Herring Substitutes Emotion for Logic in Price-Gouging Case

Face masks? You want face masks? Have we got face masks.

by James A. Bacon

Attorney General Mark R. Herring has joined 30 other state attorneys general in filing an amicus brief in a federal appeals court to support the right of states to enforce price-gouging regulations against Amazon retailers.

National and local emergencies, such as the COVID-19 epidemic, create shortages of essential items, says a press release from Herring’s office today. State price gouging laws are necessary to ensure that goods can be “fairly allocated” among residents and prevent “bad actors” from profiting from the shortages.”

“The COVID-19 pandemic has highlighted just how unscrupulous some businesses will be in taking advantage of a situation like a public health crisis to try and make more money,” said Herring. “It is critical that each state has the ability to protect its consumers and enforce its own price gouging laws during emergencies to make sure all consumers have the same access to essential goods.”

Nobody likes price gougers. Everyone reacts with disgust toward profiteers who exploit the insecurity and suffering of others in a time of crisis to make a quick buck. The only people worse than price gougers are… the people who would sve us from price gougers.

It’s a shame most law schools don’t teach economics. Economic illiteracy leads to bad law and bad public policy. What Herring and his fellow AG fail to appreciate is that higher prices for a product (1) encourage consumers to use less of it, and (2) incentivizes producers to supply more of it. Squelching price signals does nothing to reduce demand, increase supply, or even ensure that the product in question is distributed more fairly or equitably.

The controversy arose when the Kentucky Attorney General’s Office began investigating several Kentucky-based retailers for prices they charged for food, medicine, cleaning supplies and other household essentials. The Online Merchants Guild, a national organization, filed suit arguing that Kentucky’s price-gouging ban was unconstitutional when applied to online sales. Ruling in the Guild’s favor, a federal judge entered an injunction preventing Kentucky’s AG from enforcing the regulations against Amazon retailers. Then, when the lawsuit was elevated to a federal appeals court, a bipartisan coalition of state AGs, including Herring, filed a brief siding with the Kentucky AG (David Cameron, a Republican).

States the Herring press release:

The coalition emphasizes that price gouging laws level the playing field and ensure a more equitable distribution of goods to high- and low-income consumers. The attorneys general state that price gouging protections have been particularly necessary during the pandemic, which has caused financial instability for millions of Americans and created and threatened shortages of essential goods. Furthermore, regulating price gouging falls under states’ responsibility to aid vulnerable consumers during an emergency.

The Virginia’s Consumer Protection Section has received more than 500 consumer complaints and inquiries regarding suspected price gouging during the COVID-19 state of emergency. The AG’s Office has sent out more than 150 letters to businesses demanding that they cease their practices.

Herring’s press release acknowledges, however, that the phenomenon of rising prices is complex: “Investigation of these complaints has revealed that many retail businesses claim that price increases occurred further up the supply chain with manufacturers or distributors, making it more difficult to address the problem at the retail level.”

In April Herring urged 3M, a major mask manufacturer, to “do more to address price gouging” within its supply and distribution chains that was causing hospitals and healthcare providers to pay exorbitant prices for PPE. He recommended legislation to expand Virginia’s anti price-gouging act to manufacturers and distributors that charge “unconscionable prices” during a state of emergency.

OK, that’s Herring’s argument. Here’s the economic logic….

When people panicked this spring about COVID-19, they began hoarding everything from toilet paper and hand sanitizer to masks. Everyone acknowledges that hoarding was a huge problem. Rather than going to where they were needed most, large volumes of these essential products were being stuffed in homeowner pantries. Consumers were creating the shortages, not retailers. Judging by their silence, Herring and his fellow economic illiterates (sadly including some Republican AGs) apparently find no fault with this behavior.

By making it legally riskier to raise prices in response to shortages, economic logic tells us, active enforcement of anti-price-gouging laws arguably would have the unintended consequence of undercutting the only force discouraging hoarding. Higher prices, you see, raise the cost of hoarding. It’s a trivial cost to stuff your closet full of toilet paper at $1 a roll but quite a different calculus at $5 a roll.

Higher prices had another beneficial effect: It encouraged entrepreneurs and innovators to figure out how to increase the supply.

Distillers switched from making liquor to making hand sanitizer. Spurred by temporarily high prices, many others jumped into the market. Query Amazon, and you’ll find more than 3,000 results for “hand sanitizer gel.” You can purchase gel in 8-ounce bottles or gallon jugs, with pumps or without, infused with aloe or jojoba oil, with citrus flavors or manuka honey. The varieties are endless.

Other entrepreneurs got into the business of designing and sewing masks. Query Amazon for “COVID-19 face masks,” and you’ll get more than 1,000 results for masks of all sizes, shapes, colors, price points, and designs for highly specialized uses. A triangle face scarf with ear loops now retails for $6.99. For $15.88, you can purchase an “outdoor cycling neoprene camo mask with changeable … anti-pollen allergen filters.” 

What is the alternative to allowing the free market to work its magic? The AGs don’t tell us. But I will. If prices are repressed, retailers and distributors use other criteria to determine who gets access to the desired goods. Typically, they will favor customers with connections, such as a friend, crony, or someone who can offer something non-monetary in return — like, who knows, football tickets or dinners at fancy restaurants. Even assuming that one could agree on the definition of “fair,” the AG’s offer no mechanism to ensure that scarce goods are “fairly” allocated.

Had Herring and his cohorts had their way in stifling “price gouging,” supply shortages could have been worse and longer lasting than they were.

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21 responses to “Herring Substitutes Emotion for Logic in Price-Gouging Case

  1. Herring could not care less about price gauging. He is after publicity for his run for governor. In so doing for years now he has turned the Virginia Attorney General’s office into a political operation that promotes and then enforces promoted laws for his own political advantage over others, spending public monies to buy votes. Given his long record to date, this is indisputable. He’s been doing it everywhere, from energy, to employment, to education, and health.

    • But he’s not running for Guv, but instead now seeking a third term as AG. Bet not the farm he will get that chance….

      Yep, the pandemic market was quite an economics laboratory. Our Second Wave stash was built after things settled down. There are still things in short supply due to hoarding. Good for you if your ancestors were named Lysol….

    • And Herring is not the first AG to do this. As Steve will tell you, every AG, Democrat or Republican, has used the office to run for governor or, in his case, re-election. That is why I have advocated that the office not be an elected one, but an appointed one. Or, why I fervently hope that someone will run, saying that he or she only wants the challenge and honor of heading up the state’s law firm and promises not to run for Governor or any other office.

    • Here is what happens when public prosecutors like Virginia’s AG Herring spin out of control by their allowing their politics, instead of state and/or federal law, to rule their prosecutoral decisions.

      “FBI agent: Never was evidence of Russia collusion but Mueller team had ‘get Trump’ goal, by John Solomon in Just the News, September 25, 2020”

      “An FBI agent who played a lead role investigating Michael Flynn told the Justice Department there was never evidence of wrongdoing by the retired general or Russian collusion by President Trump, but the probe was kept open by Special Counsel Robert Mueller because his team had a “get Trump” goal, according to an explosive interview released Friday.

      Agent William Barnett’s interview with Justice Department prosecutors earlier this month provided a bombshell claim that both FBI superiors under James Comey and Mueller’s team exhibited bias in their pursuit of Trump that upended the normal investigative decisions, tactics and commitment to pursue evidence neutrally.

      It emerged just one day after the Justice Department released text messages showing FBI analysts bought liability insurance in January 2017 because the feared they could be sued for misconduct committed during the Russia probe …”

      For more see:
      https://justthenews.com/accountability/russia-and-ukraine-scandals/fbi-agent-never-was-evidence-russia-collusion-mueller?utm_source=breaking-newsletter&utm_medium=email&utm_campaign=newsletter

  2. No one likes to feel that someone is taking advantage of a situation by raising prices to the gouging level whatever that is. But the Ads solution is worse than the disease. For those old enough to remember gasoline price and allocation controls in the 1970s, they produced long lines and gasoline going where people didn’t. Market price allocation may cause short term pain but it generally responds fast enough to achieve equilibrium at prices lower than the panic level.

  3. I have heard both pro and con here right on these pages depending on what it is.

    And I totally agree if Walmart sold toilet tissue or paper towels for $5 a roll, there would be plenty and no hoarding yet did not hear too many advocating that ….. just saying……….

    pre-existing conditions and a true “market” for health insurance?

    the heck you say……..

    • “just saying” ??

      Larry, What is it exactly that you are saying?

      • that if health insurance were sold purely on medical underwriting that most folks over 50 or with health conditions could not afford what it would cost.

        If health insurance were sold purely as a free market product without any government rules – it would be priced according to your age and your health conditions.

        Not to mention Medicare. Most folks who get Medicare if they had to buy it from the free market could not afford it.

        It’s the ultimate hypocrisy for folks to advocate free market for SOME products/services while ignoring others like health insurance.

        Your employer-provided health insurance is guaranteed issue as well as capped premiums no matter your age or health – government rules – not free market.

  4. Mr. Herring has an excellent reason for opposing price-gouging. He wants everyone to be able to afford the masks he and his cohorts would like to force us all to wear for the rest of our lives…

    😉

  5. Lots of choice lines to comment on,,, such as “… to make sure all consumers have the same access to essential goods.”
    Define Gouging
    Define Access
    Define Essential Good
    Nothing more than Guvment picking winners and losers…
    Economy 101… Price Rations Demand…
    And of course I have to point out some of the folk that “can’t afford” something have made stupid dumb decisions such as buying cigarettes, alcohol, lottery tickets, cable football channel, etc….
    And BTW,,, under what authority do we suspend Constitutional rights, property right, 1st amendmentioned rights…
    A POX on all folk who talk about price gouging,,, there is no such thing,,, price is what a willing buyer is willing to pay and a willing seller is willing to accept … if you don’t like my price or my offer… move on…
    PS,,, these useless AG’s need to be enforcing laws against rioters and looters destroying property,, private and taxpayer owned….

  6. The alternative to price gouging is rationing and long lines, like we had in the 70s when OPEC cut production to force higher prices.

    Price gouging is usually temporary until somebody figures out how to offer the product for a little less than the gouger, then somebody else offers it for a little less than that …

  7. Been wearing the same dust mask I’ve used since March. Its nothing more than an entry card to the local big box stores.

  8. Its not just about price curtailing demand, its also about price incentiving marginal suppliers into the market to produce more. Say Nancy likes to knit. At the right price, he might be induced to sit on his yacht docked at his vacation home knitting Tipper Gore themed facemasks to sell on his Etsy store.

    These more recent anti-price gouging threats came about due to hurricanes causing supply shortages. Anyone that know about the gas retail market knows that the corner store has little control over the price charged. I guess big bad government enforcer bullying small business owners makes some ill informed people feel better.

    • how about the big bad govt getting PPE and masks and bidding up the price agains the states?

      the big bad govt also tells health insurance companies that they have to cover you (guaranteed issue) and they have to cap how much they charge you for premiums no matter your age or health status and on top of that they do not tax the money you spend on health insurance.

      Is that the “free market”? All this other stuff, like gasoline or toilet paper is piddly stuff compared to your health insurance, right?

      If insurance companies could charge you for health insurance according to your age and health status – could you even afford it at all?
      The only way this works – is to charge the young and healthy higher premiums, right? Oh and about Medicare… who over the age of 65 could actually buy health insurance in a true free market?

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