Say what you will about the (current) mayor of Los Angeles, she has a gift for making things worse for people living in that city.

Say what you will about the (current) mayor of Los Angeles, she has a gift for making things worse for people living in that city.

And so she has tweeted this:

Bass’s tough talk about “price gouging” is a telling contrast to her rather laidback attitude toward fire risks. Politically, she needs to find villains to deflect the criticism coming her way, and she knows that price “gougers” are not popular. They never have been. In a Capital Letter last year, I quoted the British economist, Edwin Cannan, from 1915. The First World War was underway and prices were rising:

Buyers who have to pay higher prices suddenly become either ‘the poor’ forced to reduce their consumption of necessary articles or else employers of a particularly needy and deserving class which will be thrown out of work by the rise. All the injured persons are at once represented as being iniquitously robbed by an unscrupulous gang of speculators, middlemen, bloodsucking capitalists, or rack-renting landlords against whom all the resources of the State ought to be brought forthwith. The ideal somewhat vaguely held seems to be an immediate return to the prices of a few months or a year ago.

This, as Cannan pointed out, was counterproductive:

[W]hen the price of a thing goes up, [people] abuse, not the buyers nor the persons who might produce it and do not do so, but the persons who are producing and selling it, and thereby keeping down its price’.

An overwhelming majority of today’s economists oppose price controls, although that consensus waivers, at least to an extent, when it comes to “natural monopolies,” such as utilities. By extension, I suspect there might be concerns about cases when pricing turns into gouging and there is no realistic way that the price mechanism can operate to undercut the gouger by attracting competitors.

But Los Angeles is not cut off from the world. If either the short-term emergency, or the longer-term need for reconstruction create shortages, the mayor should be encouraging businesses or individuals to come into that market to provide badly needed goods and services. Bass’s tough talk will have the opposite effect and will be likely to make shortages worse.

It was reassuring to see how many of the responders to Bass’s tweet were willing to explain to the mayor how markets work. As the (annoying) phrase goes, she should now educate herself.

This person wrote at some length. Here’s an extract:

Prices are information. In this case, the information is that goods are scarce and people should go through extraordinary means to bring the goods to people that need them, even if those means are unusual and expensive. Price controls are a form of censorship; they do not alleviate the shortages, they just pretend they aren’t happening, extending human misery instead of relieving it.

During the disaster following Hurricane Sandy in the NYC area, which I remember quite well, a number of gasoline pipelines stopped working. Hauling gasoline long distances by tanker truck is normally very inefficient, and thus more expensive, but in the circumstances, with limited fuel supplies and great amounts of need, “profiteers” with tanker trucks began to alleviate the shortage. Then, government officials decided to threaten them for “profiteering”, that is, selling needed scarce goods at higher than usual prices. That meant there was no gasoline at all for many people who needed it desperately, instead of expensive gasoline that they could use for purposes like running generators to keep expensive goods from thawing in freezers or to transport people in need to hospitals. . . .

Bass followed up on her earlier tweet with a later, more detailed version, highlighting the sorts of items and services that might attract price “gouging,” from bottled water to generators to lodging.

Ice is something else that could attract “gouging,” and in one well-known case did, which I quoted in that Capital Letter from last year:

In a 2011 paper, the Cato Institute’s Michael Giberson cited a case from 1996 when four men selling ice in the wake of Hurricane Fran had been arrested in Raleigh, North Carolina for charging a price much higher than the $1.75 per bag standard before the storm. As Michael Munger, writing for Econlib explained, North Carolina’s anti-gouging law prohibited mark-ups that were  “unreasonably excessive under the circumstances.” This had been “been widely interpreted to limit price increases to around 5 percent or less.” The four gougers (in this article I’ll stick with the pejorative “gouge” and “gouger” for simplicity’s sake) lived in a part of the state where the electricity was working. They had loaded up two trucks with ice and driven to Raleigh, something they would not have done for a 5 percent mark-up. What they reportedly wanted, and got (until the police intervened), was $12 a bag. But, as Munger points out, had there been no anti-gouging law, there would have been more competition. The $12 ice price would have melted away.

In short, anti-gouging laws will mean, writes Giberson, that “fewer individuals outside of the affected areas will risk their time and money bringing ice, electric generators, or other goods into storm-ravaged areas if they risk arrest and fines for charging ‘unconscionable prices.’”

More on price gouging and the response to the Los Angeles fire here.