Michael Munger Says 'Price Gouging' Gives Us Information We Need.

• Author: Gillespie, Nick

AS THE C0VID-19 pandemic prompted shoppers to clear supermarkets of toilet paper, rice, and canned vegetables, Matt and Noah Colvin loaded up a U-Haul with all the hand sanitizer and antibacterial wipes they could find, then attempted to resell the goods on Amazon at a massive markup. Soon after, the online retailing giant banned the practice, state attorneys general started cracking down, and the Colvins were shamed Into donating the items.

But is so-called price gouging always a bad thing? Reason's Nick Gillespie spoke via Zoom with Michael C. Munger, who teaches economics, political science, and public policy at Duke University, about what happens when governments mandate that the prices of scarce goods be kept down. Munger says such laws end up causing more shortages than they solve, especially during a crisis.

Q: You are an unapologetic defender of price gouging. Can you explain why?

A: It's not clear that I would defend price gouging in all Instances. Much of what we call "price gouging" is a guy telling an elderly person, "This tree in your yard Is going to fall down. We'll cut it for you for $300" and then [giving him or her] a bill for $2,000. Much of what is enforced as price gouging is, in fact, fraud.

So let's take out fraud and recognize that we're in a circumstance of really great scarcity, and let's think about what the price mechanism does. If the price of something goes up and there's a shortage, three great things happen: The first is that consumers buy less. They look at that price and they say, "You know, somebody else must need this more than I do," and so they leave some for the person behind them. The second thing is that producers try to find ways to make more. And the third thing is that entrepreneurs try to find ways to make substitutes.

Q: But people were like, "There is a good chance we're going to be told not to leave our houses again. There is a good chance that trucks are not going to be replenishing grocery store shelves. We went to buy toilet paper because we don't know the next time we'll be able to." What are consumers supposed to substitute for toilet paper? And how long does it take a place that makes computer paper to switch over to making toilet paper?

A: The premise of your question is: Suppose you're In a situation where the things that I've talked about are unlikely to be able to happen. If this Is really all that we're going to have [of something], and we're trying to allocate a scarce resource...