Here we go again, it’s price gouging deja vu all over again! There are already thousands of Google News search results for “Panic buying” + “Southeastern states” and “Southeastern states” + “price gouging.” Using the blank “Fill-In-The-Blank Price Gouging Form” above that I learned about from Art Carden back in 2008, I’ve filled out the form below for the current gas shortages in Southeastern states that has resulted in thousands of claims of “illegal price gouging” temporarily elevated market prices for critical supplies that are briefly in short supply.

Fearing increases in the prices of gasonline as a result of the ransomware attack that crippled Colonial Pipeline, government officials in almost every Southeastern state including North Carolina, Virginia, Alabama, Kentucky and South Carolina have declared states of emergency whereby restrictions on “price gouging” are now in effect. According to various attorneys general, mayors and governors, the laws are designed to protect innocent consumers from “unconscionable” increases in the prices of gasoline.

WARNING: As I’ve written many times in the past about price gouging charging market prices for goods that are in short supply, the unintended and unseen adverse consequences of imposing anti-price gouging laws are predictable, unfortunate, and avoidable. While government price controls may be motivated by an understandable desire to help consumers by keeping gas prices low, those artificially low prices exert secondary effects that are guaranteed to retard the adjustment process. When gas prices are kept artificially low by government anti-price gouging mandates, hoarding and panic buying will continue to outstrip available gas supplies resulting in continued artificial shortages. The anti-price gouging laws that prevent prices from rising to reflect the true market conditions are guaranteed to make the situation worse because they will do nothing to address and correct the underlying cause of the current gas shortages – panic buying and hoarding by consumers. What we know with economic certainty based on hundreds of years of history with “political price-setting” is that anti-price gouging laws are guaranteed to result in serious misallocations of critical resources like gasoline at the exact time that an efficient allocation of those scarce, critical resources is most needed.

Bottom Line: A frequent claim we hear is that the laws of economics should be suspended, ignored, or circumvented following a natural disaster or supply disruption, which then motivates laws against “price-gouging.” But you can make a stronger case that it’s during an emergency like the current gas supply disruptions due to the cyber attack of the Colonial pipeline when we want market prices to prevail and market forces to operate as forcefully and powerfully as possible. Reason? It’s the period during an emergency when efficient resource allocation and addressing scarcity become more heightened than during a normal, non-emergency period.

To address the economic disruptions from the current gas supply shortages, we only have two basic choices (a) allow market prices to rise that will accurately reflect to consumers the true scarcity and market fundamentals or (b) allow artificially low gas prices to prevail with price controls that ignore scarcity and market forces, and therefore transmit false information about scarcity to the gas buying public. The most effective way to stop the panic buying and hoarding that is at the root cause of the current gas shortages and long lines at the pump is to allow gas prices to rise. Suppressing market prices with anti-price gouging laws that prevent gas prices from rising is therefore guaranteed to make the situation worse, not better because it will continue to encourage and promote panic buying and hoarding.

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 current gas shortages more quickly and more effectively than government-mandated, artificially low non-market-based prices resulting from anti-price gouging laws. The real choice today is not between low prices and high prices for gas at the pump, but between low prices, long lines, and supply uncertainties with anti-price gouging laws, and higher gas prices for ample supplies with no lines at market prices. At least to most economists and those who understand economics, that’s an easy choice to make. Unfortunately, politicians always choose government price controls that make things worse and increase suffering while falsely trying to take credit for their compassion.     

Related: As I posted on Twitter today: