Pro Gouging Legislation

Supporters of anti-price gouging laws agree that gas prices spike in part due to market forces, but they also claim that the gas industry takes advantage of price surges to push prices even higher, knowing that Hummerites will still be at the pump. Supporters of the legislation argue that “supply shocks,” such as hurricanes, give gas suppliers a convenient excuse to gouge gas buyers even more—after all, who could tell whether the supply shock necessitated every single cent of the price hike, or if greedy suppliers had added a bit on top? The Hummer jockeys would have to pay regardless, especially if they were in an emergency situation and needed gas to get away.

This study from The Foundation for Taxpayer and Consumer Rights (FTCR, a non-partisan, but left-of-center advocacy group; not to be confused with FTC, the Federal Trade Commission) pins the higher gas prices on oil company profiteering, noting, “the primary factor in the price spike in the spring of 2006 is greatly enhanced refining and marketing profits.” The study aims to show that, in specific areas at specific times, speculative pricing allows oil companies to profit beyond the cost increases outside of their control.

Similarly, a study by Don Nichols of the University of Wisconsin tracks the markup price of a gallon of gas over a gallon of crude oil. According to his data, the markup price spiked after Hurricance Katrina. Professor Nichols hints, but never explicitly suggests, that price gouging caused these spikes.

A Response From the Pro Gouging Legislation Peeps

However, people on the left have sometimes responded that the free-market/supply-and-demand models apply to very competitive markets, but that the gas market is an oligopoly. That is, as James Surowiecki of the NewYorker has argued, the market power of large oil suppliers—whether state suppliers such as Venezuala and the OPEC nations or private companies—might allow them to set supply prices without as much reference to demand as would be necessary in the perfect free market model. The citizenJoe analysis of energy supply has more on this topic; for our purposes, it is only necessary to know that the level of competition in the oil and gas markets is important, not to say decisive, in the gas gouging debate.

Con Gouging Legislation

Of course, not everyone believes that anti-gouging legislation is the way to go. Two scholars from the Cato Institute, a non-partisan right-of-center think tank, provide this assessment, saying that all prices, including alleged gouging prices, send important signals about what is valuable, needed, scarce, and so on. Prices allocate more efficiently than Congress, these folks argue. Oil companies are profiting, but rightly so: their profits inspire them to provide a valuable resource, and more of it. Rising profits spur lots of people to find, refine, and sell more gas, so that, in the long run, consumers get more gas at a better price.

These long run considerations drive the analysis offered by Mr. James Griffen who opposes gouging legislation. Much like the Cato analysts, Mr. Griffen argues that unregulated prices provide the most efficient allocation of fuel resources in the long run. A law against “gouging” would only lead to long lines at the pump and real gas shortages (we’re talkin’ Soviet-style lines and shortages).

Charles Krauthammer of the Washington Post sums most of this up, “Say It With Me, Supply and Demand.” Like the others, Mr. Krauthammer sees nothing surprising, certainly nothing illegal, in the “high demand+low supply=high prices” equation. He adds that Washington’s periodic furor over high prices is as predictable as the high prices themselves.