As Hurricane Sandy approached the East Coast, New York Attorney General Eric Schneiderman warned vendors of fuel, food, water, and other essentials about price gouging:

The New York General Business law forbids those who sell essential consumer goods and services from charging excessive prices during what is clearly an abnormal disruption of the market. Those who do so will ultimately see a reduction in their profits, faced with penalties, fines and directives to set up reimbursement funds.

In other words, "no using prices to figure out where goods are needed--or else!" Prices convey information about supply and demand. Supply has been constrained since Sandy knocked out power to refineries. Demand has increased since many areas without power need gasoline for generating electricity and heat. Under normal circumstances prices would rise, gas would flow, and demand would be satisfied. Instead, officials have introduced gas rationing based on license plate numbers.

As a consequence of these restrictions residents are forced to pay non-monetary costs to obtain gasoline such as waiting in long lines or going without fuel entirely. Buyers with access to gas are hoarding it at artificially low prices while other parts of the city go without. If prices were allowed to increase, people with nearly-full gas tanks would be more likely to step aside and residents without electricity would be allowed to pay whatever they wanted for fuel. Running your car may not be worth $5/gallon but staying warm probably is. This information would not only filter through New York City, but to the rest of the nation. Drivers outside of the Northeast seeing prices go up might be able to temporarily do without until normal flows are restored throughout the country.

Nicole Gelinas also points out that using prices would free up police officers to help the community rather than guarding unnecessary lines:

[U]sing price to determine the value of a suddenly scarce resource—whether it’s gasoline or space on a bridge interchange—would alleviate the need for police resources at gas stations and bridges. Ever since the storm hit, blacked-out neighborhoods and intersections without traffic lights have sorely needed a police presence. But the city has instead deployed officers to gas stations to keep the peace and, during last week’s carpool restrictions, also sent officers to river crossings to count car passengers. The price of gasoline or a bridge crossing should include the cost of a burglary that happens because the officer who could have prevented it was playing line monitor at the gas station.

I have no doubt that Attorney General Schneiderman, Mayor Bloomberg, and Governor Christie have the best of intentions. But ignoring basic economics is leading to the worst of outcomes for people who have already suffered enough.

For more on price gouging after natural disasters, see this podcast with Mike Munger and additional articles linked there.

Update: The link above refers to podcast discussing a hurricane in North Carolina. Today's episode of EconTalk (which I have not listened to at the time of writing) also features Mike Munger on prices post-Sandy.