Governor short circuits market in wake of storm

Governor Kulongoski today invoked the state’s new so-called anti-price gouging law in the wake of last week’s monster storms. He stated that “by issuing this declaration, these victims will be protected from unscrupulous retailers and those attempting to take advantage of the needy and vulnerable.”

Of course, nothing was mentioned about what a Sunday Oregonian article labeled Retailers to the rescue. It was all about how firms like Wal-Mart and Home Depot often respond better to disasters than do governments.

A full four days before the storms hit, Wal-Mart’s own private meteorologist “tracked the weather and notified colleagues that Oregon and Washington stores could lose power and the retailer should consider alternative truck routes.”

Home Depot’s director of crisis management “coordinated more than a dozen recovery workers, from hazardous-material cleanup crews to structural safety assessors, to Portland. From his Atlanta office, he also summoned trucks as far as Nebraska and Texas to hightail it west with extra batteries, flashlights, heaters and generators.”

Have you heard any government officials in Oregon or Washington praise such forward thinking retailers for what they did to help keep critical supplies flowing to disaster victims? No, all we hear today is Oregon’s Governor slapping down “unscrupulous retailers” who might dare raise prices more than an arbitrary 15 percent limit.

I testified against this new law, SB118, during the last legislative session. Here’s what I told the House Consumer Protection Committee:

Imposing price controls to protect consumers is one of the worst things government can do in an emergency. Rapidly rising prices signal those outside the affected area to conserve scarce products, and they signal producers to ship more of those products into the affected area quickly. Price controls short-circuit these signals, turning a natural disaster into a political one.

Let me give you just one example of how this bill might backfire and hurt the very people you’re trying to help:

Imagine a catastrophic storm hitting Oregon, like the Columbus Day Storm of 1962. The windows in your house are broken and the rain is pouring in. Everyone is scrambling to board up damaged buildings.

Overnight, the price of plywood in Oregon skyrockets. The sudden high prices send a message to casual consumers who aren’t affected by the storm: “Conserve plywood.” At the same time the spike in prices sends a message to producers, brokers and retailers that we need plywood in Oregon and we need it now. The faster they get it here, the more profit they can make before the prices come back down after the crisis.

Casual users of plywood will reduce their purchases because of the high prices, allowing those who have a critical need to find the product, even at what this bill calls “unconscionably excessive prices.” But in these circumstances they’re happy to find it at all.

Now imagine that this bill becomes law and the Governor applies it to keep plywood prices down. Stores in the affected area sell out quickly because demand greatly exceeds supply if prices can’t rise. Imagine homes being severely damaged and homeowners not being able to buy a sheet of plywood at any price. While some Oregonians’ property is being destroyed, consumers in other parts of the state, or in California or Washington, might unknowingly be building playhouses for their kids with cheap plywood. Under this scenario, would this law protect you or hurt you?

The law of supply and demand is actually a better friend to disaster victims than any price control law coming out of this building.

Steve Buckstein is Senior Policy Analyst and founder of Cascade Policy Institute, a Portland-based think tank.