Wednesday, November 14, 2012


In the wake of Hurricane Sandy, the New York Posts reports that New York attorney general is going after Craigslist listings for "price gougers" who are offering, e.g. $20/gallon gasoline.

Robert Nozick once said that "the socialist society would have to prevent capitalist acts between consenting adults." Well, here you go. I'm trying to understand the A.G.'s theory here: if someone needs, say, 5 gallons of gasoline, they usually have a range of quick, relatively equally-priced options, i.e. gas stations. It only takes a few minutes, and the range of prices for the equivalent grade of gas is only a few percent.

During the shortage conditions that obtains following Sandy, those options were curtailed. You could go to a gas station, but would wait in line for hours to buy gas at the normal, low price. Or you could go to a "price gouger", offering to sell you gas with no wait at a considerable mark-up. This gives the consumer a choice.

If the "gouger" did not exist, only the first option would be available. Of course, the approximate equivalent could be accomplished: the person who needed gas but didn't want to wait in line could hire someone to wait in the gas line. That, presumably, would not be gouging. But waiting in line and then trying to sell the product is. The "gouger", we see, is really a small-time entrepreneur.

There are many economic stories in which there are two sides, and one could easily understand the opposite position. (For example, economic nationalists who want certain barriers to trade may be willing to accept the costs of those barriers - higher prices, lower productivity - in exchange for protecting domestic jobs. One may see that there is a tradeoff, even if one has strong opinions about which side of the trade is the more desirable.) But this is a case in which the existence of the "gouger" is a pure good.


  1. James,

    There is one caveat to think about here -- where do these "entrepreneurs" get the gasoline they are selling at marked-up prices? If they are going beyond the shortage area, to Pennsylvania say, and bringing in gasoline from there to sell it in New Jersey, that's fine. If they are getting it from the local gas stations, however, then it is wrong. This was a time of shortage; no one should be intentionally procuring more of the short resources than they actually need for personal consumption. To hog those resources, with the intent of extorting a profit out of other (desperate) people, is obviously unethical.

    To give an extreme example, let’s say you and I are both in line to get gas at the station. I'm 4th in line with my vehicle, and you are 5th. My turn comes to get gas....but my vehicle is a 5,000 gallon tanker truck, and I proceed to whip out my credit card and buy ALL the remaining gas at the station. This leaves none for you and everyone else in line, who may have already waited for hours. But hey, you say it's all good, right? Because I proceed to pull into a vacant lot next door, and set up shop to sell that gas I just bought....for five times the price I purchased it.

    Obviously, that's an extreme example, but it demonstrates the problem here -- if people are buying more gas than they need with the intention of re-selling it, that's creating an artificial shortage, actually creating the demand that they will then set themselves up to fill.

  2. You raise the point that if someone could fill up a tanker truck and then resell its contents at marked-up prices, that would be a problem. But that's why they had limits to how much you could buy at a time. So that's not really a valid concern. Given that you could wait in line and buy 5 gallons of gas (or whatever it was) at the "market price", there's really no reason not to allow people to do that and then resell it at a markup.

  3. I'm going to half-bake a bit and suggest that there's some civilizational memory going on here. A small-time operator like your gas gouger provides some good. In the past, though, the representative gouger was a grain hoarder who pushed prices as high as the market would bear during a famine. The result was starvation for many and - maybe just as important - a massive concentration of money and the power that goes with it into the hands of the price gouger. Any society which didn't have an extremely strong instinct against price gouging - or didn't have the means to fight back, as in the Irish Famine under the British - would end up distinctly worse off by the time the famine ended.

    As a result, most of us have inherited (genetically or culturally, whichever it might be) a strong aversion to price gouging in any form. The small positive effect of allowing a few small-time operators to price gouge has been swamped by the negative effect of having a lax attitude toward price gouging in general.