How to prolong a shortage

As you might have noticed, it’s hard to buy certain things. So have some politicians, leading to a classic public policy mistake. Earlier this week the State of Oregon declared an “abnormal disruption in the market” in what a senior executive branch official called “essential items like hand sanitizer and toilet paper.” This is “to prevent price gouging during this public health crisis.”

Price gouging isn’t really the problem we face. The obstacle to purchasing these products is their absence from retailers’ shelves. High prices are not the actual problem. High prices are the solution. If retailers were allowed to raise prices to the point where short-run supply meets short-run demand, we could go to Walmart at any time of day knowing there will be toilet paper and hand sanitizer.

Higher prices cause us to ration valuable things. Regulations that force retailers to sell at a mispriced payment cause waste and misallocation of needed resources.

Ultimately what we want is more toilet paper and hand sanitizer sooner rather than later. Supply curves are upward sloping; so it’s higher prices that attract a higher quantity supplied more effectively than any government regulation could hope to achieve. By invoking this misguided law, the State of Oregon will only prolong the shortage.

Eric Shierman lives in Salem and is also the author of We were winning when I was there.

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