Tale of Two Prices Consider two prices. First, the price of ice before the storm, which most people know, or have a feel for. Second,

Supply and demand graph explain this concept.

the price of ice after the storm, which is unknown and highly variable. People who favor price-gouging laws think that the first price, the price before the storm, is the fair price, and that is the price they want to pay. The market price after the storm reflects both the difficulty of getting ice from stores, because the store has no electricity, and the huge bump in demand for ice as thousands try to buy it.

Clearly, the relative scarcity of ice after the storm is much higher. The market price rises rapidly to reflect this increased scarcity. This makes people who would have used ice at the old price economize, and use something else. They can drink their bottled water, or their Carolina Ale, warm if they don't want to pay $12 for a bag of ice. So ice only goes to people who really value it. And the higher price also signals yahoos, wahoos, and all sorts of regular folks that one can make boxloads of money by taking truckloads of ice to Raleigh. The price system is automatically doing its job, signaling to buyers that they should cut back, and signaling sellers (even potential sellers, those who have to enter the market from Goldboro) that they should sell more.

If enough people bring ice to Raleigh, of course, the price won't be $12, or $8, for very long. Ice is easy to make and transport, so without market restrictions price after the storm will quickly be driven down near the price before the storm, because there is so much more ice available. That's what the clapping people must have wanted. Even the supporters of price-gouging laws want low prices and large supplies. But they can't get those things from a price-gouging law. Precisely the opposite happens, as the supply of ice disappears and the effective price, what people would be willing to pay, goes higher and higher. I admit that it's not intuitive, until you think about it. The only way to ensure low prices, and large supply, to buyers is to allow sellers to charge high prices, the highest they can get.

Well, but what if you seek a political solution, rather than trusting markets? What if you pass an anti-gouging law, to symbolize your opposition to scarcity? Scarcity hurts: it means that I can't have everything I want. Let's abolish scarcity; what then? As I have tried to argue, all a state accomplishes by passing an anti-gouging law is to ensure that there is no ice. I can't get it for $100, or $1,000. And too many citizens say, "Help: the market has failed! Let's call on government to rescue us!"