George Mason University economist Russ Roberts points out that if sellers don't raise prices after a disaster, supplies vanish. Anxious buyers often buy more than they need, just in case. Those not at the front of the line may get nothing. "How do you solve that problem? And how do you find out who should get those scarce items?"
One way is rationing -- have the government decide who gets what. Another way is to make people wait in long lines and let patience and luck determine who gets the goods.
But the best way is to give the items to those who are willing to pay higher prices. It's best because it directs supplies to those who need them most and because it inspires more people to take the risks John Sheperson took, or invest in finding new sources of (or replacements for) oil. "High prices are good because what they do is they give people -- and companies -- the incentive to bring supply in ... and help people in the time of crisis. Without that price increase, who has the incentive to bear the risk of stocking up to take care of people?" said economist Roberts.
You may not believe me or Roberts when we say "gouging" is good, but will you believe three Nobel Prize-winning economists? Nobel Laureate (1992) Gary Becker says "gouging" is the "fairest and best" way to get supplies to those who need them the most. "That's a good thing," added Vernon Smith (2002). And Milton Friedman (1976)?
"The 'gougers' deserve a medal."
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