This is just another way of saying price controls. The theory goes that if someone is hiking up prices that they are taking advantage of people. In actual real life, not the strange world of politics, prices rise because of demand. When prices increase, this sends a valuable signal to the rest of the market that more goods of that type are required. So if water increases to three or four dollars a bottle in areas affected by a natural disaster, entrepreneurs will start driving in with cases of water to sell them to the people that are need of such an essential life sustaining good. This means more water for the people that need it and potentially lives could be saved when prices are allowed to rise. Instead, price controls prevent this process and lead to shortages. The reason is pretty simple, in a natural disaster; people will all start buying water because it is relatively cheap (same price as a non-crisis). If it becomes expensive, only the people that need the water will buy it. For example, if I have two weeks of water stocked up, I might not go out and buy any water at all if it costs four dollars a bottle. If the cost is cheap, under a dollar a bottle for example, I might stock up anyway, even though I am well prepared. This means that the person who has not stocked up will not have any water to buy because I bought it all up even though I have reserves stored already. Even more, this person might have bought water for ten dollars a bottle but if there is no water to buy, this need can not possibly be met. The market was not allowed to sort out who needs the water most and who does not.
The market allocates resources to the areas of the economy and to the people that need it most severely. Even those who cannot afford water still depend on charities that can acquire water on the market, if the water is all gone, charities can not relieve this need either. Price controls can only interfere with the market process of allocating resources most effectively. Unfortunately, politicians from both the right and the left will enact price controls to stop the “gougers” but inadvertently (I hope) harm the people that are most in need. The fact the price controls result in very negative effects is understood by economists from both the right and the left and everywhere in between. Even the writers from Slate magazine understand this but politicians will never pass up the opportunity to become “strong leaders” in a crisis and scapegoat innocent market actors that have done nothing wrong.
End the price controls, let people have the liberty to buy and sell water so that the neediest among us can have water they require!
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