How California's Price-Gouging Order Can Cause More Deaths.

AuthorMcKenzie, Richard B.
PositionBRIEFLY NOTED

In response to the COVID-19 emergency, California Gov. Gavin Newsom issued orders employing the state's anti-price-gouging law to prohibit businesses from raising prices on medical and personal protective equipment--face masks, for example--by more than 10% (plus documented cost increases) above their February 4 prices. A price increase of more than 50% (or more than 64 cents on a basic N-95 mask selling for $1.27 in early February) is deemed "unconsciously excessive" under the law and order. The penalty for "each instance in which an item is sold or offered for sale" with a price increase above 10% constitutes a "violation" subject to a fine of up to $ 10,000 and/ or a year in jail, which suggests that the penalty can multiply with multiple sales. (There is no specified additional penalty for "unconsciously excessive" price gouging.)

Newsom seeks "fair" pricing by preventing sellers from "profiteering" on the sudden COVID-19-related jump in market demand for protective equipment. But, although his order can prevent profiteering, its rigid enforcement will limit the availability and distribution of critical supplies, thereby increasing the spread of the virus and causing more deaths.

Members of the governor's and President Trump's virus task forces have argued vociferously that personal protective equipment is essential to mitigating the virus's spread, especially among frontline health care workers. Governors across the country have boosted demand by encouraging or ordering people to wear masks, with dire warnings of greater deaths if they do not.

Economists have long argued that price controls during normal times, to say nothing of emergencies, can be expected to incite hoarding by individuals, businesses, and governments, leaving store shelves bare. We are already seeing this in the current emergency and it is hardly a "fair" distributional outcome. Millions of masks (and bottles of hand sanitizer) are going unused in people's stockpiles, unavailable to health care workers and others who may need them.

Economists also have argued that sudden market scarcities can be alleviated with price increases that induce buyers to curb purchases and--maybe more importantly-induce suppliers...

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