Gouge this

Maybe you think you know what I’m going to say about the Federal Price Gouging
Prevention Act
. So I’ll surprise you by only saying nice things about the bill.

Here’s the
key provision of the Act
that was approved last week by the U.S. House of Representatives:

It shall be unlawful for any person to sell, at wholesale or at retail in an area and during a period of an energy emergency, gasoline or any other petroleum distillate covered by a proclamation issued under paragraph (2) at a price that–

(A) is unconscionably excessive; and

(B) indicates the seller is taking unfair advantage of the circumstances related to an energy emergency to increase prices unreasonably.

The first nice thing I have to say about this bill is that it is mercifully short at only 12 pages. Unlike the monstrous behemoths written into law by the previous Congress, such as the Energy Policy Act of 2005, which I’m convinced that no congressman actually read, I suspect there are a few– not many, mind you, but a few– representatives who’ve actually read the Federal Price Gouging Prevention Act in its entirety. This of course is an entirely different proposition from claiming that there are any representatives who in fact understand the economics behind it.

The second nice thing about this bill is that it would only hold during an energy “emergency”, which is legally defined with reasonable narrowness and specificity, applying only to a 30-day period triggered by presidential declaration. That will hopefully limit the amount of damage this legislation could do.

The third good thing about this bill is that it leaves enforcement up to the Federal Trade Commission. I am quite certain that, under any administration, FTC staff are going to be vastly more economically literate than the typical judge, jury, or politician, and will approach the analysis of what is actually going on with supply and demand in a given situation with some degree of basic understanding.

Now, in case you feel cheated that I didn’t mention any of the potential criticisms of this legislation, let me outsource that to Lynne Kiesling:

We’ve commented here before on how anti-consumer, ridiculous, specious, and ineffective such legislation would be. Part of the reason that’s true is that Rep. Stupak is wrong: “price gouging” is such a subjective and ill-defined concept that the FTC is quite unlikely to be able to determine it once they had a law to uphold….

…not only is Rep. Stupak’s legislation vague and ill-defined, it’s substantively vacuous. It’s a strong statement on the populist demagoguery that characterizes politics that such a strong majority of the House voted for it, reinforcing my perception that this is all about posturing and nothing about underlying economic fundamentals or the true well-being of their constituents.

So there you have it, as we try to be fair and balancedTM, presenting both sides of the argument. How could you expect anything less from Econbrowser?



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15 thoughts on “Gouge this

  1. me

    “”price gouging” is such a subjective and ill-defined concept that the FTC is quite unlikely to be able to determine it once they had a law to uphold….”
    The gas tax in Florida is $.18 higher than Georgia yet Georgia gas is higher. Somebody is getting gouged since Georgia used to have one of the lower gas prices.

  2. JDH

    According to the American Petroleum Institute, taxes are $0.51/gallon in Florida and $0.402/gallon in Georgia, a difference of less than 11 cents per gallon. According to Gas Buddy, the current retail price in Houston County, GA is $2.99/gallon, while the price in Suwanee County, FLA is $3.12/gallon, and difference of 13 cents. Georgia is uniformly cheaper than Florida (contrary to your claim), and the difference is roughly in line with the tax differential. And don’t forget that in many parts of Georgia you are prohibited by law from purchasing the same cheap gasoline that is used in much of Florida.

    I don’t suppose by any chance you’re on Rep. Stupak’s research staff, me?

  3. A Stitch in Haste

    The Most Unconstitutional Law Ever?

    To review:

    Vague laws offend several important values. First, because we assume that man is free to steer between lawful and unlawful conduct, we insist that laws give the person of ordinary intelligence a reasonable opportunity to know what…

  4. Preston

    Boo Hoo! The price per gallon in Ohio is hovering around $3.50 right now. The local papers are more interested in citing we should “cut our addiction” to oil, then actually determining why we are paying these high prices.
    I don’t travel much at all. I stayed home this weekend. I drive 30 miles each way to work 5 days a week, because the only decent paying job I could find was that far away. I don’t travel for pleasure, and only drive outside of going to work when it is necessary. I am certainly not wasteful, and I drive a fuel efficient car. (Saturn SL2 Sedan) Public transportation is pretty much non-existent here. Yet, I am still paying upwards of $75 a week just to go to work and run to the store for groceries. And that figure is climbing.
    I personally believe we as a society have been conditioned and prepared, after years of prodding and testing our limitation of what we’ll put up with, to not only pay $2 to $3 a gallon for gas, but actually think we’re getting a great deal for our money. And it continues still. I’ll be willing to bet $4 gas will seem like a bargain before too long.
    All I have to say is gas was $1.46/gallon the day Bush took office. I’m not saying Bush directly conspired with the oil companies to raise prices, but his actions have certainly contributed to the factors that have caused the rise of what we pay at the pump. (I could go on for days with the “If not for Bush doing this…” list)
    And future respondents: Please don’t paint me out to be a Liberal, It’s simply not true. It is possible to hate a particular politician or a particular administration without actually hating his party. I consider myself an independent thinker, and when I smell B.S., I usually tend to believe it is B.S. And today, B.S. smells a lot like freshly pumped gasoline…

  5. Rich Berger

    (I could go on for days with the “If not for Bush doing this…” list)-
    And you style yourself an independent thinker?
    Jim-
    What is it about the price of gas that brings out the conspiracy devotees?

  6. DickF

    JDH,
    Thank you. This made me laugh. You were successful in only saying good things about the bill, but of course all of your good things were that the bill would be impossible to enforce. Yes, I do believe you did this on purpose – quite a laugh.
    But…somewhat to the substance, do not underestimate the willingness of politicians to enforce the unenforceable if it will give them political points with their constituents. For example I remember a story about the aftermath of a South Carolina hurricane where some college students traveled to another state and bought ice. They then returned to South Carolina and were selling the ice out of the back of a truck at, if memory serves, four times the price they paid. Well, people lined up for blocks to buy ice. When the authorities found out the kids were “price gouging” they shut them down and hauled them and their ice off to jail. But all of that is nothing compared to the fact that as the boys were put into the police cars those standing in line – those who would now get no ice – began to cheer and applaud the police for shutting down their distribution of ice. It was insane, and it demonstrates just how successful the “price gouging” demagogues have been.
    If we really want to solve the problems with resources moving into disaster areas we need to make “price gouging” laws against the law.

  7. me

    jdh,
    “I don’t suppose by any chance you’re on Rep. Stupak’s research staff, me?”
    Busted. I was lazy and sorry I made you do the math (as I should have done). I merely repeated what a letter writer in the AJC wrote. They don’t check facts either. Sorry.

  8. Davey

    “I personally believe we as a society have been conditioned and prepared, after years of prodding and testing our limitation of what we’ll put up with, to not only pay $2 to $3 a gallon for gas, but actually think we’re getting a great deal for our money. And it continues still. I’ll be willing to bet $4 gas will seem like a bargain before too long.”
    Preston, by definition, you’re getting a good deal for your money, or you wouldn’t pay today’s prices. Jeez, Preston, is it Bush’s fault you drive 60 miles a day for work? Who made that choice? Who, or what, mandated that? Did you have a say in either where you chose to work or chose to live, or did Bush make that choice for you? Maybe it would be a good idea to take a job for less pay but has lower costs associated with it. If you only had a 10 mile commute, wouldn’t that reduce your travel costs to a third of what they are now? At your current cost of $75 a week, that would save you $50 a week or $200 a month. Go on, give yourself a raise. I don’t understand why people have this notion that they have no ability to react to economic conditions or that economic conditions must always favor their particular situation. Jeez, don’t just sit there and bitch about it; do something about it!

  9. OilGasFutures.Com

    good post, interesting observations on a critical issue, looks like summer is going to see some record high prices, investors can easily position themselves for this and those who understand what is going on with oil and gas globally have showed some spectacular success over the last 12 months or so—it looks like this is only continue as supplies are simply no tbeing replenished—-Patrick Kerr, Oil Gas Futures

  10. Hitchhiker

    These comments from many indicate a preference for market mechanisms over political posturing. I think our representatives in Congress are doing a fine job. We all know the whole world is controlled by a vast conspiracy with Bush as chief puppet for those who set gas prices and also control the media and all other industries.
    Those hard working men and women in congress are in a far better position to know what is right and wrong than we are. We must trust them to make all our decisions for us since we can never hope to have complete knowledge about such issues. I know they have my best interests at heart and, that is all that matters. A man of the people such as Chavez, Castro, Stalin, etc should not be judged too harshly. They made some mistakes but, the underlying philosophy is sound. A single man, or group of men, can make all societies decisions and produce a paradise on earth where each man produces according to his abilities and receives according to his need. If you all would just be quiet and stop complaining we would be that much closer to paradise. Get with the program fellas.

  11. calmo

    You B good Hitch, but overshadowed by Berger…deep, deep shade…the lunar eclipse maybe.
    I don’t know whether to laugh or cry with Rich’s post…
    (I could go on for days with the “If not for Bush doing this…” list)-
    And you style yourself an independent thinker?
    Jim-
    What is it about the price of gas that brings out the conspiracy devotees?

    Thanks for keeping it so mercifully short Mr. Independence (I cannot bring myself to type the last bit, you?)
    Could be the legislation formulated in concert with the Energy committee to chase the retail gougers.
    Too funny and too sad to go further.

  12. wogie

    Label it what you wish, something is going on in the market that represents significant change. From EIA numbers: components of the price of a gallon of diesel:
    Dec ’03
    Refining ……………………………..11.6%
    Taxes…………………………………32.4%
    Crude Oil……………………………..47.1%
    Apr ’07
    Refining………………………………23.4%
    Taxes…………………………………16.4%
    Crude Oil……………………………..50.5%
    I think this shows where most of the profits are going — and crude has been a piker

  13. Bruce Hall

    So, really who is to blame for the “gouging?”
    - States that have both a gasoline (flat) and sales (percentage) tax per gallon?
    - Activists who say “no refineries here, ever?”
    - China?
    - Consumers who choose vehicles with engines over 50 hp?
    - Commodity speculators?
    - EPA that demands special summer blends?
    Who could possibly causing the “gouging?”
    But help is on the way. For only $100,000 you will be able to buy a lithium-ion battery powered sports car with a 250 mile range. Replace the $35,000 battery pack every 3 or 4 years. Pay the hazardous waste fees for recycling the old batteries. And wish for the good old days of $3.50 per gallon gasoline.

  14. Buzzcut

    Consumers who choose vehicles with engines over 50 hp?
    Not only that.
    Consumers who demand safe vehicles (that, consequently, weight as much as 500 lbs. more than an equivalent vehicle from the 1980s)
    Consumers who demand more and more features in their vehicle.
    Drivers who refuse to change HOW they drive to get better gas mileage (i.e. SLOW DOWN).
    There’s plenty of blame to go around.

  15. david

    So:
    1. Bill basically does nothing. It applies only in the case of a Katrina-style price jump, likely coinciding with release of strategic petrol reserve. And gouging is undefined.
    2. Bill makes a lot of undereducated people feel a lot better.
    Price gouging is morally wrong and should be punished. The only problem is that “gouging”–which is by definition the immoral sort of price hike–is undefined.
    This may be demagoguery, but its the sort of demagoguery that doesn’t really hurt anybody–exactly the kind that should be encouraged, particularly with comparison to (say) most trade protectionism.
    The politicians are doing their job–the economics is right AND the politics is right.

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