Column: Memo to economists defending price gouging in a disaster: It’s still wrong, morally and economically

As surely as flooding disasters like Hurricane Harvey are followed by health concerns and homelessness, they’re followed by calls to legalize price gouging. The problem with the free market is that it’s not really universally “free.” Not all participants come to the marketplace with equivalent standing. Perry’s target commodities include “water, plywood, fuel, ice, generators, chainsaws, hotel rooms, etc.” He writes: “As cruel as it may sound to those who are long on indignation and short on economics, market forces and market prices will address the post-disaster shortages in Texas and Louisiana more quickly and more effectively than government-determined, non-market based prices that result from price- gouging laws.” Notice Perry’s swift gloss over the “cruelty” of this regime, as if that’s irrelevant. Let’s say, for instance, that the market allows a convenience store to jack up the price of a bottle of water to $7 from $1, as a resident reported to the Houston Chronicle. It’s all very well to cite the textbook claim — as Perry actually did in response to my earlier column — that price gouging merely avoids “serious misallocation of resources.” The issue for government officials tasked with managing a disrupted market is who receives the newly allocated resources.