Historically price gouging has been considered a bad thing. But is it really?

If you’re like me you’ve never given much thought to the concept of price gouging. You simply assumed it was bad and harbored appropriate disdain for those taking advantage of a bad situation. As Christians we should be able to think biblically about issues in our culture like price gouging so we can respond appropriately. I want to take a few moments to think through this idea and see if we can apply biblical principles in a way that makes sense.

Let’s understand first what price gouging is.

Price gouging is the deliberate raising of prices on essential goods in the aftermath of a disaster (such as a hurricane). Essentially, it is a result of supply and demand interacting with each other at a time when conditions make demand abnormally high while making supply more difficult (and costly) than normal. The result is $10 per gallon gasoline, $30 for a pack of water that normally costs $4, and $200 for a hotel room that normally costs $100.

We are initially incensed at the idea of charging a higher price during an emergency. Any ethical human being naturally thinks that during an emergency we should be willing to help people in need by charging less, or giving goods away for free. But how do we think biblically about the pricing of goods during an emergency?

First we need to admit that there is an ethical component to economics. Some would have us believe that economics is nothing more than numbers, it’s math. But for Christians, we need to look past the numbers to the ethics (and even theology) behind the numbers. For instance, economic principles drive political philosophies and viewpoints. No one would assert that political philosophies are not ethical, or moral. So we can’t assume the forces behind political philosophies and principles are not equally ethical and moral.

Next comes understanding the economics behind price gouging; which will help us understand why some of the most free-market champions argue that price gouging is good for the economy.

A very detailed article at Mises.org shares at least 3 benefits of price gouging:

Benefit 1: Calling in More Supplies
Benefit 2: Storing Up Goods for Emergency Use
Benefit 3: Encouraging Conservation

Let’s break these down just a little.

Benefit 1: Calling in More Supplies: When disaster strikes certain goods become immediately necessary, and immediately fixed. This means that there is only so many bottles of water in the immediately affected area. Suddenly, demand goes through the roof while supply shrinks. This would naturally indicate that prices will rise. In fact, in every other sense, we understand that lack of supply means higher prices. But in the wake of a disaster we want, for some reason, to suspend this normal economic principle. But when we think logically, we understand why rising prices and lower supply can actually be a good thing. For one thing, it encourages others to get involved. When prices skyrocket it’s like someone shouting over a loud speaker to bring in more supplies. Individually, it makes sense when a store owner living several hours away that decides to take personal time off to bring in additional supplies charges a little more to recoup some of his cost. Morally speaking this store owner has done nothing more than make sure he doesn’t take a loss, and there’s nothing wrong with that.

Benefit 2: Storing Up Goods for Emergency Use: If store owners are allowed to sell goods at higher prices following a disaster they will have incentive to stock up on essential goods. This means that the actual supply of goods following the disaster could be higher due to the possibility of profit. This also means individuals will be encouraged to take measures to be prepared for disasters rather than relying on others. If this kind of economic activity is permitted, it will also encourage wise stewarding of supplies. Rather than giving everything away on Day 1 after a disaster, owners will be judicious in their selling over the course of days, perhaps weeks after a disaster. Think of Joseph, in Egypt, when the famine set in. Why didn’t he simply give people all the food in the store house during the first year, why did he ration the food? Because he knew the famine would be 7 years long and he wanted to preserve his supply. And when the people ran out of money to buy food, Joseph told them to bring other valuable items that they could trade for food. Joseph, in the face of a long, devastating economic crisis, made Egypt very wealthy.

Benefit 3: Encouraging Conservation: The last thing we need during a crisis is waste. But we are naturally wasteful people. But price gouging can actually discouraging waste by raising the cost of goods. Let’s face it, no one will waste a single drop of the bottled water that cost $25 per case. We’re not going to cook with it, bathe in it, or spill it. And we’re not going to buy 30 cases and leave others with nothing. The same can be said for a hotel room that costs $250 per night instead of $50. Rather than renting two rooms, one for kids and one for parents, a family will only rent one room, leaving a room open for another family.

While some are eager to cite the benefits of price gouging, others, are not so quick to jump on the free-market bandwagon. An article at CNBC comments:

“Maybe there’s something to be learned in this thought experiment, but national emergencies are the ultimate distortion in daily economic activity and, as appealing as the free-market may be in certain circumstances, it will likely make economic distortions during a disaster worse, not better.”

In the same article, Joe Carter of the Acton Institute, said that one solution may be to allow the government to create a voucher system that would fill the gap between the normal market price and the “price gouged” price. (I’m generally not in favor of giving the government any more control or involvement as necessary).

One economist I spoke with said he’s “not sure at all that price gouging should be illegal.” But, being a Christian, he also gave a wise warning for Christian business owners:

“In terms of ethnical requirements, I think Christian merchants should refrain from taking advantage of the situation and hiking prices merely because there is a temporary shortage due to emergency. Somewhat higher prices might be justifiable, especially for suppliers, transporters, because there is greater risk of loss in transit and perhaps hazard pay for drivers. But if the price is raised, they should be able for the sake of their public witness to explain precisely where higher costs are driving them towards higher prices and that the higher prices are reasonable.”

He is commenting on the ethical component of economics in the face of a disaster. He’s right. Christians should not be known as people that take advantage of a situation. We should be known as generous people. Raising costs for any number of justifiable reasons after a disaster is understandable. But only if we can justify it. If we can sell our water for $4 per case normally, but it now costs $10 per case after the disaster then so be it. No one is saying a business owner should take a loss. But if it costs $10 per case and we sell it for $30, with no explanation, I think there’s the concern.

It has been interesting to think through this issue; and I appreciate the help others offered. As Christians we need to think through issues like these in order to determine the biblical position so we can set an example to the world around us. Christians need to recognize the morality and ethics involved in economics. And we need to think biblically, and logically about issues like price gouging rather than assume what we hear in the news is right. I’m still thinking through this issue, but I hope I’ve been able to offer a biblically based perspective that encourages you to think deeply.