Policy Assignment

Question: Should the federal government impose a price ceiling on essential items such as bottled water during an emergency such as Hurricane Sandy?

The attractiveness of price controls is understandable, especially to the general public. And when it comes to necessities during a national emergency/natural disaster/catastrophe, it invokes something within us that’s on a whole other level. What should be done? Should price control policies be put into place? After all, it would be unethical for suppliers’ prices to rise on goods that people need to survive!

            First of all let’s address the pros on setting a price ceiling on essential items during a disaster: potential lower prices (in actual dollars) …for the people that receive the goods and services before they are gone.

            Now that we’ve addressed the possible pro of a price ceiling, I’ll give you multiple reasons why it’s not successful. Initially, as any economist will tell you, price ceilings create shortages. Plain and simple. When prices are kept artificially low, demand will exceed supply causing a shortage. Historically, this has also created a rise of scarce items being sold on the black market. “Black markets are typically common when price ceilings are imposed, but the prices here are generally higher than what the price of the good would have been in a free market.” (Smith) Also, a price ceiling would hamper any incentives for the people providing the goods and services because let’s face it – they’ve probably got disaster-related problems of their own.  Third, what is the actual cost of, for example, a gallon of gas? Let’s assume the free-market price of gas after a disaster would be $12/gallon, but is controlled at $4/gallon. Let’s also assume that Sally’s time is worth $10/hour. If she waits in line one hour for a gallon of gas, she has “paid” more with the price ceiling in effect than if the market was dictating the prices. “The cruel irony is that any “benefit” for those we are trying to help is frittered away because people who aren’t allowed to pay for something with their money will pay for it with their time. Passing a law doesn’t change what someone is willing to pay, but it changes how they pay.” (Carden)

Finally, “price controls [also] create shortages because they eliminate the market’s way of telling people to conserve scarce resources.” (Carden) A natural price increase would push consumers to economize on their purchases. “Freely moving prices make sure resources are allocated to their highest-valued uses, and rising prices send people a very important signal: resources have gotten scarcer and need to be conserved. If houses are destroyed by a tornado, rising lumber prices will tell someone in an unaffected area to think twice about building a new deck because the lumber is probably more valuable rebuilding houses. Rising gas prices tell people to think twice about burning scarce gas for a Sunday drive in the country.” (Carden)

In my opinion, the costs of price controls exceed the benefits. When thinking about the surface issues of the question “should the government impose a price ceiling on necessities during emergencies” my heart wants to immediately say “yes.” But when taking into account the short and long-term consequences it would do more harm than good. In events of disasters, I feel that by inhibiting the price mechanism from functioning, we only make disasters worse than they already are.

Works Cited

Smith, John. “The Maximum Price: A Price Ceiling.” Objectivist Blogger. 8 April, 2011. Web. 31 Jan. 2013. http://objectivistblogger.com/2011/04/08/the-maximum-price-a-price-ceiling/

Carden, Art. “Price Gouging Laws Hurt Storm Victims.” Forbes.17 Jun. 2011.Web. 31 Jan. 2013. http://www.forbes.com/sites/artcarden/2011/06/17/price-gouging-laws-hurt-storm-victims

Carden, Art. “Price Controls Create Man-Made Disasters.” Mises Daily Index. Ludwig von Mises Institute. 25 Jun. 2008. Web. 31 Jan. 2013. http://mises.org/daily/3025