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« Do Your Part to Prevent Shortages | Main | More Katrina Commentary »

The Myth Of Price Gouging

Iain Murray says there's no such thing, joining me and the WSJ in continuing to expose this myth. He also says that the usual economic ignorami are sponsoring a bill for a federal anti-gouging law.

I've got a better idea.

Paul Dietz suggested in comments that a federal anti-rent-control law should be constitutional. I would think that a federal anti-anti-gouging law (that is, a federal law that proscribed states from passing anti-gouging laws) would be as well, since the Supreme Court has essentially decided that the Commerce Clause will justify anything, and that federalism is essentially dead. After all, state anti-gouging laws cause people to drive across state borders in order to get gasoline during shortages, or more perversely, to drive to states with the laws to get cheaper gas (until it runs out). It's exactly the same situation as we have with Canada and prescription drugs. So this clearly affects interstate commerce at least as much as a leukemia victim growing pot in their back yard. It might also have the effect of moving modern liberals even further into the previously despised federalist camp, and make them rethink their long-sought desire for Big Brother in Washington.

While I mourn the passage of federalism, we should at least take advantage of it to do some good. I would hope that if we really had a Republican congress, that an anti-anti-gouging law would have better chance of passage than an anti-gouging law. But then, I would have hoped that a supposedly Republican congress wouldn't have exploded the federal budget over the past four years as this one has...


Posted by Rand Simberg at September 07, 2005 04:16 PM
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A federal anti-anti-gouging law for gasoline shouldn't be necessary. The market for motor fuel is clearly national in scope, and state attempts to control its price represent unconstitutional interference with interstate commerce.

Posted by Tom Veal at September 7, 2005 06:35 PM

Several states already have anti-gouging laws. Are you claiming they're unconstitutional?

Posted by Rand Simberg at September 7, 2005 06:54 PM

Well now one could have price gouging if the supplier was a monopoly
or something similar. Otherwise I agree with Ian Murray's sentiment,
as long as a market, that is a significant number of different
producers and distributors, is present, then price gouging simply
isn't practical or given human nature even possible.

On the other hand if you live in an area where there is only one
gas station, or there are two gas stations whose owners cooperate,
then price gouging is possible, and even likely.

We have many monopolies in our society, starting with our government,
and they all have a tendency to price the value of their output
vastly higher than most of us think it's really worth.

Posted by Mark Amerman at September 8, 2005 12:54 AM

The only thing the first article points out is gouging doesn't exist at the gas station level. I'm not sure I believe that but that's irrelevant. How about gouging at the per barrel of oil level?

Consider this. When the war in Iraq started the price of oil went up sharply. Why? Do we buy enough oil from Iraq to justify the increase? I don't believe so. As the war continues the price of oil continues to climb because of the war...that's what's in the papers anyway. Well if the war prompted the rise in oil and the war isn't over...what changed? The pipelines are still a mess, the supply from there hasn't changed so why does the price go up? Why is it when there's a 'threat' of an oil pipe being blown up that oil prices go up over the 'fear'...and then AGAIN when it actually happens? Is the double whammy justified? When the problems in Venezuela (strikes and so forth) started the price of oil went up again...but that's expected as we buy A LOT of oil from there.

When oil hit $40 a barrel it appeared a certain amount of hysteria set in as it didn't take a lot for oil prices to jump. At $60 a barrel a state of hysteria would be an improvement. I can't help but wonder if all the Enron energy traders were rehired as oil futures marketers.

There's no balance and it's easy to form the opinion of a certain amount of collusion going on between the suppliers, the speculators and the companies. Hmmm...how much are people willing to pay? Is that opinion right or wrong? Why or why not?

Posted by CJ at September 8, 2005 09:50 AM

I can agree that price gouging is not applicable to the standard worker. However, I believe price gouging exists on a governmental level. In the above example, with the price of oil per barrel. OPEC controls the price, and they are a cartel. They can set the price to nearly anything they want and they'll get it, because the cost of producing the oil we use is astronomical compared to paying the price from OPEC. Supply is not the problem, being that OPEC can always say they're going to increase production. They may even increase production, but that doesn't affect the price, as they set it. More production means more barrels of oil to sell at a higher price for greater profit. I would like to point to the previous post again, Venezuela's internal problems caused oil to spike sharply...these things happen, but why does the price not reduce to a closer proximity of the pre-problem price? It doesn't.

Posted by Mac at September 8, 2005 10:06 AM


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