With tragedy comes controversy, and so it is with the heated debate on how best to handle the situation in areas struck by disasters like Hurricane Harvey and Hurricane Irma. One hot button issue that has been hotly debated is the issue of price gouging. Not surprisingly most people have not taken kindly to the questionable practices of some store owners over time who have sought to exploit this crisis shooting their price for basic supplies and necessities through the roof. What was once a $10 case of bottled water became a $75 case of water, and as you know the list goes on.
Most have decried these shady practices as extortion, and I say rightfully so, yet others (myself included) have argued that this kind of price inflation is a natural and necessary mechanism of the free market that regulates the flow of supply, through of course the basic concepts of supply and demand. The alternative, some of us asserted, is a very small handful of people buying out and hoarding the vital supplies leaving most with nothing. At least with more expensive supplies available there’s SOMETHING there even if you can only afford a little.
However, I do see how this could do more harm than good for some especially when practiced in excess. I also have never denied immorality of the practice. It is extortion at it’s finest. This goes beyond the economic factors of supply, demand, and the price controls that regulate them. It even goes beyond my distaste for legislating “morality” and thus giving the government the right to violently enforce it. The main issue I have with price gouging laws as they exist now is simply the issue of aggressive force.
When I became a member of my state’s Libertarian Party (and let me clarify once more that on this blog I am speaking from my own point of view, not theirs or anyone else) I was asked to sign a statement agreeing to what it is known as the Non-Aggression Principle. The pledge I signed read:
“I hereby certify that I do not believe in or advocate the initiation of force as a means of achieving political or social goals.”
I believe that the government sending armed men to violently haul away a small business owner to be tossed in a cage for the next few years because of his or her chosen pricing strategies and/or how they choose to run their business is a form of violent force. I’m also not particularly a fan of further filling our already overcrowded prisons to the benefit of the Prison-Industrial Complex. Finally, I do nothing the world’s highest incarceration rate is anything to brag about. I supposed I simply prefer to leave the incarceration card off the table in all situations as a last resort.
That being said I feel there is a nonviolent solution here. While I cannot in good conscience advocate for violent force in an effort to deal with price gouging I have always advocated for absolute transparency in business and in government. I certainly think it’s reasonable to demand that. If anybody is fit and equipped to punish dishonest business owners it is everyday people like you and me.
What I propose is the creation of a price gouging registry that will keep track of and make the public aware of all offenders in the marketplace during a crisis. Once businesses are on the registry they won’t be able to get off of it until paying the appropriate restitution, but we’ll get to that. So what would that look like? How would it be implemented?
Implementation would have to take place one of two ways: the private solution, or the government solution. I would prefer the private solution, however, I recognize that a government solution on a state level would likely have to come first until the private sector can rise to the challenge of private alternatives. The two implementation methods would share common ideas and similar concepts with only minor variations that mostly center around who is running the program and what they have the authority to do. I would also point out that the ideas are flexible and potentially subject to compromise and tweaking.
The Private Solution
Under the private solution, it could be a periodic publication produced by an independent consumer advocacy organization available both online and in paper form. Consider it something of a “Boycotter’s Almanac”. Within is a directory of all the participating businesses that will allow members of the community to make an informed decision on whether or not they want to continue frequenting establishments that extorted them and their fellow citizens in times of crisis. This publication would also make it much easier for individuals and organizations to organize blanket boycotts against businesses that partake in price-gouging. These publications upon release could also be distributed to local media outlets (local news networks, radio stations, newspapers, etc.) with an attached request to make the information available to their viewers as well.
This same organization could also potentially include a system that rewards businesses that don’t participate in price-gouging by letting the community know which businesses carry clean hands and are safe for shopping.
The Government Solution
The government solution would be very similar in that it would involve a public directory available online as well as a service that provides citizens without access to the internet or who just want a hard copy a paper version in exchange for a small fee (to cover incurring expenses). It would also involve contacting all local media outlets and asking them for assistance in spreading the information. This concept would also involve a requirement of all businesses to submit their business information to these registries in order to publicly declare they will take part in price-gouging during a recently announced impending disaster. While their businesses remain listed on these registries they will not be allowed to start new ones under different names until they have submitted to restitution requirements.
Just like with the private solution these businesses will be faced with something of a dilemma. They can engage in price-gouging during the storm and make a quick buck, but at the expense of their reputation potentially years down the road. They will be faced with the possibility of losing businesses long term especially as loyal customers rightfully angered by their price-gouging practices begin to take their business elsewhere. Larger businesses and corporate chain stores like a hypothetical Best Buy equivalent will also be faced with even greater challenges than small local businesses as they may face a PR nightmare, loss of business, and even potential boycotts on a national level. Even after the restitution step, they may have a much more difficult time recovering their reputation for years to come.
People change. Businesses change hands in ownership and management, and corporate policies change. This registry would neither be permanent nor irreversible. A business could have their name removed from the list and potentially even have their information transferred to a list of those who have paid their dues and changed their ways.
In order for this to happen, they would have to submit to restitution requirements by paying a penalty. Since I believe the punishment should suit the crime I would argue that the amount should be calculated in the following way:
First, you must take the total value of the price-gouged goods that were sold during the time of crisis, which would entail the time and day the disaster was announced until its declared end, most likely to be determined by the governor’s office. Then you would need to find the original price of the goods and subtract the difference. In other words, let’s say to simplify the math the business in question charged $50 for a $5 case of water. You would have $45 of ill gotten gains. Take this figure and add 20% of the total value, in this case, you would get a $54 penalty. If it is impossible to determine the difference between the original price and the gouged rate or if the business owner fails to be cooperative in providing the accurate and necessary documents the penalty will instead be calculated by gross sales for the same period so the $50 case of water would entail a penalty of $60.
In my humble opinion, this penalty should be paid as a fine directly to the government. That’s too easy and besides, they would just mismanage the money anyway. Instead, it should go directly back to the community that was harmed. The owner would instead be required to donate to and undertake a community project of greater or equal value to the penalty owed. They would also be required to be directly involved in the process, and hopefully, learn a valuable lesson as they serve the community. For example, if the owner wants to invest in a community pool, let him pick up a shovel and dig along with other volunteers.
In the case of a larger corporate structured company the “decision maker” would be the one required to get involved. In other words, if the decision to adjust the prices during the disaster came all the way down from the CEO, the CEO will do the digging.
Once this restitution requirement is fulfilled the business will be removed from the registry, and maybe they will find forgiveness and the opportunity to rebuild their voluntarily tarnished reputation.
If a business fails to add his or her business information to the registry but still engages in price-gouging he or she will be subject to an additional 30% penalty for restitution and will be automatically placed on the registry with or without consent. They will then be given 90 days fulfill the restitution requirement or face a steeper penalty. If they are unable to afford to pay the penalty they may apply for leniency and be placed something of a community service payment plan under which they could take part in multiple smaller community projects over time until the debt is paid and they are removed from the list.
Benefits and Results
It would be almost impossible to predict the exact results of something like this unless it was put to the test in real life. It would also vary by region based various circumstances including local cultural factors (but I won’t get into that right now). In any case, I have been able to narrow it down to three potential results:
Nothing will change and no one care, the price-gouging will continue at current occurrence rates in which I will have to admit I was wrong and go back to the drawing to either re-tweak the idea or come up with a new one
Very few or no businesses will risk their reputation and price-gouging will become an insignificant occurrence
Some businesses will simply not be able to resist the allure of a quick buck and will still price-gouge while many other businesses will consider the implications of this reputation based system and not engage in price manipulation. In other words, you will have a close mix of some who do and some who don’t
While I’m sure most people, especially those rightfully upset over this situation would prefer Result 2, I believe Result 3 would be ideal. I also feel it would be most likely.
In this case, people would have access to more choices and supplies might still not be exhausted quite as quickly. It could also potentially separate the rich from the poor on different supply roots. Those who cannot afford to pay the rates charged by businesses who engage in price-gouging will likely go other stores that are charging more reasonable prices but rationing their supplies so there’s enough to go around and they can serve their customers equally. Meanwhile, it would actually behoove the wealthier class to visit stores that are charging more so they can avoid the long lines, large crowds, and the competition for supplies. It would also lower the risk of visiting store exhausted of all supplies leading them to a wasted trip, and finally wealthier people who can afford the higher prices would know they would likely be able to buy as much as they want so long as they could afford it, unlike the stores where the prices are reasonable but they are forced to ration supplies.Best of all both the rich and the poor, assuming the disaster is predicted and announced quick enough to establish deadlines for registration, could have access to a directory that will show them where to go. The poor will have a list of stores to avoid while the wealthier will a list of stores to consider paying a visit to.
This will spread supplies more evenly ensuring that at least far fewer must go without.
It’s not a perfect system but it creates a better situation, addresses a distasteful practice, somewhat regulates supply and demand, and all without force. This establishes a reputation based system that I argue is superior to one of violence.