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Is Price Gouging Bad?

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    Independent Institute Research Fellow Art Carden on the economics behind price gouging.

  • Duration 3:34
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Jersey's Chris Christie to weighted anyone found to have violated the law will face significant penalties -- -- -- mop.

But economists are -- -- now this is just stupid thinking what politicians called gouging is really a good thing.

-- -- -- Well John this is straight off of the economics exam to my students are getting ready for right now.

Price ascend very very very valuable signals about what's really really -- what's really really needed.

And what is really really really hard to come by in disaster prone areas.

Price is allow us to engage in -- kind of economic triage.

Where we see the price of -- thirty dollar flashlight we still we might think twice about some of the silly -- -- might do with flashlights and say well maybe we should pass on this one.

And leave those flashlight for people who really really need them.

When we have price controls we create shortages.

In other words people -- form or flashlights and people -- willing to bring to the market at the control price.

When we let the price rise it's like a signal flair that says bring flashlights to New York.

Bring flashlights New Jersey.

Bring flashlight so -- New Jersey really really need Chris Christie I thought he's a free market guy he doesn't get this he wants a lock people up.

Apparently doesn't apparently well apparently stuff that is basic basic basic economics is a little bit too advance for the governor of New Jersey.

Now one other point the store that Solis this thirty dollar flashlight was having an easy time they didn't have power they were.

Pumping water from their basement at the time so.

I could see why they would want to charge extra just to remain -- open.

Yet they could be trying to 25000 dollars if they raise the price they claim they didn't -- the homes sold for ferry.

Right that's an important point for the store owner it's pretty obvious that they've got some other issues to deal with like pumping up their basement by allowing the signal flare.

Debt prices are.

By allowing prices to rise we send a signal to the person could sell the flashlight right there are a lot of people who want -- flashlights now.

Would you please divert your attention from some other things you could be doing.

To making sure the people in New York have flashlights.

One example from Hurricane Katrina.

After the hurricane John -- -- of Kentucky bought nineteen generators.

Yes finally then rented -- U haul drove 600 miles to part of Mississippi they had no power.

Offered to sell his generators for twice when -- paid for them.

People were eager -- but the police arrested him confiscating his generators.

And it he'd stayed in jail for four minutes.

And who wins from now.

Well with friends like that the people of Mississippi don't need enemies.

As an economist I think these people should be lauded as heroes why because they're which they're taking scarce resources.

From areas of relatively low.

Need to areas of relatively high need in the case the generators nobody got generators after the guy was arrested.

But what about up more when you allow people raise prices and maybe that's the only reason I was able to get a flashlight.

The poor come out rich people live but merely.

Passing a law saying you're not allowed to charge more than say ten dollars so a flashlight that's not gonna guarantee that poor people get flashlights in fact.

A law against price gouging is gonna prevent people from bringing more flashlights to the market ultimately.

Which would bring everybody's down and make them more accessible to poor people thank you art carbon capture her -- price to plunging.

I would just call -- -- flexible prices.

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