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Price Controls Worsen Disasters

Volume 13, Issue 26: June 28, 2011

In a recent contribution for Forbes.com, Independent Institute Research Fellow Art Carden argues that laws against “price gouging” in the wake of tornadoes and other natural disasters are bad policies. Higher prices, he explains, go hand-in-hand with disasters because they reduce supplies and create problems for suppliers. Addressing the underlying problem by legislating lower prices, however, is counterproductive.

Far better, Carden explains, is to let prices increase. “Freely moving prices make sure resources are allocated to their highest-valued uses, and rising prices send people a very important signal: resources have gotten scarcer and need to be conserved.”

By preventing prices from rising during a natural disaster, we send the wrong signals to consumers and to suppliers: we tell them, in effect, that today’s circumstances are no worse than yesterday’s, that they needn’t change their spending habits or business priorities. “Price-gouging laws,” Carden continues, “compound the already-onerous burden on people who are affected by natural disasters by creating shortages.”

Price Gouging Laws Hurt Storm Victims, Art Carden (Forbes.com, 6/17/11)

More by Art Carden

http://independent.org/publications/the_lighthouse/detail.asp?id=399#1889

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