Legalize Price Gouging!

by Johnny Kramer
by Johnny Kramer

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Hurricanes Gustav and Ike have caused severe gasoline shortages throughout the southeastern U.S., especially in Georgia and the Carolinas. The hurricanes disrupted the two major pipelines feeding the southeast from the Gulf of Mexico, Colonial and Plantation, temporarily knocking out up to 60% of the Gulf of Mexico’s oil production.

The southeast is still – two weeks after Ike made landfall, and about a month after the arrival of Gustav – facing rampant gasoline shortages, which analysts expect to last at least another couple of weeks.

According to the Washington Post, half of the gas stations in Atlanta were closed last week; most that were open had hour-long lines of about 60 cars waiting for fuel. Typical of government, the Atlanta city government barred the public from two stations, to ensure that city vehicles would have plenty of fuel.

The Post story also reports that drivers in Charlotte faced similar conditions, with numerous closed stations and hour-long lines of about 60 cars at each of those still open.

Numerous anecdotal stories have also surfaced in the past week of people being stranded in their cars after running out of gas while waiting in line to refuel, and of others being forced to leave their cars at home, to instead take public transportation, walk, or ride a bike due to the fuel shortage.

Predictably, the parasites have responded to the crisis by denouncing the market function they refer to as "price gouging."

An MNSBC story about the aftermath of Ike reported that President Bush "said the hurricane’s toll on refineries and pipelines is creating ‘an upward pressure on price’ for people at the gas pump.

"The president also said, though, that people should not be subjected to price gouging. The federal government is working with state leaders to monitor whether consumers are being charged unfairly high prices during the disruption in the energy supply."

Likewise, North Carolina governor Mike Easley released the following statement:

"As a result of Hurricanes Gustav and Ike, oil refineries in Texas and Louisiana have temporarily interrupted some gasoline supplies to the pipelines that serve North Carolina. Therefore, there may be temporary limitations on our gas supply. However, wholesale gas prices are up less than 20 cents a gallon over the last few days. Therefore, consumers should not see prices rise substantially more than this rise in the wholesale price.

"Today I have declared a state of abnormal market disruption under North Carolina law and charged the Attorney General with enforcing the price gouging statute. This statute prohibits the charging of prices that are unreasonably excessive under the circumstances.

"We know that there will be some supply disruption, but we do not yet know the extent. Past events of this kind have lasted only a short time. I urge motorists to reasonably conserve gasoline until the situation is clearer. "

North Carolina’s NBC affiliate, WITN, reported, along with providing the text of the "North Carolina Price Gouging Statute" and a link to a "price gouging complaint form" so viewers can report to the state the identity of anyone they catch trying to alleviate the shortage by raising their prices, "The North Carolina Attorney General's office says they are getting complaints of gasoline price gouging.

"But the state's price gouging law doesn't become effective until the governor declares a state of emergency, which has not happened.

"Attorney General Roy Cooper today urged the governor to make that happen. ‘People are understandably frustrated that already high gas prices are rising so quickly. I urge the governor to trigger the price gouging law and we stand ready to take consumer complaints. I encourage gas stations to avoid panic price increases and consumers to avoid panic fill-ups.’"

Not to be outdone, Georgia governor Sonny Purdue invoked his state’s price gouging statute; Atlanta’s WSB-TV reported him as saying, "’The threat of Hurricane Ike has disrupted the production of distribution of gasoline, which will have an effect on prices.

"’However, we expect the prices that Georgians pay at the pump to be in line with the prices retailers are paying. We will not tolerate retailers taking advantage of Georgians during a time of emergency,’ he added."

Then the story continues, without the slightest acknowledgment of even the possibility of a causal relationship, "Consumers told WSB-TV Saturday that many convenience store chains are running out of all or some gas grades.

"Georgia’s price gouging statute prevents retailers from selling goods or services at an unreasonable or egregious price."

Elsewhere, in a testament to the success of public schooling in America, the Atlanta Journal-Constitution reported, "More than 1,400 drivers have complained to the state about gas gouging in the past two weeks, and the state has subpoenaed sales records from 130 stations to determine if they illegally jacked up prices.

"It will take several weeks to determine whether stations were illegally gouging consumers.

"‘We have enough questions about this – 130 – that we’re asking them for information,’ said Bill Cloud of the Office of Consumer Affairs. ‘When they send us that data, we may say, ‘Well that’s not price gouging,’ and that would be the end of that.

"‘But if we look at some of the data and it looks a little hinky to us, we’re obviously going to pursue it as a case.’

"While gas stations are allowed to raise their prices as the price of gasoline goes up, they have to keep the same profit margin they had when the governor activated the law, Cloud said.

"The state had one report Tuesday that an Acworth station was charging $8.82 a gallon, but that report hasn’t been verified, Cloud said.

"However, state officials are getting fewer complaints about gas gouging than they did after Hurricane Katrina three years ago.

"‘I think part of that may well be that the stations are much more attuned to the price gouging laws than they were before Katrina,’ Cloud said. ‘It sunk in with enough people that we don’t go away on this.’"

According to the story, the state government of Georgia shook down gas stations and hotels for $180,000 in the wake of Katrina; as we can see, they’re looking to do it again.

And, in an op-ed for the Atlanta Journal-Constitution by Chris Clark, Executive Director of the Georgia Environmental Facilities Authority, and Carol Crouch, Director of the Environmental Protection Division at the Georgia Department of Natural Resources, the pair praised the Georgia state government’s response, including that "Gov. Perdue activated Georgia’s price-gouging statute to protect consumers from unlawful increases in gas prices and other products."

Then, after lauding the government for forcibly stopping the market from producing the one thing – pricing information – that would have caused most people to voluntarily conserve gasoline during the shortage, they concluded their editorial – without the faintest hint of irony – by writing, "Until the refineries and pipelines that Georgia relies on for fuel return to normal operations, we ask Georgians to continue to do their part to conserve fuel by reducing unnecessary travel, carpooling and using mass transit, telecommuting, driving a little slower, and refueling only when low on gas."

The Invisible Hand

The irony is that so-called "price gouging" is nothing but the market at work. When supply falls relative to demand, the price of that good or service climbs as a signal to consumers about the new reality. If there’s a panic among buyers, causing demand to rise as supply falls, then the price rises still further. On the whole, those higher prices cause people to voluntarily ration their consumption, because they can’t afford to use as much as they did before. The higher prices also alert businesspeople to the shortage, which signals producers to produce more, and retailers who already have more than enough supply in their region to send some of it into the shortage region, so they can earn higher profits than they could at home by helping to relieve the shortage elsewhere.

The Visible Glove

But when prices are forced to remain at pre-crisis levels, it produces the perverse incentive for the first people in line to take more than they would if the prices were higher, leaving less for the next people. Equally perversely, such measures also eliminate the incentive for businesses from outside the crisis area with surplus supplies to come in to alleviate the shortage, because there are no extra profits to be earned for doing so.

We’re seeing exactly this scenario play out now in the southeast. There could be plenty of gasoline available for $5, $7, $10, or whatever price per gallon would create equilibrium between present supply and demand. If that natural market process were allowed to occur, consumers could choose to do without gas for a while if they felt the price wasn’t worth it to them – or they could choose to still buy all they want – if they’re willing to pay the higher prices. Instead, the government has kept prices at unrealistic, pre-crisis levels, and the result is that consumers are forced to do without gas because there’s none to buy at the artificially low prices.

Further, price controls are also an affront to property rights, which are the foundation of civilization. Any property owner has every right – if not every obligation – to attain the best possible price for his property. By what right does an unaffected third party presume to forcibly interfere?

Further still, notice the inherent arbitrariness in the wording of these statutes, using terms like "unfair," "unreasonable," and "excessive." Charges on such vague terms are probably difficult to disprove, which must make it easy for governments to shake down businesses for "price gouging" fines – which is likely no small part of why such statutes were enacted in the first place.

Ignorance or Malice?

It’s possible that some of these politicians and bureaucrats mean well, and really are so ignorant that they truly think anti-"gouging" laws really help regular people. If so, this is another argument against political power, because such people should not be able to force the consequences of their economic ignorance at gunpoint onto thousands or millions of people. Contrast this situation with the market, where people generally aren’t hired for influential positions for which they’re unqualified; when they are, neither they, nor their employers, can force anyone to associate with them; and companies that make a habit of hiring such people usually go bankrupt.

But a cynic can’t help but wonder if most of these people really are that ignorant, or if they’re conscious of the fact that their policies are hurting average people, but proceed anyway for some self-interested reason. Maybe they’re what Butler Shaffer describes as "people pushers," people who have totalitarian, control freak personalities they desire to indulge at the expense of others. Or maybe they’re somehow gaining financially or advancing their careers by such actions. Or, again, maybe they just found another easy way to raise money, by fining businesses for invented crimes.

If nothing else, anyone in government who understands the real function and value of "gouging" certainly has no incentive to admit it; if they acknowledge that the voluntary exchanges of individuals known as the market rations scarce resources as well as possible, and alleviates shortages as quickly and easily as possible, and that people don’t need to be "protected" from high prices, because they can decide perfectly well on their own whether to buy something – and, if so, how much, then how do the parasites justify their jobs, salaries, and the coercive power they presume to hold over others?

They can’t, and therein lies a message for members of the parasitical political class regarding anti-"gouging" laws, no matter their motivation behind enacting such impediments to trade.

For the well-meaning: blocking pricing information from adjusting to fluctuations in supply and demand will accomplish the opposite of what you’re trying to do; rather than preventing people from being "exploited" and "gouged," you’re exacerbating shortages and extending them for the longest possible period, ensuring that people can’t find for any price the things they need to endure a crisis.

For the sociopaths: there’s a growing remnant who are wise to your "public servant" charade, and we don’t appreciate having our standard of living eroded so that you can play petty dictator, enrich yourself, pay off political debts, or chase whatever other self-interested motivation you’re trying to catch.

Legalize Freedom

Regardless of the motivations behind such laws, the only way to ensure that people can get what they need before, during, and immediately after a crisis is simple and clear: repeal them all. Legalize price gouging!

September 30, 2008

Johnny Kramer [send him mail] holds a BA in journalism from Wichita State University. He is one of the authors and editors of the first-ever biography of Ron Paul, Ron Paul: a Life of Ideas. For more information on his work, or to hire him as a writer, editor, or to speak at your next event, please visit his website.

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