Who Pays the Price for Price Controls?

By May 17, 2007Energy

Readers of the Washington Post may have seen the NAM and U.S. Chamber of Commerce’s full-page ad yesterday and today (Page A11) making the case against price-gouging legislation. PRICE-GOUGING-FINAL_400x646.gif(A larger version of the ad is available here.) The ad has also run in The Politico. The text:

Congress is considering legislation imposing new criminal penalties for perceived “price gouging” at the pump. No one condones “price gouging.” But while this legislation might seem like good politics, expert analyses — and past experience — show it’s very bad economics.

A recent study sponsored by the nonpartisan American Council for Capital Formation found such measures will function like price controls on gasoline. Ask anyone who lived through gasoline price controls in the 1970s — punctuated by gas lines, artificial shortages and double-digit inflation — about the unintended consequences of such measures.

No one enjoys volatile prices at the pump, but playing politics with price controls will be a disaster for drivers, business and the American economy. Congress should reject “price gouging” legislation.”

Punctuating that point is a fine column by George Will today, “Posturing at the Pumps.” He alludes to a point that we mentioned only in passing — the definitions of “gouging” are so vague that sellers will have no idea whether they’re violating a law or not. Vague laws invite capricious enforcement, as well.

Pelosi announced herself “particularly concerned” that the highest price of gasoline recently was in her San Francisco district — $3.49. So she endorses HR 1252 to protect consumers from “price gouging,” defined, not altogether helpfully, by a blizzard of adjectives and adverbs. Gouging occurs when gasoline prices are “unconscionably” excessive, or sellers raise prices “unreasonably” by taking “unfair” advantage of “unusual” market conditions, or when the price charged represents a “gross” disparity from the price of crude oil, or when the amount charged “grossly” exceeds the price at which gasoline is obtainable in the same area.

Which is one of the reasons the NAM and Chamber’s ad puts “price gouging” in quotes: No one really knows what it is. Except it’s bad, really bad. And mostly non-existent.

P.S. The ACCF study on price-gouging laws is available here as a .pdf file.