The sad story of Matt Colvin can be written in one of two ways. How you view the man who hoarded 17,700 bottles of hand sanitizer hoping to sell them at sky-high prices on Amazon is a matter of perspective.
Some would say he’s a vile profiteer exploiting human suffering and the coronavirus crisis who deserves all the hate pouring out at him since his story went viral. Others, more accurately, view Colvin as a victim of the economic stupidity of current state laws that impose limits on prices during emergencies.
Here’s the tale itself. Recognizing the arrival of the coronavirus, our hero (or villain) and his brother went to collect hand sanitizer from rural stores in Tennessee. They’d noted that the big stores in the big cities were already out of it and then surmised, correctly, that whatever was on the shelves in more rural stores might still be there.
This is what we’d like to see happening in an economy — things being moved from where they are less valuable to where they are more valuable. This is the very definition of wealth creation, in fact: adding value to things. Sure, that’s sometimes done by transforming things, but often enough, it’s done just by shifting them across geography. For instance, avocado on a piece of toast in Brooklyn is worth more than the same fruit on the tree in Mexico.
In times of true shortage, we should want this transportation of goods to happen even more than in normal times. After all, the shortage will surely change values across geography drastically, and we want the economy to respond.
Our heroes, and heroes they are, not villains, expected to profit from their efforts. Now, enter the law. This country is slathered with laws against so-called “price gouging,” so much so that Amazon is restricting the prices people may charge for anything related to the coronavirus.
Meanwhile, eBay has simply given up. The plethora of state laws creates such a minefield that even a company of that size can’t risk matters. So it has simply banned the sale of anything coronavirus-related.
This means that the Colvins cannot sell their 17,700 bottles of hand sanitizer to the people who most desire it. This is not an advance in human civilization. Of course, the product they amassed has now been donated, and many will say that’s a good thing. But an economist will tell you this is a terrible thing.
For economics is the study of incentives and how people react to them. Get the incentives wrong, as with socialism, and all remain immured in poverty. Appeal correctly to greed to overcome sloth, and we end up with this capitalist, free market society we currently inhabit. The result is Americans living higher on the hog than any other large group of humans ever have done — right back to whichever creation story you prefer.
In short, incentives are quite important.
So by denying the Colvins the profits of their price gouging, the government is wrecking economic incentives. The next time something’s in short supply in one place and available in another, no one will bother to move it. No one will bother to get people what they need and demand — at least, not in the proper quantity. A shortage will only be worsened by the same laws meant to address its damages.
Killing the incentive to move things from low-valued uses and places to those with higher values will not end well. Unless, that is, we’re just tired of this whole “living in a rich and bountiful society” thing.
We might think it trivial, stopping some profiteer in an emergency. We might even think it righteous. We’d be wrong on both counts. The very reason we’re in a rich place and time is that people do add value. And those bottles sitting in rural pharmacies had no value: People weren’t buying them, right? Yet they had, before the law stopped it, great value at their destination: People were buying them off Amazon and the like en masse.
So why do we stop people from doing this? Sadly, such is the political misunderstanding of economics that we are actively using the law to make society poorer.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
