Hurricane Recovery Price Gouging

Finally, detailed news reports from south Florida are coming out as the media is allowed access to the areas most affected by Hurricane Charley. Among the heartbreaking stories of death, injury, and loss of property, are amazing tales of miracles and of survival. For instance, did anyone see the story on the Weather Channel about the large aquarium found intact, filled with water and fish, still standing upright on the second floor of a demolished house?

All of the political pundits have had their say about when and if President Bush should have visited the damaged areas and how much the visit would affect his political stock. And of course there is also the latest round of expressions of outrage from the politicians, media, and bleeding heart liberals decrying tactics of “price gouging.” Governor Bush and the Florida Attorney General are even threatening the arrest and prosecution of anyone caught “price Gouging.”

I must admit that my position on price gouging has changed 180 degrees over the past 20 years as my political and ideological beliefs changed from those based on feelings and emotion to beliefs based on facts and logic. I know you left wingers out there are going to have your head spinning around as I attempt to address this topic, so, in an attempt to be “fair and balanced” (sorry FOX news) I’ll just go ahead and express your description of me—how about “insensitive” and “selfish” or even “ignorant” and “stupid?”

Any way, let’s look at pricing policies in a free market economy. Take hotels, for instance. In most states, hotels are required by law to publicly publish the minimum and maximum prices (usually located on the back of the room door) that they can legally charge for a given room. For instance, in Myrtle Beach, South Carolina I have paid $49 per night in cold, rainy January for an ocean view two-room suite with a hot tub. At that time of the year the overnight hotel occupants were a few retired couples, the front desk clerk, and myself. This same room, according to the room rate card, would rent for $250 per night in July.

In New Orleans, in February, before Mardi Gras, I’ve rented a room on Dauphine Street, one block off of Bourbon Street, for $79 per night. I also have had to reserve that same room an entire year in advance in order to have it for the four evenings preceding Fat Tuesday and at that time it cost me $300 per night. Likewise, in Panama City Beach, Florida I’ve rented an oceanfront room on New Years Eve for $99 per night that rents for $275 per night in July.

What is the determining factor in the room pricing? D-E-M-A-N-D! Can I hire the media and a politician or two to go down to Myrtle Beach with me on the 4th of July and share my outrage and threaten to arrest the hotel owner because he won’t allow me to rent a two-room suite with a hot tub for $49? Or maybe the Mayor of New Orleans and the editor of the Times-Picayune will support my case for getting a $79 per night room on Bourbon Street for a few nights before Fat Tuesday.

Real estate, tickets to sporting events, concert tickets, beach towels, bathing suits—you name it, seasonal/situational demand and availability are the determining factors in setting the market price of a given commodity.

So now let’s change the product and the circumstances with another example. Suppose I live in Atlanta and run a moving company. Business is slow, it’s the middle of the month, and a hurricane hits south Florida. Seeing a business opportunity, I decide to take a dozen of my trucks, borrow a quarter million dollars, and put fifty thousand of my own money up to finance the purchase of plywood, tarps, chain saws, and generators. I buy $15,000 worth of fuel to fill up the tanks on the trucks, and then I pay a couple dozen of my employees to drive my trucks and me from Atlanta down to ground zero at Port Charlotte, Florida. I also buy insurance on my inventory, I pay my employees salary and per diem, and I buy a local business license in every location in which I intend to operate. Everything is legal and on the up-and-up.

Upon arrival in Florida, I secure a place to park my trucks and I put my entire inventory up for sale—at prices equaling three to five times what I paid for it. That ten-dollar tarp now will cost you fifty dollars. That $250 chain saw now costs nine hundred dollars. A $15 sheet of plywood is $50 and a $350 generator is $1250. By the way, the local Home Depot and Ace Hardware had their roofs blown off and have sold out of undamaged chain saws and generators. Boy will everyone be glad to see us, right?

Wrong--you balding, arrogant, white libertarian. “Price gouging” cries the press. “We’ll arrest you and sue,” cry the politicians. “Why,” I ask? What am I doing in my pricing policies that aren’t equal to the pricing policies set by the hotel operators, sports arenas, and retailers? No one is holding a gun to your head to make you pay my price, are they? If my products weren't made available by my efforts and expenses, there would be no products to buy. As I stated earlier, price, in a free market economy, is set by product availability and product demand. It’s just that simple.

Yes, if I were the Red Cross or just a charitably minded individual I could sell these items at cost or even give them away. And I might just choose to share my profits by donating a few units of each product to truly needy individuals. But the truth is, I’ve personally had a hard year, business has been slow, and I need to make some real money to catch up on my own bills and keep my family fed. Let the churches and FEMA take care of the needy.

Beyond the emotional, kneejerk reaction of villifying making a profit off of disaster victims, here is the underlying topic that no one wants to talk about—an issue that permeates much of our society here in the United States. Almost every single one of these poor, damaged, displaced, wounded individuals and families made a conscious decision to live in a coastal region where they knew they were potentially subject to the winds and flooding related to hurricanes and tropical storms. They could have lived and worked further inland, bought a retirement home in a state other than Florida, or whatever. Then upon buying a home, they could have looked into the new building codes and made modifications and improvements in order to meet the increased standards.

In addition, almost every single family had months, if not years, of opportunity to prepare for the potential aftermath of a storm by buying a small chain saw, an appropriately sized generator, and a half dozen tarps at a total cost of not more than $1,500. This prudent investment in emergency equipment could have been stored, along with their other emergency supplies (canned food, bottled water, first aid kit, radio, flashlight, batteries, etc.,) in their home and packed with them in their vehicle when and if they evacuated the area.

Unfortunately, in many cases, these individuals and families choose to not purchase these items, as they often also CHOOSE to not purchase adequate health insurance, flood insurance (government subsidized—by the way), life insurance, and other of life's essential "non-essentials." New cars, expensive tennis shoes, and Disney vacations all took priority over disaster preparation. In essence, they “gambled” on not needing these necessary "necessities" and they lost, big time. Now they find themselves paying the current real cost of these items, based on the current real market value and they are looking for someone else to blame.

The sad thing is that many, if not most, of them will make the same mistake again. And even worst, many others will follow their plight in the media and will not learn a single thing from their tragedy. Wake up people!