Policymakers called for price gouging laws in the wake of the COVID-19 pandemic, when massive shortages—and rising prices—ensued nationwide for hand sanitizer, personal protective equipment, toilet paper, surface-cleaning products, and certain foods. A new Competitive Enterprise Institute report urges those policymakers to resist a rush to a hasty, ill-considered government “solution.”
“No one likes price increases when there is a crisis or a shortage,” said Ryan Young, CEI senior fellow and author of the report. “But, unfortunately, price gouging legislation makes the situation worse and for longer. Keeping money prices low has a tradeoff: other, non-money prices go up even more. That means worse shortages, longer lines and shipping times, fewer choices, and lower quality goods and services. Legislation cannot make these problems go away but can make them worse.
“When prices increase, that encourages people with non-urgent needs to hold off on buying certain items, leaving more available for people most in need,” Young explained. “Producers also gain an incentive to get supplies to people who most need them – without political favoritism or bureaucratic red tape and guesswork.”
Part of CEI’s #NeverNeeded campaign to identify and eliminate harmful and unnecessary regulations, the report offers specific examples of how private responses by both companies and consumers to price gouging are more effective than government ones. It also delves into unintended consequences of price gouging legislation. These include rent-seeking (when established companies lobby for regulation that harms smaller competitors), and shortages made worse when businesses cannot adjust prices (and consumers have no reason to conserve).
The government threat is real. On March 9, U.S. Attorney General William Barr announced: “The Department of Justice stands ready to make sure that bad actors do not take advantage of emergency response efforts, health care providers, or the American people during this crucial time.”
In addition to federal warnings, 36 states have price gouging legislation already on the books, and other states are considering similar legislation as part of their coronavirus responses. And some private businesses, like Amazon Vice President of Public Policy Brian Huseman, have called for federal legislation.
View the report, #NeverNeeded Price Gouging Laws Would Harm COVID-19 Response by Ryan Young
For more information on CEI’s #NeverNeeded campaign, please visit neverneeded.cei.org.