Flemming: Government threats to Vermont businesses during coronavirus will mean product shortages

By David Flemming

Vermont Attorney General TJ Donovan has sent out a warning to Vermont businesses and consumers about so-called “price gouging” during the coronavirus outbreak. While “price gouging” may sound cruel, this condemnation on raising prices could leave Vermonters in an even more difficult spot: without product essentials altogether.

At a March 12 press conference, Donovan spoke of repercussions on Vermont businesses if “we think folks are taking advantage of Vermont consumers,” before turning the floor over to Christopher Curtis, chief of the Public Protection Division.

Curtis implored Vermonters to “exercise some common sense and restraint in your purchasing habits.” He added:

Plan ahead … yes, but don’t take advantage. It’s just not appropriate to the size and scale of the crisis, 2-3 weeks of planning ahead. Friends and neighbors also need access to those same supplies. … On the side of business community, we’re asking for restraint in asking that prices aren’t driven up so high without any nexus or connection to actual cost that could constitute a price gouging claim or concern. We have the Consumer Protection Act which guards against unfair practices in commerce. Any cost increase may trigger the Consumer Protection Act and we will be vigilant to make sure that Vermonters are not taken advantage of.

So, Vermont businesses are being asked to avoid increasing prices “without a connection to actual cost” and Vermont consumers are being asked to “use restraint in our purchasing habits.” While there may be an implicit legal threat to consumers, the threat is made explicit to Vermont businesses by the specific legal pronouncement.

Shortly after suggesting that “a connection to actual cost” could justify a legal price increase, Curtis declares that “any cost increase” may trigger the attorney general to prosecute the guilty business using the Consumer Protection Act. This is a horrible signal to send during a health crisis.

A business raising the price of hand sanitizer serves two functions. First, consumers self-ration with higher prices. Rather than buying two quarts of hand sanitizer at $4.99 each, they are more likely to settle on one for $6.99, leaving the other for someone else. Second, if prices for food and health items increase, businesses further up the supply chain (inside and outside Vermont) will increase production hoping to chase those higher profits. This increase in supply would drive down prices and lead to a larger supply over time.

And if the government isn’t convinced? A small business in Vermont may decide to leave certain items “out of stock” if they can’t be obtained affordably from larger suppliers. If you have an initial price of $5 for toilet paper (which you paid $4.50 for) and your supplier says the price has increased to $6, why would you ever order toilet paper, knowing full well there is a risk of government lawsuit if you sell it for $6.50?

The threat from the attorney general is effectively a price control, ensuring that only those with time on their hands and the easiest means of transportation will get first dibs on sanitizer, toilet paper and other goods. And if these goods only go toward a small group of people, the virus will spread more quickly, potentially overwhelming our rigidly government controlled health care system in Vermont. Worse, if this ends up being a prolonged epidemic, the failure to pivot into the production of needed products will lie heavily on the attorney general’s shoulders.

David Flemming is a policy analyst for the Ethan Allen Institute. Reprinted with permission from the Ethan Allen Institute Blog.

Image courtesy of Flickr/401kcalculator.org
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9 thoughts on “Flemming: Government threats to Vermont businesses during coronavirus will mean product shortages

  1. This is a perfect example of what Dr. Sowell refers to as the conflict of visions. The constrained vision approach is to trust the free market to work. The unconstrained solution is to control human behavior through coercion.

    • Clarification: David Flemming ‘has it on the money’…. not so for Attorney. Gen. TJ Donovan, a consumate political player.

  2. This brutal over-reaction will be horribly expensive short term, and LONG TERM damaging as employers, employees and businesses are squeezed to, and beyond, their limits.
    Gov’t demands on business and family are far beyond proportional for a version of the flu. less than 20, few or none serious, zero deaths among 600,000 citizens. Almost all recovering at home, no hospital needed.

    Panic, businesses wrecked and stretched to and beyond their limits. Beyond credibility

    • “[A] key political and economic issue, and one that has been debated after every natural disaster for at least the last half century, is this: Should we allow market prices to rise temporarily following disasters and allow entrepreneurial “price gougers” to temporarily play a role of providing critical supplies during the “gap period” at elevated prices, or should we suppress market prices with government price controls?”
      https://www.aei.org/carpe-diem/an-economic-analysis-of-price-controls-v-market-prices-post-natural-disasters-reveals-superiority-of-market-prices/

      In short, ‘the market’ is omniscient. Not so the typical government official. Wage and Price controls are, by definition, politically subjective. A ‘market’ is economically objective.

      Why is price gouging, as its often characterized, a reasonable market reaction? Because it’s based upon supply and demand. If an individual doesn’t need a commodity, the higher price will reflect their true requirements, not a government’s declaration of what it is they ought to have.

      And what is the net effect of so-called ‘price gouging’? For one thing, in a free market, higher prices incentivize producers to make and provide more stuff, thereby rendering shortages more temporary than they otherwise might be. After all, who do you trust to determine what it is you need (and should have) by setting prices? Do you trust the government politician or appointed official, beholden to special interest groups providing these products, that are often the same monopolies, duopolies, and oligopolies contributing to the political campaigns of the very politicians who, in turn, choose those products for you with favored pricing? Or do you trust a free market, free to raise and lower prices based on actual supply and demand in real time?

      Shortages and hard times come and go. But which system is more prone to corruption? Is an all-knowing, objective, ‘market’ more effective at limiting shortages and hard times, or do you put your trust in an elected official, beholden to special interest groups, to make those judgments for you?

      As the free market adage on the choices we make says: ‘Fool me once, shame on you. Fool me twice, shame on me.’ With government labor and price controls, there are… no choices.

      “Price controls almost invariably produce black markets, where prices are not only higher than the legally permitted prices, but also higher than they would be in a free market, since the legal risks must also be compensated.” Thomas Sowell

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