Op-ed: A Texas price-gouging law is backfiring

AP Photo/David J. Phillip

In the aftermath of Hurricane Harvey, a photo of a case of bottled water selling for nearly $43 at a Houston-area Best Buy quickly became the target of social media outrage. Consumers under stress from the storm were quick to object to higher prices, and store representatives quickly apologized.

When an emergency is declared by the governor, it becomes illegal in Texas to sell fuel, food, medicine or other necessities for an excessive price. The law is meant to protect distressed consumers from being taken advantage of. Unfortunately, Texas’ price-gouging law is backfiring.

We see this backfire effect at work in the attorney general’s enforcement actions. Last month, the attorney general’s office announced the resolution of 48 Harvey-related price gouging cases involving gas stations. The owners of these stations will pay more than $166,000 into a restitution fund for consumers who bought gasoline from the stations.

None of the 48 gas stations is in the hurricane-struck region. Instead, 42 of them were in the Dallas-Fort Worth area and the others in central Texas. Likely, the folks getting refunds will not be those who actually fled the storm, but people living far down Interstate 45 who rushed out to fill their gas tanks before prices rose or stations ran out.

Some reports had people loading gas cans into the back of their SUVs, under blue skies and wispy clouds in North Texas before the storm even made landfall 300 miles away. Some consumers reportedly hoarded gasoline in 42-gallon barrels. By the time evacuees from the Gulf Coast could reach Dallas and Tarrant counties, many gas stations were already out of fuel.

When a disaster strikes, communities should pull together as Texas communities famously did. Charities got right to work after the storm. Volunteers streamed in from around Texas and across the country to help clean up and rebuild. Companies, too, leaped into action.

For example, Home Depot activated its hurricane response plan in Atlanta three days before the storm and soon had trucks dispatched with recovery supplies. Walmart rushed to reopen stores and sent hundreds of trucks to the area loaded with just the sort of goods people want after a disaster. H-E-B’s grocery stores have on-site electric generation that helped them reopen quickly. The company also had mobile kitchens and two water tankers that helped make it a valuable contributor to Houston’s recovery.

A quick disaster response is not just good for the community; it is often good business. Home Depot’s disaster business was credited as one source of added profits for the company in 2017. As big corporations with sophisticated supply chain capabilities found it somewhat easier to respond quickly, small businesses were in a tougher spot.

Small businesses lack sophisticated supply chains and disaster-response specialists, so it almost always will cost them more to boost supplies after a storm. Independent gasoline stations usually operate on slim margins. The law forces small businesses to choose between losing money, raising prices or running out of gasoline to sell. While consumers do not like higher prices after disasters, consumers are better off with gasoline available at a high price rather than no gasoline for sale at all.

Disasters are times when communities can and should pull together. We saw that last year in the way charities, private businesses and government agencies all launched into action after Hurricane Harvey. Against this outpouring of effort to rebuild, the effects of the state’s price gouging investigations stand out in contrast. The law was meant to help, but it creates incentives that prevent aid from going to those who need it most.

CGO scholars and fellows frequently comment on a variety of topics for the popular press. The views expressed therein are those of the authors and do not necessarily reflect the views of the Center for Growth and Opportunity or the views of Utah State University.