Some Economists Think Price Gouging Is Good

Many states have laws against price gouging. People hate it when businesses jack up prices during an emergency or a time of severe shortages. But economists say that preventing price gouging often makes matters worse.

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STEVE INSKEEP, HOST:

OK. So, it was really hard to get gas in the New York area yesterday. One very simple thing could be done that might change everything: drastically raise the price of gas. Now, if that happened, we would surely consider it price-gouging. But some economists think it would be a really good idea. Here's Zoe Chace of our Planet Money team.

MICHELLE MEDINA: So, everybody here's OK? You guys OK? All right. Yeah, we're still on line with him.

ZOE CHACE, BYLINE: The gas station on Union and 4th Avenue in Brooklyn was crazy, too: cars down the block, people with red gas containers crowded around the pumps. Michelle Medina was trying to organize the mayhem.

MEDINA: These are going to be for credit, this side for cash. Just remember, call me. I'll give you the gas, bring you back your change. OK?

CHACE: One thing nobody was asking: How much are you paying for your gas?

JOHN HANNA: I didn't even check the price. I don't care about the price right now. I care about - I need the gas for my kids.

CHACE: John Hanna drove three hours from Jersey looking for gas to power his generator. It's funny. You hear about the lines, the hours of waiting, the lack of power. But at a time like this, you don't hear about the price. Usually, when there's an incredible demand for something, the price of that thing goes up. That's not really happening here in New York. At this station, regular goes for about $3.80 a gallon. If gas station owners suddenly jacked up the price by a couple of bucks or more, they could get in trouble with the state. Looking at the lines of cars at this gas station, it seems like the gas should be worth more - at least to an economist it does.

MICHAEL MUNGER: I don't think $25 a gallon is unreasonable.

CHACE: I called Michael Munger. He's a professor at Duke, and he says the fastest way to fix the gas scarcity is to raise the price. Let the market work it out.

MUNGER: When prices go up, people buy less. Everyone who was waiting in line wanted to fill their tank. That means that there's not going to be enough gas for everybody.

CHACE: I saw one guy running down the block. He had six gas containers dangling from what looked like a swiffer. Not for sale, he yelled to me when I ran after him. If he had to shell out hundreds of dollars to fill up one container, he might not have taken so much gas with him. Of course, there's another way to get people to buy less gas at a time, even if they'd been waiting for hours.

RON FREEMAN: Cash only.

CHACE: Ron Freeman stalled out on Fourth Avenue.

How much you got?

FREEMAN: I got cash. I want $20 to get home, and I'm parking it and I'm not driving for the rest of the week.

CHACE: If you have to pay cash, the gas you get is limited to the money in your pocket. Four bucks a gallon seems a lot more expensive if you've only got $20 to spend. Zoe Chace, NPR News, New York.

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