Whenever there is a national disaster (even if only in the mind of President), the national conversation often shifts to the issue of price gouging: raising prices on necessary goods (e.g., batteries, bottled water, medicine) during a (declared) disaster or emergency to levels that are allegedly unreasonable—and perhaps even exploitative. For the purposes of this article, exploitation is roughly defined as taking unfair advantage of someone else for one’s own gain, with emphasis on the word “unfair.” The moral belief that such elevated prices are exploitative often motivates laws that prohibit price gouging, ostensibly to shield the vulnerable. This belief is also invoked by some moral philosophers to argue that such practices should be banned or curtailed. As Michael Sandel argues:
Greed is a vice, a bad way of being, especially when it makes people oblivious to the suffering of others. More than a personal vice, it is at odds with civic virtue. In times of trouble, a good society pulls together. Rather than press for maximum advantage, people look out for one another. A society in which people exploit their neighbors for financial gain in times of crisis is not a good society. Excessive greed is therefore a vice that a good society should discourage if it can. Price-gouging laws cannot banish greed, but they can at least restrain its most brazen expression, and signal society’s disapproval of it. By punishing greedy behavior rather than rewarding it, society affirms the civic virtue of shared sacrifice for the common good.
Sandel’s point is that societies that permit price gouging signal that they do not value civic virtue—and are thus unwilling to take legal action to mitigate exploitation. This is, in his view, tantamount to society condoning it. He believes that anti-price gouging laws would mitigate such exploitation by attaching a legal cost to it; if left legal, businesses could freely charge exorbitant rates to desperate customers. The trouble is that a couple of bad assumptions underlie this objection—even if price gouging is, in fact, exploitative.
First, Sandel assumes that anti-price gouging laws would be effective at preventing exploitation. That is, these laws authorize the government to prevent enough price gouging such that exploitation is at least mitigated, if not mostly prevented. This would then yield a net reduction in exploitation.
But this view ignores the incentives people have to engage in price gouging. By forcing companies to sell goods at fixed rates rather than allowing prices to rise with demand, anti-price gouging laws enable early customers to buy up goods and resell them at a markup on the black market. Not only would this result in a different form of exploitation—by Sandel’s standards—but it would incentivize scarcity by making it profitable to buy out necessities at a lower, legally mandated rate and resell them for more.
Sandel might respond that the police should arrest black market operators to deter such behavior. But at best, this is a partial solution: police are stretched thin in normal times, let alone during emergencies or disasters. Even if some black markets are shut down, the exploitation simply migrates to less visible ones, enabled by the combination of price controls and high demand. Quotas—an alternative to price controls—face similar issues: they can be gamed, and they require time and enforcement resources, whereas higher prices naturally discourage hoarding.
Second, Sandel assumes that mitigating exploitation via price controls wouldn’t cause worse problems elsewhere. But anti-price gouging laws distort the market’s ability to function—specifically, to generate and transmit information about supply and demand. A key function of markets is to aggregate price signals that inform producers and consumers. Distorting this process—by banning rapid price increases during emergencies—dampens market efficiency. When left alone, markets are comparatively excellent at adapting quickly to changing conditions. As economist F.A. Hayek explained:
Even two hundred years after Adam Smith’s Wealth of Nations, it is not yet fully understood that it is the great achievement of the market to have made a far-ranging division of labor possible—that it brings about a continuous adaptation of economic effect to millions of particular facts or events which in their totality are not known and cannot be known to anybody.
Markets adapt by generating and using local information—and prices are one of their most vital signals. Artificially suppressing prices may benefit some consumers in the short term, but there are longer-term costs. Letting prices adjust offers at least three benefits:
Conservation: Higher prices incentivize consumers to use fewer scarce resources.
Production: Higher prices incentivize producers to supply more of the scarce good.
Substitution: Higher prices encourage consumers and producers to find suitable alternatives (e.g., substituting wood, coal, or gas).
While price controls may benefit some consumers immediately, they can hinder the market’s ability to respond effectively—leading to shortages, black markets, and inefficiencies. It’s easy to see the harm of rising prices in a crisis. What’s less visible are the harms that emerge from suppressing price signals—harms that ripple outward and unfold over time. As Frédéric Bastiat famously put it:
In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them….
Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.
So why call Sandel’s oversights “the moral unseen”? Just as economic inefficiencies reside in the economic unseen, the suffering and exploitation created—or relocated—by well-intended policies can reside in the moral unseen. When we fixate on the immediate harm prevented by a law, we often overlook the new harm it creates—or the harm it fails to prevent. In crises, urgency tends to dominate prudence, and we risk sacrificing long-term moral outcomes for short-term moral satisfaction.
Better not to push arguments or policies that rhetorically exploit the moral unseen. Laws that merely relocate exploitation—from regulated markets to black markets—end up sacrificing the long term for the short term.
