by James A. Bacon
Attorney General Mark R. Herring has joined 30 other state attorneys general in filing an amicus brief in a federal appeals court to support the right of states to enforce price-gouging regulations against Amazon retailers.
National and local emergencies, such as the COVID-19 epidemic, create shortages of essential items, says a press release from Herring’s office today. State price gouging laws are necessary to ensure that goods can be “fairly allocated” among residents and prevent “bad actors” from profiting from the shortages.”
“The COVID-19 pandemic has highlighted just how unscrupulous some businesses will be in taking advantage of a situation like a public health crisis to try and make more money,” said Herring. “It is critical that each state has the ability to protect its consumers and enforce its own price gouging laws during emergencies to make sure all consumers have the same access to essential goods.”
Nobody likes price gougers. Everyone reacts with disgust toward profiteers who exploit the insecurity and suffering of others in a time of crisis to make a quick buck. The only people worse than price gougers are… the people who would sve us from price gougers.
It’s a shame most law schools don’t teach economics. Economic illiteracy leads to bad law and bad public policy. What Herring and his fellow AG fail to appreciate is that higher prices for a product (1) encourage consumers to use less of it, and (2) incentivizes producers to supply more of it. Squelching price signals does nothing to reduce demand, increase supply, or even ensure that the product in question is distributed more fairly or equitably.
The controversy arose when the Kentucky Attorney General’s Office began investigating several Kentucky-based retailers for prices they charged for food, medicine, cleaning supplies and other household essentials. The Online Merchants Guild, a national organization, filed suit arguing that Kentucky’s price-gouging ban was unconstitutional when applied to online sales. Ruling in the Guild’s favor, a federal judge entered an injunction preventing Kentucky’s AG from enforcing the regulations against Amazon retailers. Then, when the lawsuit was elevated to a federal appeals court, a bipartisan coalition of state AGs, including Herring, filed a brief siding with the Kentucky AG (David Cameron, a Republican).
States the Herring press release:
The coalition emphasizes that price gouging laws level the playing field and ensure a more equitable distribution of goods to high- and low-income consumers. The attorneys general state that price gouging protections have been particularly necessary during the pandemic, which has caused financial instability for millions of Americans and created and threatened shortages of essential goods. Furthermore, regulating price gouging falls under states’ responsibility to aid vulnerable consumers during an emergency.
The Virginia’s Consumer Protection Section has received more than 500 consumer complaints and inquiries regarding suspected price gouging during the COVID-19 state of emergency. The AG’s Office has sent out more than 150 letters to businesses demanding that they cease their practices.
Herring’s press release acknowledges, however, that the phenomenon of rising prices is complex: “Investigation of these complaints has revealed that many retail businesses claim that price increases occurred further up the supply chain with manufacturers or distributors, making it more difficult to address the problem at the retail level.”
In April Herring urged 3M, a major mask manufacturer, to “do more to address price gouging” within its supply and distribution chains that was causing hospitals and healthcare providers to pay exorbitant prices for PPE. He recommended legislation to expand Virginia’s anti price-gouging act to manufacturers and distributors that charge “unconscionable prices” during a state of emergency.
OK, that’s Herring’s argument. Here’s the economic logic….
When people panicked this spring about COVID-19, they began hoarding everything from toilet paper and hand sanitizer to masks. Everyone acknowledges that hoarding was a huge problem. Rather than going to where they were needed most, large volumes of these essential products were being stuffed in homeowner pantries. Consumers were creating the shortages, not retailers. Judging by their silence, Herring and his fellow economic illiterates (sadly including some Republican AGs) apparently find no fault with this behavior.
By making it legally riskier to raise prices in response to shortages, economic logic tells us, active enforcement of anti-price-gouging laws arguably would have the unintended consequence of undercutting the only force discouraging hoarding. Higher prices, you see, raise the cost of hoarding. It’s a trivial cost to stuff your closet full of toilet paper at $1 a roll but quite a different calculus at $5 a roll.
Higher prices had another beneficial effect: It encouraged entrepreneurs and innovators to figure out how to increase the supply.
Distillers switched from making liquor to making hand sanitizer. Spurred by temporarily high prices, many others jumped into the market. Query Amazon, and you’ll find more than 3,000 results for “hand sanitizer gel.” You can purchase gel in 8-ounce bottles or gallon jugs, with pumps or without, infused with aloe or jojoba oil, with citrus flavors or manuka honey. The varieties are endless.
Other entrepreneurs got into the business of designing and sewing masks. Query Amazon for “COVID-19 face masks,” and you’ll get more than 1,000 results for masks of all sizes, shapes, colors, price points, and designs for highly specialized uses. A triangle face scarf with ear loops now retails for $6.99. For $15.88, you can purchase an “outdoor cycling neoprene camo mask with changeable … anti-pollen allergen filters.”
What is the alternative to allowing the free market to work its magic? The AGs don’t tell us. But I will. If prices are repressed, retailers and distributors use other criteria to determine who gets access to the desired goods. Typically, they will favor customers with connections, such as a friend, crony, or someone who can offer something non-monetary in return — like, who knows, football tickets or dinners at fancy restaurants. Even assuming that one could agree on the definition of “fair,” the AG’s offer no mechanism to ensure that scarce goods are “fairly” allocated.
Had Herring and his cohorts had their way in stifling “price gouging,” supply shortages could have been worse and longer lasting than they were.
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