A 5th Reason Price Gouging May Not Be Immoral

This week Learn Liberty introduced this thought-provoking new video featuring Matt Zwolinski, associate professor of philosophy at the University of San Diego, and co-director of the university’s Institute for Law and Philosophy. Dr. Zwolinski also founded BleedingHeartLibertarians.com. In this video, Zwolinski lays out the following four reasons why price gouging may not be immoral. These reasons are thought-provoking, and in my estimation, relatively correct.

1. Consumers do not have to buy products for the higher price. If they decide to pay, it is likely because they are getting more from the product then they’re paying.
2. If the prices for important goods do not go up, it is likely that scarce resources will not be available for those who need them most.
3. For buyers, high prices reduce demand and encourage conservation. People who may need something more are likely to pay more. For sellers, being able to charge higher prices creates a profit incentive to encourage more sellers to bring products to the market.
4. The profit motive will increase competition and eventually drive down the price.

Now I’m sure Zwolinski doesn’t believe that these are the only four reasons that price gouging may not be immoral. These were probably chosen for editorial reasons of time and resources available for the video. But it seems that the argument is missing the most important moral claim (this isn’t the first time I’ve accused Zwolinski of having an incomplete morality). So here is my reason number five, which I would actually make reason number one.

5. More people gain access to the much-needed necessities by pooling their resources to meet the higher price.

For example, there is a hurricane and all the houses and all of the hotels in town are flooded. So you and your wife grab your daughter and get out of dodge. In the next town over, there is a dry hotel with two rooms available. Normally these rooms would go for $100 a night, but because of the hurricane, the hotel manager wants to increase it to $180 a night. Scenario 1: A hotel employee reminds the manager that price gouging is illegal and they do not raise the price. A married couple pull up soaking wet, relieved to find a room and takes the first one at $100 a night. There are two beds in the room, but they only use one. A well-off single guy shows up and takes the second room at $100 a night. He also only uses one bed even though there are two. By the time your family shows up, there are no rooms and you have to drive on to the next town. Scenario 2: Price gouging is not illegal in this state and the hotel manager raises the price to $180 a night. The married couple and the single guy show up and are a little upset when they find out about the increased price. They stand around in the lobby each trying to decide if they are willing to pay the increased amount. While they are waiting, your family shows up, as well as another family of four. You suggest that the 10 of you split the two rooms putting five people in each room. Everyone thinks this is a great idea and the hotel provides a couple cots for the fifth person in each room. In scenario one, only three people got shelter from the storm at $67 per person. The other seven people in the story are still on the road in dangerous conditions, while two beds were wasted. But in scenario two, all ten people got shelter from the storm at only $36 a person. Yes, things are a little bit snug, and two people are sleeping on cots, but they are all saving money and they are potentially saving lives. This could also be seen in Zwolinski’s story about the generator where the price of the generator went up from $800 to $1300. He points out that this increase in price makes sure people who are less in need do not buy the generator. What he could have also pointed out was if there were two people who were in dire need, they could have pooled their resources and shared the generator. The character in the story had a diabetic daughter and needed to keep the insulin refrigerated. What if his neighbor also was a diabetic? Neither of them has $1300 in cash, so they pool their resources and buy the generator, and the first man lets the second man come over to their house and put his insulin in the refrigerator that is now hooked up to the generator. In this scenario, they both paid $650 instead of $800 or $1300, and they made more efficient use of the generator. In these very real scenarios, price gouging has the added benefits of:

5a) making more efficient use of needed resources and

5b) encouraging virtuous cooperation with others in need, instead of animosity between those vying for the same resources.

The argument shouldn’t be whether price gauging is immoral, but why some places have made it illegal in first place when there are so many benefits.