
Or check out the entire discipline of economics.
“Criticism of Newsom’s “price gouging protections” is much rarer, despite the harm they do being more immediate and severe than the long-term harm done by excessive building regulations.”
I’d like to hear your reasons for believing that.
As far as I’m concerned excessive building regulations can cause immediate harm by scaring off developers from many potential projects for example. Also, they almost always cause excessive delays in getting approvals and licences. Those factors in turn boost of the finished product.
Henry Cybulski, my reason for believing that is that building regulations operate over a timescale of years or decades. A person living under an unjust law can at least plan their lives to mitigate its bad effects on them. In the case of California’s oppressive building regulations, they ultimately have the option to leave California, as so many have. You write, “As far as I’m concerned excessive building regulations can cause immediate harm by scaring off developers from many potential projects for example.” I do not dispute the gravity of that harm, but I do dispute its immediacy. That level of immediacy is far less than the immediacy of the harm done to a person the roof of whose house has been blown off by a hurricane and who now faces a night without shelter who might have been able to buy a tent to sleep in tonight if only it had been legal for some guys wanting to make a fast buck to drive in a truckload of tents and sell them at inflated prices.
Natalie Solent, buldings that developers choose not to build or can’t build is an immediate effect. And not all people can plan their lives to mitigate the effects of bad laws.
Imminent domain is a prime example. Gun confiscation is another. How do you mitigate against the loss of property. Sure you can move away, but you’ve already lost the property.
Closer to your shores, how do you mitigate against hate laws that land you in jail. Self-censorship would work, but again, too late, you’ve already been punished.
I’ve got you there, Natalie! Years ago, hundreds of economists denounced Margaret Thatcher’s policies, in the papers. She was in favour of people making profits! So were these ‘economists’ real economists, or frauds?
Henry Cybulski, you write, “buldings that developers choose not to build or can’t build is an immediate effect” – I suppose the effect of any law is immediate in that it starts having an effect as soon as it is announced, let alone passed, but it’s not immediate in the sense that someone in a disaster zone not being able to buy bottled water when they are desperately thirsty is immediate. But I think all of this discussion of immediacy is very much a secondary consideration. You and I agree that both oppressive building regulations and anti-price gouging laws do harm. My point was that loads of people understand the former point, but few understand the latter one.
[I edited my wording for greater clarity.]
Nicholas (Unlicensed Joker) Gray,
Yes, I remember that. 364 economists wrote to the Times to say
Fast forward to November 2023…
Nicholas (Unlicensed Joker) Gray asks, “So were these ‘economists’ real economists, or frauds?” Economics, like all the social sciences, is horribly vulnerable to the human tendency to believe what you want to believe. It is a science, in that it makes predictions that can be proved false – as the predictions of the 364 economists in 1981 were proved false – but only just. Maybe we need the entire galaxy to be populated with trillions upon trillions of humans before we get good predictions of human behaviour. Isaac Asimov’s Foundation novels have their faults, but I was enthralled by the idea of Psychohistory.
Well, there was at least one economist who thought Milei’s ideas were good.
Nicholas Gray, those economists weren’t economists; they were narrative pushers. Same holds true today with so many so-called experts, credentialed or otherwise.
Well, that’s made my day! I couldn’t even remember writing that but Natalie, no less, could. Reminds me what Brian used to say about never knowing where an idea might end up.
“And here’s the kicker: as the truck was towed away the people in the queue applauded the police.”
Then walked home to their pile of spoiled food and useless medicine. As they watched their kid go into a hyperglycemic coma no doubt they comforted themselves with the knowledge that the government had saved them a buck or two.
As with all government policy, the purpose of anti gouging laws is to make politicians look good, not to actually help people.
Fraser Orr,
I wonder if the poor fools thought that the government was going to give them the ice in the truck for free, or for $2 a bag. In my imagination I see the applause dying away as the impounded truck disappears round a corner and there being rather a long pause before someone says, “Hey, wait a minute…”
(The ice being stolen by the cops from the people who brought it into town and given away for free would, of course, still have stopped future deliveries of needed goods from happening. But it would have meant that the people in that queue at that moment were not being quite as stupid as they seem to have actually been.)
I have attended my share of farm auctions over the years. People shutting down for whatever reason, putting their equipment up for bid.
One year, I was looking for a small Bobcat – one of those small skid-steer dirt movers.
First sale was well-advertised, so lots of bidders. The Bobcat they had went for a high price. Lots of demand.
The last sale was poorly attended. We got our Bobcat there – few bidders, so the price was low.
Wasn’t that first auction that resulted in a high price exactly what “price gouging!” people complain of? Lots of demand results in a high bid?
When no one liked lobster, it was cheap. Now that everyone likes it, it’s high priced. Gouging?
Makes no sense to me. Last time I was in a post-storm situation, I would have killed to have the chance to pay triple the list price for a good generator. But no one was trucking them down, because the gouging police were active.
I googled the phrase “In praise of price gouging” and found several good essays and articles, including this one from John H. Cochrane. As a rhetorical device I pretended in the post above that the Russell Roberts essay from 2003 was written only recently, but this one really was, in November 2024.
Another good article with that title was this one from Tim Worstall – not the 2017 piece linked to above, but one written in 2021 in response to the sudden increase in the price of shipping containers at that time due to “pandemic-related bottlenecks at ports”.
Those who deny that there are objective and universal laws of economics, for example the German “Historical School” of the late 19th century, need to wake up. If you impose price controls below the market price, whether with rhetoric about “price gouging” or without such rhetoric, you will have shortages.
If you do not want shortages do not impose price controls.
And, for example, natural disaster or war make no difference to this – for example the real prices in World War II were NOT the official prices, they were the “Black Market” prices – this is at the heart of the reason why mass unemployment existed in the United States in the 1930s but ended in the early 1940s.
It was not “the war” as such that ended mass unemployment – it was falling Real Wages, Real Wage rates had not been allowed to fall in the 1930s – neither Herbert “The Forgotten Progressive” Hoover, or Franklin Roosevelt (“FDR” – a person admired by the ignorant) had allowed Real Wage rates to fall in response to the Credit Money crash – as they had done with every previous Credit Money crash from 1819 to 1921 (normally for about a year so the Labour Market could “clear”) – so mass unemployment carried on in the 1930s.
As a “New Dealer” said in 1938 “we have just as many unemployed as we started with – and a massive debt to boot”, government spending could not end mass unemployment whilst Real Wage rates were kept up by government and government empowered unions (see W.H. Hutt “The Strike Threat System” for how union power really comes from government).
Neither the Democrats or the Republicans (Alfred Landon in 1936 kept going round telling everyone how pro labor union he was – i.e. without knowing it, he was telling people that if elected President he would NOT end Mass Unemployment) were prepared to follow an “anti labor” (really anti union) policy in the 1930s – so Mass Unemployment did not end till the fall of Real Wage rates, measured against Real Prices (i.e. “Black Market” prices) during World War II – which cleared the Labour Market in a very clumsy way (unlike the less clumsy clearing of the Labour Market after every other Credit Money bust from 1819 to 1921).
Wages and rents (yes rents too – Neil Oliver and other admirers of the Glasgow “rent strike” of the First World War – please note) are PRICES – if government or “community groups” (led by Saul Alinsky style activists) try to use force to fix (rig) prices you get economic chaos – shortages of basic goods, lack of housing, and Mass Unemployment.
Natalie,
It’s long odds on that the cheering crowd slowly dispersed once it became clear that they wouldn’t be getting someone else’s stuff for free. The police, having done the easy bit, would be standing around to ensure that no further offences were committed thereby ensuring they weren’t present and able to deal with real criminality elsewhere. Meanwhile the much needed, maybe even life-saving, ice did what ice tends to do………..
A modern day Aesop’s fable, except it was true.