Anti-Price Gouging Laws: Why a Pandemic Is Different from Other 'Emergencies'.

• Author: Parsons, Steve G.

On March 18,2020, President Donald Trump issued Executive Order 13910, declaring a national emergency related to the COVID-19 pandemic. This led to the Justice Department's creation of a COVID-19 Hoarding and Price Gouging Task Force.

Prior to 1979, there were no U.S. anti-price gouging laws (APGLs) at either the federal or state level. But by 2020, 37 states had APGLs that were triggered by a national state of emergency. In the COVID emergency, not only did those states initiate certain APGL provisions, but many other states' governors issued executive orders to similar effect. These pandemic APGLs generally apply to personal protective equipment (PPE), drugs, disinfectants, and related goods, but some could be interpreted more broadly.

Economists almost universally disdain APGLs or other forms of government price controls. Economic theory and substantial empirical evidence indicate that APGLs make society worse off by:

* increasing hording and shortages,

* sending the wrong price signal for consumers to conserve,

* not providing goods to their highest-valued use and users, and

* not providing the proper price signal for current and potential new suppliers to increase supply.

However, people in general (and therefore politicians) tend to have a strong emotional reaction to even the hint that a business or individual may be taking advantage of an emergency. This may be due to a lack of knowledge of economics and/or irrational behavior.

Previously in these pages, University of Georgia economist Dwight Lee suggested a morality focus regarding APGLs. (See "The Two Moralities of Outlawing Price Gouging," Spring 2014.) He argued that there are two different moralities at play in an emergency: One is the intentional behavior by people or businesses to sacrifice for others; he calls this "magnanimous morality." The other is the mundane morality of the market as firms' pursuit of self-interest can help others in an emergency (even if those facing the emergency are thousands of miles away).

I would argue that there is a range of business responses that fall somewhere between these two moralities. Businesses may:

* donate goods during an emergency,

* provide goods at a loss,

* provide goods at a lower profit margin,

* redirect goods to an emergency area even though that increases transportation costs, and/or

* voluntarily decide not to raise prices or to raise prices less than market conditions warrant.

Such actions may create customer good will and...