Price fixing?

0 Comments | Gazette, The (Colorado Springs), Nov 20, 2006

Former Soviet Premier Nikita Kruschev once noted, "Politicians are the same all over. They promise to build a bridge even where there is no river." He wasn't speaking literally, of course. He was referring to the bad habit politicians have of spending taxpayers' money on programs that have little or no real value, but make it appear as though they are solving some great problem. Such is the case with a bill that deals with gouging on gasoline prices.

At a conference last week, Federal Trade Commission head Deborah Platt Majoras told attendees she's worried Congress will pass a law to punish price gougers, despite her repeated warnings that such a law likely would cause gasoline shortages. The FTC studied the situation and determined that a law banning gas price gouging is not needed to protect consumers.

Last year, reacting to public anger at high gas prices after Hurricanes Katrina and Rita damaged oil platforms and refineries in the Gulf of Mexico area, politicians started talking about "doing something" to protect consumers. The Senate has thus far resisted the temptation to grab headlines, but last spring the House passed a bill that would send price gougers to jail or hit them with heavy fines. Majoras, echoing many economists, says that's not the answer.

According to an Associated Press report, Majoras told the Senate Commerce Committee in May she feared retailers probably would sell out of gasoline at below-market prices, creating spot shortages, rather than risk running afoul of an anti-gouging law.

Unlike many in Congress, Majoras understands the effect of higher prices. They curtail consumer purchases in times of tight supplies, thus allowing more consumers access to those supplies, and stimulate producers to get more supply to the market, thus increasing profits in the short term. Everyone's happy, right? Well, no. Consumers often act as though they believe prices should never rise, regardless of the circumstances, so they complain publicly and loudly and Congress takes action, even when that action is not in anyone's best interest.

Majoras told attendees at last week's conference that after gasoline price hikes following last year's hurricanes, her agency investigated the gasoline market. "We looked very carefully and didn't see any new legislation needed to protect consumers. Will new legislation be passed? I think we will see a pricegouging statute pass" after the new Congress begins work, she said. That would be a shame and, as Majoras fears, could lead to spot shortages.

When gas is in short supply and demand is high, prices rise to reflect the scarcity. Consumers must decide how much of it they wish to buy at the higher price. They'll likely decide to purchase fewer gallons at a time, leaving more on the market. That slows the rise in price because the demand is lower. If retailers are artificially limited by law to a certain price ceiling, the price might not rise to the level at which consumers cut back on purchases. That would allow some customers to buy more and some customers would get less or even none. We saw such a situation when the Carter administration used price controls on gasoline to address the oil crisis in the late 1970s. Customers sometimes waited in lines for hours, only to have gas stations run dry before they got to the pump. When Ronald Reagan abolished the price caps, lines disappeared, there was enough gas for everyone and prices eventually fell.

Anti-gouging laws are slightly less inhibiting than outright price controls, but the threat of jail and fines has the same effect: it keeps prices artificially low and adds to the problem. Last year's short supplies caused higher prices, but there was always plenty of gas for those willing to pay. The market worked and provided drivers with the gas they needed. Any limits were self- imposed, with consumers restricting their driving by carpooling and combining errands, and taking other gassaving measures to deal with high prices.

This latest gas "crisis" showed that market forces, if allowed to, will adjust to provide what consumers want or need. There is no need for Congress to step in and apply the heavy hand of government to a market that is functioning as it should. Like Majoras, we worry that such meddling would make matters worse rather than better.

Government overreaching hits new low

It can be argued -- with much justification -- that most laws and ordinances at every level of government are unnecessary, and only intrude on the freedoms of people who generally act reasonably. That doesn't stop city councils and county commissions, and state and federal lawmakers, from piling on the impositions.

One of the latest cases we've heard of comes courtesy of the Harlingen, Texas, City Commission. Commissioners voted Oct. 18 to make it a crime for any gas station attendant to activate a pump without receiving payment in advance.

We realize driveoffs often add up to hundreds of cases per year, but they are a small fraction of the business any station gets. In addition, most people tend to fill up their tanks at the same place frequently and the attendants learn to recognize and trust many of them.