National Post (National Edition)
Only government price gouging
Provincial governments across Canada have outlawed “price gouging” by sellers of toilet paper, hand sanitizer and other goods currently in high demand because of the pandemic. In Ontario, individuals selling goods at prices the government deems too high could be fined $100,000 and imprisoned for a year, while corporations could be fined up to $10 million. Other provinces have similar price controls, as well as snitch lines that encourage shoppers to report retailers for the “crime” of selling products at prices that do not conform to arbitrary and usually poorly defined government standards.
Invariably, the stated intention of the price controls is to protect consumers. But the certain effect of such legislation, as anybody with high school economics should know, is just the opposite. Unfortunately, the vast majority of politicians either did not have the foresight to learn basic economics, or if they did, expunged it from memory upon entering public office. The unhappy result is that, whether in normal times or during a crisis, politicians generally practice what former OECD Chief Economist David Henderson called “do-it-yourself economics” (DIYE).
DIYE features mistaken economic assumptions informed by intuition rather than textbooks or economic history. It is characterized by a collectivist, top-down approach that expands government control over all sorts of things government has no business controlling — such as, in the current case, the prices of toilet paper and hand sanitizer. Confronted with the high prices, politicians practicing DIYE believe that consumers are suffering from exploitation at the hands of suppliers. In reality, the high prices have two profoundly beneficial effects on consumers.
First, they are a signal of scarcity and, by discouraging people from buying more than they really need, prevent hoarding. If stores had “price gouged” on toilet paper, their shelves wouldn’t have emptied so quickly. Empty shelves, of course, represent an effective price to the consumer of … yes, infinity, which is far higher than whatever might be called “price gouging.” Second, high prices encourage supply. By stopping prices from rising, governments weaken the financial incentive for producers to pump out a higher supply of whatever consumers are demanding.
If a shortage of supplies is like a building on fire, legislation against rising prices is like fighting the fire by disabling the smoke alarms and preventing the fire trucks from arriving. All it does is suppress the signals about — and solutions to — the problem. It does not actually solve the problem itself; it only makes things worse. In perfect irony, the politicians who most loudly decry hoarding and shortages are also loudest in condemning and making illegal the rising prices that would prevent or at least significantly mitigate hoarding and shortages.
Another unfortunate application of DIYE by Canada’s political leaders is the protectionism that has, like legislation against price gouging, made scarcity problems worse. For example, as a result of the agricultural supply management system supported by every party in the federal legislature, dairy farmers across the country are dumping millions of litres of milk — in fact, five million litres a week in Ontario alone — to keep prices artificially high. More milk is expected to be spilled in the following weeks, as shuttered restaurants and hotels stop buying. Fearful that the resulting decline in demand would lead to declining prices, the dairy cartel has decided to decrease supply to keep pace with declining demand. All Canadians can agree how horrible it would be if milk were more affordable to families during a time of crisis!
Here is another irony: politicians roundly condemn the increase in hand sanitizer prices that is necessary to ration demand and encourage supply but at the same time give their full-throated support to the decades-long price gouging of consumers by the dairy industry. The clear consensus refrain of Canada’s political leaders: rising market prices bad, government-enforced price-gouging good.
Yet another example of government-enforced price gouging in the current crisis is Alberta Premier Jason Kenney’s call to burden Canadian consumers, who are finally getting relief on gas prices, with protectionist tariffs on oil imports. Former Saskatchewan premier Brad Wall agrees, saying in an interview that tariffs need to be on the table, and, like Kenney, citing concerns about “predatory” pricing.
So: when prices are too high that is gouging. When prices are too low that is predatory. Apparently, the only acceptable prices are those determined by government diktat rather than supply and demand. Canada’s political leaders badly need a class in introductory economics. Their do-it-themselves economics is a joke.