The global coronavirus pandemic is an emergency. Whenever there is an emergency (think hurricanes, earthquakes), there are accusations of price gouging. And whenever there are accusations of price gouging, there are economists who step in and argue that actually price gouging is good, and that anti-gouging laws are bad.
Normal people (i.e. non-economists) seem to be pretty unanimous in thinking that price gouging is bad and should be regulated. During emergencies people need things like food, water, (maybe) gasoline, and (in this case) face masks, hand sanitizer, and (apparently) toilet paper. Jacking up the prices of these things to make a quick buck seems wrong. This is why many states are adamantly enforcing anti-gouging laws in the wake of the pandemic. 33 state attorneys general wrote to the leading online marketplaces including Amazon and eBay to urge them to crack gown on gouging: "We believe you have an ethical obligation and duty to help your fellow citizens in this time of need by doing everything in your power to stop price gouging in real-time."
Perhaps the most notable and egregious example was from this New York Times story about two brothers who rented a truck and traveled around Tennessee and Kentucky buying up all of the hand sanitizer and antibacterial wipes that they could find so that they could resell them at a markup on Amazon. Amazon came out against this practice: "Price gouging is a clear violation of our policies, unethical, and in some areas, illegal."
But there is a standard argument based on neoclassical economic theory which says that well, actually, price gouging is good. This has been argued by John Stossel in Reason magazine, and by two economists on TribLive. Tyler Cowen wrote a policy brief for Economists for Inclusive Prosperity, in which one of his suggested responses to the pandemic is to relax anti-price-gouging laws. The argument is basically (from Cowen):
Although the practice is unpopular, higher prices give suppliers an incentive to keep goods on the shelves. Higher prices also discourage panic buying and increase the chance that the people who truly need particular goods and services have a greater chance of getting them.
So is it that the vast majority of folks and most state legislatures are wrong, and only those trained in neoclassical economics are wise enough to see the truth about price gouging? Or maybe is it that the theories argued by these economists, based on neoclassical economics and relying on the assumptions behind neoclassical economics, are missing something important about the real world?
I think it's the latter. Defenders of price gouging like Cowen are falling victim to what James Kwak has labeled "Economism" - which is basically relying too blindly on the tenets of basic economics or "Econ 101" and failing to realize that the real world is a much more complicated place than that described in principles textbooks. (Economism is also called "Econ-101-ism.") It's hard to square the hoarding-and-gouging behavior of the two brothers in Tennessee and Kentucky with this argument from efficiency.
In the real world, people care more about economic efficiency. People rightfully care about fairness, and about distributional outcomes. The reason that hiking up prices for necessary goods during an emergency seems immoral is because it is immoral. The fact that I can come up with an economic theory on the back of an envelope that proves that this increases efficiency doesn't negate its immorality. There's an academic debate on the ethics of price gouging, and it's far too simplistic to appeal only to concerns of economic efficiency.
(And by the way, even if you do just care about economic efficiency, there are also models you can come up with that show circumstances in which anti-price-gouging laws can increase efficiency, like this one.)
But because the world is a complicated place, it's also too simplistic to say that what looks like price gouging is always wrong and valueless. There is valuable information in prices, and markets can allocate goods efficiently, and the incentives created by market processes can lead to the most-needed goods getting to the people who need them the most. We must balance the efficiency benefits of allowing market prices to adjust with the costs in terms of equity or fairness associated with these price adjustments, especially during times of emergency.
