The price spike is better than a delayed economic recovery and persistent shortages.
By SCOTT BARANCIK
Published August 30, 2004
Florida law calls them price-gougers. Survivors of Hurricane Charley call them parasites, or worse.
But economists have a different word for the people who charge disaster victims $5 for a bag of ice or $1,000 for a chain saw.
Entrepreneurs.
After Hurricane Andrew devastated South Florida in 1992, demand for food, building materials and other scarce necessities skyrocketed. So, too, did prices. The attorney general at the time, Bob Butterworth, went after the most extreme profiteers with a vengeance, pressuring some to repay customers or donate funds to the relief effort.
Legally, Butterworth, who is now dean of the St. Thomas University School of Law in Miami, had little to go on but "moral authority." But within months of the storm, state lawmakers passed a law prohibiting business owners from charging "unconscionable" prices during a state of emergency.
Now, 12 years later, Hurricane Charley is providing the first serious test of the antigouging law.
State Attorney General Charlie Crist, whose antigouging hotline has fielded more than 3,300 complaints and spawned five lawsuits since the 60-day state of emergency went into effect Aug. 10, said he's already "starting to see a deterrent effect." But economists predict the law may produce an unintended result, as well: artificial shortages of labor and construction supplies.
If true, such shortages could add days or weeks to the time it takes to rebuild a home or business.
University of Florida economist Dave Denslow explained the theory. After a hurricane or other devastating event, demand for necessities temporarily outstrips supply, giving suppliers the ability to raise prices. If the free market is allowed to work, the theory goes, out-of-town suppliers and contractors lured by the promise of huge profits will swarm the affected communities. Prices will begin falling naturally.
But if state officials interfere by enforcing an antigouging law, Denslow said, out-of-town suppliers may stay put, shortages would persist, and economic recovery would be delayed.
"Any gouging law is essentially a price-control law," said Philip Romero, a University of Oregon economist and former chief economist to ex-California Gov. Pete Wilson. "It will discourage supply and encourage demand."
Florida officials first began contemplating an antigouging law in 1989 after Hurricane Hugo struck the Carolinas. The idea languished until 1992. "If we hadn't gone through (Hurricane) Andrew, it probably would've been very difficult to get something like that passed," Butterworth said.
With scenes of suffering fresh in the public mind, industry leaders and lawmakers normally opposed to government intervention in the free market felt they had little choice but to compromise.
Florida Retail Federation general counsel John Rogers said the give-and-take in writing the law included an agreement that alleged gougers would be subject to civil, not criminal, penalties; that the higher costs of doing business in a post-disaster period could be used as a defense; and that the definition of "unconscionable" prices would be determined by a jury, not by an absolute standard.
At trial, jurors would be instructed to determine whether there was a "gross disparity" between the price a vendor charged during the state of emergency and the average price he or she charged the previous 30 days. (One of the hotels sued this month by Crist, a Republican and former state senator who voted for the antigouging law in 1992, allegedly charged evacuees $100 for rooms it had previously rented for $55.)
"Under the circumstances, we realized it was the best course of action to try to pass a reasonable, workable price-gouging law," Rogers said.
Some opponents stuck to their philosophical guns.
"Sellers who do not gouge prices do not do themselves or consumers any favors," a St. Petersburg Times reader wrote in a September 1992 letter to the editor. "They encourage hoarding and lessen their (own) ability to keep supplies coming."
Butterworth is "unwittingly exacerbating the desperate situation in south Florida," Competitive Enterprise Institute analyst Matthew Hoffman wrote in a Miami Herald opinion piece the same month.
But such views were regarded as unfeeling heresy. "I'd like to punch out those price-gouging creeps," Miami Herald columnist Martha Musgrove wrote in response to Hoffman's article. "Spare us all (the) specious justifications for craven exploitation."
Butterworth's viewpoint hasn't changed since Andrew. In his mind, the debate over gouging pits ivory-tower elites like Hoffman against corrugated-shack realists life himself, people who have witnessed abject human suffering firsthand and believe businesses have a responsibility to act ethically in disaster situations.
One of Butterworth's first targets was a Miami-Dade International House of Pancakes that was charging customers $5 each just to walk in the door. Butterworth recalls during the height of the Andrew crisis going head-to-head in a television talk show with an economist who tried to lecture him on the laws of supply and demand.
"There I was, sweaty, no makeup, and this guy was in a suit and everything else, in air conditioning all day, he probably even had his fingernails manicured," Butterworth recalled, "telling me I just didn't understand supply and demand . . . I came unglued."
Romero is unmoved.
"There are certain moral imperatives that are more important than market efficiency," acknowledged the Oregon economist, who has studied post-disaster economic recoveries. "We are all entitled to our opinions and values. I guess the question becomes, how much of an economic cost are you willing to bear for your imperative? I'm not a theologian; I'm an economist. So on one level I can't refute that argument, except to say that everything has a cost."
Some free-market advocates turn the morality argument on its head.
Why should one hurricane victim be prevented from paying more money for better or faster service, just because another hurricane victim can't or won't, asks Edward Hudgins, Washington director of the Ayn Rand-influenced Objectivist Center.
Similarly, why should a vendor have to price his product within the reach of the poor or the homeless after a disaster, when there's no such requirement during normal times? Why should a capitalist economy become more socialistic when tragedy strikes?
It's not that free-market boosters oppose all government regulation. Joe Best, president of the libertarian Heartland Institute in Chicago, said consumers need to be protected from fraud and deceit in order for the marketplace to operate optimally. But there is nothing wrong with charging as much money as the market will bear.
Denslow, the University of Florida economist, comes down somewhere in the middle.
"I think in general markets work best, but that's not an ideology with me," he said. "It'd be nice if we could see that public spirit moves people just as much as greed."
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Paul Davis Restoration, a Clearwater company that specializes in post-disaster renovation, chose not to bid on hurricane projects.
Expenses would be double or triple normal levels, sales associate Jeff Norris said, and would require the company to charge much higher prices than usual. Customers might mistake it for gouging.
"We're easy targets out there," Norris said. "You get these little old ladies out on Channel 8 (news) saying, "That contractor, he gouged me.' What she neglects to say is that her house was under two feet of water and we saved her butt."
It's difficult to tell how many business owners have decided to skip the Hurricane Charley cleanup because of the price-gouging law or what impact it is having on the speed of the recovery.
But if Florida lawmakers ever decide to revisit the law, there may be ways to improve it.
One option, economist Denslow said, would be to limit the law to hotel rooms and other items for which the supply is relatively fixed in the short term.
By contrast, price controls could be lifted on water, chain saws, plumbing repairs and other products or services that can easily be supplied by non-local business owners eager to capitalize on the temporarily inflated pricing.
Another possibility would be to distinguish between goods such as ice, where gouging is relatively easily identified, and services like plumbing, where it is not.
"I think it becomes a practical question of what works," Denslow said. "If you're making people stay in shelters or motel rooms for two more weeks because you've outlawed gouging, then you'd want to revisit it."
Times researcher Kitty Bennett contributed to this report. Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.
