Price Gouging After A Disaster

[Pappy]

While a disaster like Harvey brings out the best in people as evidenced by the reports of all the volunteers putting themselves at risk to help and the massive fund raising efforts in a relatively short time it also brings out the worst in others. Reports are coming in of motels charging up to 6 or 7 times their normal room rates, gas at $20 a gal., water at $99 a case / $5 a bottle. The list goes on and includes everything from that people need to survive. In Texas, as in many states, there are laws against this. Inflating prices more than 10% above recent averages (I think I read or heard that is for the previous 3 months) is a violation of the law. Fines can be up to $20,000 per incident. If the victim is over the age of 65 the fines can be as much as $250,000. One franchise motel was caught on 40 cases of charging almost 3X the normal rate plus collecting state taxes that had been suspended by the governor. Best Western condemned the action and said they will pull their name / association with the owners.

While I understand there may be some added expenses to keeping a business open and bringing in supplies during times like this I hope our AG goes after the obvious, extreme cases of people taking advantage of the situation for a fast buck. If they can't pay the fines shut them down and take the inventory to put it into the relief effort.

I was stationed in South Carolina when Hugo hit Charleston. The mayor ordered any outsiders selling items at inflated prices be arrested and everything confiscated. The stuff taken was turned over to government agencies or charity organizations for distribution. One incident that made the news was a truck load of generators. He did get the empty truck back. When they moved outside the city's ETJ the governor announced the he would continue the policy.

[woodturner]

In Texas, as in many states, there are laws against this. Inflating prices more than 10% above recent averages (I think I red or heard that is for the previous 3 months) is a violation of the law.

While I understand the concern and sentiment, I've never really understood how government can regulate prices. Basically our system is that a person can set their own prices for their products. Not sure why, in these cases, the government things they can set prices for unregulated markets, and whether that is even legal or constitutional.

It also raises a practical question - the laws discourage people from going to extreme effort to provide products, because they cannot legally recoup their costs or make enough profit to make it worthwhile. Is it better to have $20/gallon gasoline or no gasoline at all? If the government says you can't sell gasoline for more than $4/gallon, and it costs $6/gallon to get it to the gas stations by trucking it in from further away (real numbers, cousin works for a gas distributor), no one will bring in the gasoline.

It's a difficult issue.

[Pappy]

In your example selling gas for $20 a gal that cost $6 leaves a profit of $14. Take another $2 off for operating expenses and you still have a 200% profit. That is taking advantage of people in need from a disaster. I don't see the AG going after someone that added their normal mark up to a product that cost them more to buy. What becomes a crime is the cases I mentioned like the water and over inflated room rates.

[leehljp]

WT, you bring up a valid issue. However in my experience in working in disaster areas and with people who work in disaster areas, that situation usually leaves out an important point. The price gougers are not there to provide a service and make a profit, they are there to take advantage of people in need before they get caught. There are usually more than enough help, generators, water, gas for emergency two or three doors away or no more than an hour or mile away at the most. The gougers are there seeking people who do not know this. They like to keep an hour or a mile in front of the ones who can help. The gougers know this and this is what they do. The deliberately prey on people's ignorance of their real circumstances in most cases.

Working with Disaster Relief (DR) efforts of a large organization (who was seen and spoke on national TV along with the current President just yesterday), and I am certified with this organization in two areas of DR - that is also recognized by FEMA - I have worked on mud out crews who do this for free, and listen to the people next door weep as they signed $4000 - $5000 and one family signed $10,000 in contracts for cleanup crews. The free ones (DR teams) finished as fast and met the FEMA regulations for striping out sheetrock, insulation, pressure washing floors with approved dis-infectant cleaning - beyond what was minimally required by regulations.

Early DR work goes on almost next door with people who gouge and the victims don't know it. The gougers do, and they do it knowing that the needy can get the same help for little over cost at the most, or for free in most cases, if they spend 30 minutes checking. Kinda like the door to door salesman that promise, "this is your one and only chance, can't get it tomorrow" - taking psychological advantage of the misfortunes of others, when free and quality work, material is next door. We gave away food, water, provided generators for several days where needed in some cases, provided transportation for days in other cases, and many many churches provide free housing along with (in our case) a large house (no rent) for 6 months for 2 families to live in. They did pay the utilities but it wasn't required. Many churches and some organizations do this type of work to help others out. But, after a contract is signed at the most the company can get without looking totally gouging, the people are hooked.

Gougers are there solely for the profit advantage in and of itself, they are their because they think and know that they can take psychological advantage of the situation. And believe me, I have heard their lies and scare tactics to get people to pay the exorbitant prices. And free quality help is 5 to 30 minutes away.

[cwsmith]

I have no understanding, or patience, for anyone who takes advantage over another for nothing more than their own profit. Maybe it's just the way I was brought up or the way I view the world. Selling water or gasoline or anything else at such exorbitant prices is plain and simple theft, if not worse. It isn't a matter of government regulation or intervention to prohibit such behavior, it's a matter of humanity.

Sure it might cost someone to bring in such supplies to meet the survival demands of someone, and certainly it would be nice to recover those costs, if possible; but, having the ability to overcome logistical challenges and meet such demands I would think would be a great motivator all by itself... that's what "help" is all about. Does one own a boat, spend whatever in fuel and material, and their bravery to go into the midst of disaster to save someone, only to pull up at the roof's edge and tell them that they want their wallet first? I don't think so!

CWS

[woodturner]

I have no understanding, or patience, for anyone who takes advantage over another for nothing more than their own profit.

You mean like all businesses? One could argue that "taking advantage over another for nothing more than their own profit" is the purpose of a business.

If we did not have the profit motive, we would not have the economic prosperity and economic growth we enjoy.

My suspicion is that you "overpay" for many things and don't mind, because you don't know. If you knew that the seller was making a 200% profit on your cell phone or a 300% profit on your car or a 200% profit on your groceries would that be "gouging"?

That's the question I'm struggling to figure out in my own head - why does a natural disaster make essentially normal business practice "gouging"?

[woodturner]

WT, you bring up a valid issue. However in my experience in working in disaster areas and with people who work in disaster areas, that situation usually leaves out an important point. The price gougers are not there to provide a service and make a profit, they are there to take advantage of people in need before they get caught.

Thanks for the comments, that's interesting information. I was aware of some of it - my denomination sends teams to help with cleanup for example - but had not thought about it quite in that context.

Still contemplating, though, how "normal" sales tactics become "wrong" in the context of a natural disaster. Kind of relates to another question I have been considering, whether the government should help those who did not buy flood insurance. A lot of people apparently did not buy flood insurance because it was "too expensive" - but high cost for flood insurance is a red flag that one is in a flood area. It's a choice those people made, and the consequence is that they don't have coverage when the flood happens. Is it really fair or equitable to charge the rest of us for the choices they made?

On the other hand, Jesus taught compassion for others, and I feel called to help. I think where I am heading on this is that aid should be provided through private organizations such as churches rather than the government.

[cwsmith]

You mean like all businesses? One could argue that "taking advantage over another for nothing more than their own profit" is the purpose of a business.

If we did not have the profit motive, we would not have the economic prosperity and economic growth we enjoy.

My suspicion is that you "overpay" for many things and don't mind, because you don't know. If you knew that the seller was making a 200% profit on your cell phone or a 300% profit on your car or a 200% profit on your groceries would that be "gouging"?

That's the question I'm struggling to figure out in my own head - why does a natural disaster make essentially normal business practice "gouging"?

WT,

I could see where this might rapidly turn into an argument and I don't think we want to go there. "Business" is business of course and it's sole purpose, no matter what the product or service, is to make money... profit is the motivator to anyone truly understanding business.

But let's not think for one moment that profiting from normal business and profiting from someone's pain and suffering in the face of disaster is the same thing... NOT when survival is at stake. Sure, everybody in the business of home building, renovation, restocking will make their normal profits from doing business to restore the area. Lumber and building supplies will see increased sales, as will everybody selling appliances, carpeting, televisions, clothes, and practically every other need of the consumer. Nobody is expected to give away any of these consumer needs. So to will a certain amount of price increases because of the laws of supply and demand. Even way up here in the NE, we're seeing gas prices increase by 30- and 40-cents a gallon.

But that is entirely different than those vultures who descend on the calamity with limited supplies at exorbitant prices in order to take advantage of the survivors, like buzzards feeding on the dead and dying. Unlike "business", in these situations there is no competition, no choice of going elsewhere, no choice whatsoever but to buy or possibly die.

But even in business, everyday business, there's rules against gouging; and where there are no actual regulations, there is reputation and competitiveness that will kill your business when the word gets out. In other words, there's a choice you make as a provider and a choice I make as a buyer. Lack of wisdom and fairness on either part has it's consequences. Hence, "Gouging" is not "normal business practice"!

Regarding my cell phone, car, and groceries... well those profits are no where near what you are thinking. I pay a $100 a year for my cell phone, my car was competitively priced, and well the groceries, one does need to shop around... but paying $4.00 a pound for a piece of beef that took a number of years to feed, hours to butcher, and hundreds of miles to ship, I guess I can't complain.

Respectfully,

CWS

[woodturner]

I could see where this might rapidly turn into an argument and I don't think we want to go there.

Not at all, just trying to logically understand differing views.

But that is entirely different than those vultures who descend on the calamity with limited supplies at exorbitant prices in order to take advantage of the survivors, like buzzards feeding on the dead and dying. Unlike "business", in these situations there is no competition, no choice of going elsewhere, no choice whatsoever but to buy or possibly die.

Why is there no competition? It seems to me there is still choice - Hank mentioned several options for cleaning up, for example.

But even in business, everyday business, there's rules against gouging

Can you think of an example? I'm not aware of any "anti gouging laws" in everyday business.

Regarding my cell phone, car, and groceries... well those profits are no where near what you are thinking.

I used those examples because I have first-hand knowledge of the profits, having worked in those industries.

Your cell phone plan example may be even a better example, though. One can buy literally the same service, provided over the same network, from multiple MVNOs or the carrier itself, at prices ranging from $10 to hundreds of dollars a month. The $10 offering suggests that the cost is less than $10 to provide the service - so is the carrier offering that service fro $120/month gouging?

Another example - diamonds. Cost to "manufacture" a 1 C diamond is less than $100, retail cost is thousands - at least a 1000% profit. Is that gouging?

Another example - art and woodworking. David Ellsworth gets thousands for his work, but it takes maybe a day and $20 worth of wood to produce. Is it gouging if he charges 5,000 times his cost?

I have a lot of questions, I just haven't been able to find objective or good answers.

[cwsmith]

I understand, you're just looking for explanations. Nothing wrong with that.

Perhaps you do know more about the grocery business than I, as I haven't worked in that. But I have heard from several sources, including relatives that have worked in grocery store management that the profit margins are pretty slim for a variety of items. The 'make-up' is on other products to offset the slim or no margin products. I don't know which is which and of course one has to take into account the so-called middle-men' of shipping and supply. But still, things are not always as they seem and it takes some accounting to really know if pricing is unfair. Personally I don't see a lot of millionaires working in grocery management.

But let's focus on the "gouging" aspects of disaster. When the water is up to your neck or the buildings have fallen down to your knees, and there is no longer the infrastructure for which we daily live, there are certain things that are essential. Water being probably the most needed as we humans don't survive more than a very few days with out it. A bottle of water, the one here on my desk is 17.9 ounces, is pretty cheap, less than a dollar. But in the midst of a disaster, the stores no longer have water, your spigot no longer works or if it does, it may not be safe to drink. A guy pulls up in a truck and offers you that same bottle for $10 or more....sometimes much more! That's gouging! He's the only guy in the area, there's no competition and he **** well knows it. YOU NEED IT and he knows that, and thus his chance to make a huge profit on your misery and prehaps even survival. What did it cost him to drive buy the load, drive into the area? Surely it is no where near what he is charging. Tomorrow another truck may arrive from the Red Cross or the government... but maybe not too. Do you wait or do you pay the scoundrel.

Or let me put it another way.... You and take a trip together and as we cross one of those southwestern dessert areas, the car overheats and we're stuck. "No sweat I tell you", I've got a case of water in the trunk, how about you? "No", you say! "Not a problem, I'll sell you a bottle of mine for twenty bucks!"

Hey, it's not like I'm taking advantage, it's just like I ought to make a good profit on this once in a lifetime opportunity... afterall, you'll probably never make a trip with me again.... even if you survive!

I'll have to admit, there probably is a lot of gouging going on.... but wheres the difference. I don't think things are as simple as you have portrayed. An industrial diamond might take $100 to make, if you don't count the machinery and the science that went into it. But a diamond that is mined is far more expensive to come up with. David E might well charge well beyond what he has invested in time and material to make, but you are discounting his talent and the years that it took to hone that or whatever equipment that he may have invested in. But as with many things, you don't have to buy it, like you would much needed water when you've been without it for a couple of days.

CWS

[leehljp]

Gouging takes place across many industries and products. That is a given. In the every day market place, competition and demand becomes the qualifier.

When it comes to health and life, then rules or laws similar to monopoly laws often exist. There is no specific rule that you can't buy a pharmaceutical company that owns the full rights to the epi-pen and then up the price to $500 or $1000 per pen. But Congress is dealing with it, if I remember correctly.

When it comes to health and life, there enters a humane aspect. Can we as humane and decent citizens - who will go and donate our time and give away truck loads of bottled water (two of our local town organizations sent two truck loads of bottled water today) - can we or do we have the authority or do we have the gumption to bring enough pressure down to prevent it? Can we or should we? This is life and health and even death we are talking about. The gouging in these cases is inhumane: cruel, harsh, brutal, callous, sadistic; merciless, ruthless, pitiless, remorseless, cold-blooded, heartless, hard-hearted, dastardly; unkind, inconsiderate, unfeeling, uncaring - to name a few descriptions.

Civility and Society is caring for those in need rather than taking advantage of the weak. Gouging is not much above the dark ages in civility.

[haloway13]

I understand, you're just looking for explanations. Nothing wrong with that.

Perhaps you do know more about the grocery business than I, as I haven't worked in that. But I have heard from several sources, including relatives that have worked in grocery store management that the profit margins are pretty slim for a variety of items. The 'make-up' is on other products to offset the slim or no margin products. I don't know which is which and of course one has to take into account the so-called middle-men' of shipping and supply. But still, things are not always as they seem and it takes some accounting to really know if pricing is unfair. Personally I don't see a lot of millionaires working in grocery management.

But let's focus on the "gouging" aspects of disaster. When the water is up to your neck or the buildings have fallen down to your knees, and there is no longer the infrastructure for which we daily live, there are certain things that are essential. Water being probably the most needed as we humans don't survive more than a very few days with out it. A bottle of water, the one here on my desk is 17.9 ounces, is pretty cheap, less than a dollar. But in the midst of a disaster, the stores no longer have water, your spigot no longer works or if it does, it may not be safe to drink. A guy pulls up in a truck and offers you that same bottle for $10 or more....sometimes much more! That's gouging! He's the only guy in the area, there's no competition and he **** well knows it. YOU NEED IT and he knows that, and thus his chance to make a huge profit on your misery and prehaps even survival. What did it cost him to drive buy the load, drive into the area? Surely it is no where near what he is charging. Tomorrow another truck may arrive from the Red Cross or the government... but maybe not too. Do you wait or do you pay the scoundrel.

Or let me put it another way.... You and take a trip together and as we cross one of those southwestern dessert areas, the car overheats and we're stuck. "No sweat I tell you", I've got a case of water in the trunk, how about you? "No", you say! "Not a problem, I'll sell you a bottle of mine for twenty bucks!"

Hey, it's not like I'm taking advantage, it's just like I ought to make a good profit on this once in a lifetime opportunity... afterall, you'll probably never make a trip with me again.... even if you survive!

I'll have to admit, there probably is a lot of gouging going on.... but wheres the difference. I don't think things are as simple as you have portrayed. An industrial diamond might take $100 to make, if you don't count the machinery and the science that went into it. But a diamond that is mined is far more expensive to come up with. David E might well charge well beyond what he has invested in time and material to make, but you are discounting his talent and the years that it took to hone that or whatever equipment that he may have invested in. But as with many things, you don't have to buy it, like you would much needed water when you've been without it for a couple of days.

CWS

Prices help markets determine what should be provided. If someone is actually able to make large profit it signals others to try to partake in the profit. To do so they must compete. Furthermore, a high price that is paid is done voluntarily. What risk is taken to provide the good to be sold? If I must have a specific good but it can't be had because it is illegal to make profit allowed by the market or government limits the price then even people that don't really need can get in line ahead of you and keep you from getting any at all. Yeah it might suck to experience such need, but it is worse if you can't get it at all at any price.

Sent from my A0001 using Tapatalk

[leehljp]

Prices help markets determine what should be provided. If someone is actually able to make large profit it signals others to try to partake in the profit. To do so they must compete. Furthermore, a high price that is paid is done voluntarily. What risk is taken to provide the good to be sold? If I must have a specific good but it can't be had because it is illegal to make profit allowed by the market or government limits the price then even people that don't really need can get in line ahead of you and keep you from getting any at all. Yeah it might suck to experience such need, but it is worse if you can't get it at all at any price.

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Your assumptions is based on normal situations, not life and death situation. Civility/community is the ability to live in society - and learning HOW to live with one another in hard times as well as good times. Hard times - Good times, prices fluctuate, but in life and death situations, things change and community/compassion takes over to help one another.

Furthermore, a high price that is paid is done voluntarily.

This foundational assumption of what is wrong with gouging. It is not done voluntarily, it is done under extreme duress, and there is only a matter of a very few degrees between that and being robbed at gun point. When a life is at stake, yes they will pay voluntarily, just as a man give over his wallet voluntarily at gun point so that he won't get shot. One can argue just as strongly that the money handed over at gun point is "voluntarily" since he didn't fight.

Where is the humanity in gouging instead of helping in times of dire needs? Gouging is not about providing services, it is about taking advantage of people in dire circumstance. So why doesn't this person offer these items at those prices when there iS NO disaster? No one will buy it! Therefore, it is simply taking advantage of the life and death situation to make money that can't be made at any other time! This is when we see if we are really humane in our thought processes or not. I am working with individuals/ lower class and lower middle class at this writing that purchased tons and tons of water, basic canned foods, baby food and a couple of truckers (independent) who donated time to ship these items several hundred miles to GIVE AWAY to those in need, right beside people who will gouge at the drop of a hat.

[haloway13]

You get more service provided for the greatest in need when free from regulation AND rent seeking. "Price gouging" vs "Just recompense" is really a matter of perspective.

This section on wikipedia is on point: https://en.wikipedia.org/wiki/Price_..._price_gouging

Charity to disaster areas is best delivered with capital. Individuals can then decide on how to best spend it.

Check this talk out: http://www.econtalk.org/archives/201...l_matheso.html

And specifically on gouging: http://www.econtalk.org/archives/200...n_price_1.html and

http://www.econtalk.org/archives/2012/11/munger_on_john.html

I understand your outrage but I challenge you to hear those 2 shows out.

--Tim

[leehljp]

Lets put this into perspective - from reality.
The assumption of price gouging is not based on the reality of disaster needs, although it uses "disaster" needs to try to validate it. It is based on greed of a few. I was surprised at the writers of your researches. They are all based on pure economics. Not about humanity. IN fact when humanity and humaneness enter the equation, the pure economics loses its power and purity of model. Did those guys write about that?

(So you are saying that if your daughter, or grandmother had her life savings in her hands, you would be happy for me to take that from her for a 2 dollar bottle of water? After all it is only money.) Purist models of gouging ignores morality issues and feeling issues, i.e. not reality.

I originally posted this above:

So why doesn't this person offer these items at those prices when there iS NO disaster?

First, no one will buy at the jacked up prices during normal times! That puts the onus (for the reason) squarely on the fact of taking advantage of those under duress, stress and who have no recourse. The gouging model doesn't stand up or work in a civilized culture except for those few whom the gougers can catch unsuspectingly or those under extreme duress.

Cases in point - which TOTALLY contradicts the

"You get more service provided for the greatest in need when free from regulation AND rent seeking." model.

30 miles from where I live is a very successful barbecue restaurant. A cousin of mine is half owner. His mom lives a block from me. He has won BBQ contest all around the States, in Canada and in Australia. Almost every time there is a hurricane or tornado with destruction and homes lost from Ohio to Missouri, to Oklahoma, to Texas to Florida (and other points in a two day drive), He and a crew of volunteers load his trucks up and drives to the area and provides free meals, handing out 5000 in one place, 10,000 in another and over 50,000 in another. He gets huge amounts of free pork and beef for these BBQs from major meat packing companies. (The companies get a tax deduction and they get advertisements) for these donations.

There are many other people who do the same. I am certified with an organization, that until Katrina had the largest disaster times meal provision in the US. We had cooking/feeding trucks that could be hauled to locations in 24 hours. This organization could feed 10s of thousands of people in a day - free, and it did. This totally contradicts the statement:

"You get more service provided for the greatest in need when free from regulation AND rent seeking."

Our organization fed thousands of policemen, firemen and construction workers at the cleanup of the Twin Towers for well over a year. No gouging, no profit wanted, no charge, all donated by volunteers. AT Katrina, major companies finally realized how much advertisement and tax deduction they could get through support of feeding stations. At that point, with the idea that more people, companies and organizations were joining in on the feeding, our organization moved towards a different model. We still do feeding stations (feeding thousands for free, daily, where needed) we focus on TRAINED & CERTIFIED chain saw crews to clear roads, clear driveways, cut down trees leaning on houses - for free, by volunteers. The feeding crews and chain saw crews are among the very first groups sent in - with the backing from FEMA. We provide free mud out, stripping out wet sheet rock, wet insulation, disinfecting at the same time - right next door to gougers taking advantage of the unsuspecting. And our volunteers are certified at what they do with FEMA and other tough regulations. We do blue tarp on roofs. WE have certified children care workers that have been "checked out through law enforcement agencies" - that we send into these areas and they work for free. I know local companies who have donated all kinds of tools and several thousand dollars in generators and pressure washers to be used in flood situations. All the while a gouger is looking for the unsuspecting, unknowing, under extreme duress family or elderly to gouge - just down the street from the volunteers who are certified through hours and hours of training. This is where civility, humaneness trumps the gouging model.


The gouging model only works when people do not care about others - but only money. The idea proposed in gouging models do work - if in a pure model without "caring" people. But with caring people, the humane nature will kill the model with free services. The problem with the pure gouging model is there is no morality in it. Where there is no morality or humaneness/caring, the purist model turns into anarchy. It doesn't last. That purist model is not pure at all in reality, only on paper.


All that I can say is that this army of trained and certified volunteers trump the purist model of gouging. And it works.