Texas Judge Put Would-Be Price Gougers on Notice, but Could His Action Make Situation Worse?
As Texans contend with an unprecedented weather crisis that has left millions without power and heat, a Dallas County judge has taken steps to ensure consumers aren’t subjected to further stress when they order meals from restaurants. But his action, some warn, could have “perverse economic effects,” particularly on small businesses.
Judge Clay Jenkins issued the disaster declaration to prohibit price gouging on food and other essential products. His order states that “no person shall sell any of the following goods or services for more than the regular retail price the person charged for the goods or services on Feb. 11, 2021, except where an increased retail price is the result of increased supplier or other costs.” The order applies to restaurants as well as grocery stores, hotels and similar businesses. It is effective until it is rescinded or “expires by operation of law.”
“If you are raising your prices tonight, shame on you,” Jenkins said in interview on Feb. 15. “Now is a time for us to come together; it’s not a time for anyone to profit. This is a very, very serious situation.”
Jenkins said he had not personally heard of recent cases of price gouging. However, previous crises have given rise to allegations of that sort of behavior. “Dallas is booming with price gouging complaints,” said a Dallas Morning News article from last March, during the early days of the pandemic.
No one would disagree that Texans are facing a dire situation. But libertarian think tank Cato Institute the next day issued a statement claiming that “anti‐price gouging laws like this have perverse economic effects.”
Rising prices due to a disrupted supply chain, Cato argued, represent “important financial incentives: a rising price provides more of a reason for existing and new suppliers to overcome the difficulties the snowstorm has brought to ensure their stores remain open, production continues, suppliers make sufficient deliveries, or goods in warehouses are brought to market; the rising price, meanwhile, rations goods to those who really value them, preventing over‐purchasing and hoarding.”
Suppressing these “price signals,” Cato said, will “ensure worse shortages of the goods” and discourage businesses from making provisions such as buffer stocks to carry them through future emergencies. “Capping prices like this deters these sorts of investments that help enhance an economy’s resilience to future shocks,” it said.
Measures to freeze prices are especially difficult on “smaller, local firms” during a regional crisis. “For these businesses and types of crises, the price controls dampen any supply response, worsening overall availability,” Cato said.
Whoever is correct in this debate, let us all hope the weather-related crisis in Texas is soon brought under control.