Saturday, September 13, 2008

Price Gouging Laws

Ike disrupts gas flow in WNC
Asheville Citizen-Times | September 13, 2008 . . .

The above article states that, "[NC Gov.] Easley said consumers should not be seeing prices increase much more than 20 cents per gallon."

How does a government official know what the price of gasoline should be?

The article further states that, “’The run on gas is creating a crisis before there is a crisis,’ AAA spokeswoman Carol Gifford said."

This is exactly correct. Panic is making a temporary resource shortage worse and is causing pumps to dry up.

The price should be able to fluctuate freely to direct these resources to where they are most needed. “Price gouging” laws are exactly the wrong thing to do.

The gas stations that are running out of gasoline did not raise their prices high enough. And why? The natural economy is now against the law.

Sorry: fire trucks, ambulances, police, buses. We ran out of gas because the prices were too low. What caused prices to remain lower than they would have in a natural economy?: the government.
Gov. Mike Easley declared a state of “abnormal market disruption,” a move charging Attorney General Roy Cooper with enforcing the state’s price gouging law.

Thanks, all-knowing government for once again interfering in the marketplace and for once again getting it wrong.
Triple-A says some North Carolina stations have placed restrictions on the number of gallons people can buy, but cautions the worst thing drivers can do is flock to filling stations to top off their tanks.


One important function of prices is to signal to the consuming public the available supply of a valuable product or resource. When the true picture of that availability is skewed by government intervention, the consumer cannot get an accurate picture. This causes malinvestment and false scarcity.

When panic is in the air and the government forces businesses to fake reality and keep prices low, then this is a recipe for a real disaster.

**UPDATE** from Mountain Xpress:

bobaloo wrote: “‘How does a government official know what the price of gasoline should be?’ Because that’s part of their job. You know, economics.”

Economics is not the proper job of the government. Government interference in economics is improper. Moreover, it is unconstitutional. The proper role of government is the protection of individual rights—and no more.

ashevillerock wrote: “i’d be terrified if i saw an ambulance at a bp”

I have not mentioned BP or any other commercial or noncommercial outlets for local gasoline supply. Besides, there are other non-emergency activities where critical resources should be diverted. Prices help drive those resources to their best, most important uses. A city-dweller topping off two cars and a lawnmower ain’t it.

zen wrote: “I think you’ve romanticed free market capitalism and confused the freedom of the individual with the rights of people with money to do whatever the f*ck they want because they have the power to do so.”

No, I have not confused these things. Capitalism is a social system of freedom. Freedom is supported by limited government and a rule of law. The Declaration of Independence makes this case and so do I. Any social system that is not circumscribed by a rule-of-law that protects individual rights is not free.

PatD wrote: "Unbridled capitalism leads to the ridiculous mess we are in today. "

This is not correct. It is government interventionism that has led to the "mess we're in today." The Federal Reserve is a private bank sponsored by the U.S. government. The Federal Reserve Act was signed into law in 1913 and allows this central bank to print money (look at a dollar) and control the economy. Lobbyists curry favor among elected officials. Insolvent corporations do not bail themselves out.

Rob Close wrote: "I do see how all the businesses raising their prices equally at once is in clear violation of Anti-monopoly laws. Those laws are there to keep Capitalism working smoothly"

Anti-trust laws are there to allow one business to use the coercive force of the government to eliminate competition in the free market.

ashevillerock wrote: "Did i read this right? So you don’t think that the government should be interfering in this situation but you think we need our individual rights circumscribed by laws? Are these price gouging laws not the circumscribing laws you’re speaking of? If these laws were not in place we’d be less free? Yet they’re still wrong? "

This is not what I said. The government is (and should be) instituted to protect individual rights. Price gouging laws violate a property owner's right to trade freely in a natural economy.

ashevillerock wrote: "is raising gas prices an effective and reasonable deterrent from buying gas in a time of panic (apparently there’s no shortage, just a panic)?? "

Yes. This is the free market solution to scarcity. One important function of prices is to signal to the consuming public the available supply of a valuable product or resource. When the true picture of that availability is skewed by government intervention, the consumer cannot get an accurate picture. This causes malinvestment and false scarcity. When panic is in the air and the government forces businesses to fake reality and keep prices low, then this is a recipe for a real disaster.

Cheshire wrote: "Without government intervention via laws passed, the 'true free market' would have been dominated by monopolies long ago."

Monopolies are not possible in a 'true free market.' A free market would be open to competition but protected from predation.

Only the government can establish a coercive monopoly. Government intervention, or corporations using government, use force to eliminate competition.

Molton wrote:

Molton perpetuates the fallacy of “price gouging.” I echo the comments of Thunder Pig: “There is no such thing as price gouging.” However, Molton inadvertently makes an unintended point: no consumers have to shop at his fictitious gas station selling gas at very high prices. Individual retailer’s raising prices above market opens the door for entrepreneurs to enter the market and under-sell competitors for a profit.

**UPDATE** from Scrutiny Hooligans weblog:

Clarence Young: Too bad, “gouging” was not allowed. We would have the availability of gas. The government has caused this problem by clamping down on gouging. If some gasoline dealer priced his gasoline at $8 per gallon or more, he would likely have gas. The customers would come in and buy the least amount possible–not the most they could cart away to hoard. Yours in hoped for liberty!

Gordon Smith: Right! Then the people with expendable income could drive to work, and the poor could just suck it up and deal with it. Libertarianism is fun! (if you have some money)

Clarence Young is quite right.

Gordon, everyone has expendable income — even the poor (like meeeee-eeeeee). Sometimes discretionary funds can be found in cash or debt, sometimes in physical assets, or just in time and effort. Even charitable efforts can help the poor surmount difficulties.

The important aspect is that the natural economy should be able to provide important economic information to the community to its greatest possible benefit. And this information should be honest.

The function of price should be allowed to operate freely and without government interference to give consumers an accurate picture of the supply of a value and the varieties of demand being placed on that value over time.

Instead, what we have is the government forcing business owners to falsify the true picture of gas supplies by keeping prices low. Forcing prices to be too low allows for the full range of non-essential consumption that has led directly to gas outages across the region.

Gas stations should have been able to raise prices by calculating current supplies, changes in demand, and anticipation of renewed supplies. Ideally, a station should raise prices to ensure that there is still a gallon left when the tankers arrive.

$8.00 per gallon for a few days is far better than free gas that ain’t there.

Yes, libertarianism is fun.

bobaloo says: Clarence, the market could still self-regulate by not allowing people to buy unlimited gas. Doesn’t this make as much sense?

Rationing can make sense in certain instances, such as concert ticket sales. But it is a poor substitute for the effectiveness of pricing in a free commodities market.

The key problem with rationing is that it is arbitrary: Who will use what formula to determine which consumers deserve how much gas for which uses and for how long? No one has this information. These are all functions of a free market that are circumvented by an arbitrary, coercive and ultimately unfair contrivance.

Rationing takes away the decision-making power of individuals. With freely fluctuating prices, individuals remain free to make economic decisions that best suit their conditions and abilities. Individuals are the better decision-makers in this case, not central planners.

**UPDATE** from Scrutiny Hooligans weblog:

Thunder Pig: The Press Conference yesterday was a total waste of time.

Among other things, I was especially disappointed in the comments made by Rep. Charles Thomas, who has in the past held better public policy views. He was, in a somewhat mean-spirited manner, essentially threatening honest and struggling business-people with oppressive and punitive government legislation; which type of intervention is already responsible for exacerbating a mild, short-term tightening of supply.

His focus is entirely misguided. He should pivot and take a look at the myriad interferences by governments that set in motion the domino effect of economic error.


What to Do About Gasoline Prices
by Alex Epstein | ARI Media | March 27, 2007
In response to recent rises in gas prices, we are once again hearing calls for the government to "do something" to force prices lower. But no matter what the price of gasoline is, such calls are wrong. All market fluctuations in the price of gasoline, up or down, are a good thing—and none of the government's business.

How Katrina Turned Off the Oil
Platts Oilgram News | August 31, 2005
An on-the-ground look at where Gulf Coast refiners and pipeline operators stand in the aftermath. For some, it isn't pretty.

N.C. price-gouging law promotes gas lines, shortages
Dr. Roy Cordato | John Locke Foundation | September 15, 2008
Consumers can blame North Carolina's price-gouging law for the gas lines and shortages appearing in the wake of Hurricane Ike. That's the assessment of a John Locke Foundation analyst who has studied the unintended consequences of price-gouging legislation.

Do Hurricanes Cause Shortages?
Art Carden | Mises Institute | 9/15/2008
Hurricanes don't cause shortages, however. Price controls do.

How To Solve This Atlanta Gas Shortage
Neal Boortz | Sep 27, 2008 (no permalink)
So, how do you stop the panic buying? Easy. You let the market do what the market does.

Politically Contrived Gasoline Shortage
Craig S. Marxsen | The Independent Review | Spring 2008
Regulatory obstruction of investments in gasoline refineries is probably a more significant threat to the affordability of gasoline than any approaching exhaustion of oil reserves. Reestablishment of refiners’ reasonable property rights and adoption of strict liability as the major instrument for controlling carbon dioxide and refinery pollution might end what otherwise may become an ever-worsening, regulatory-induce “energy crisis.”

Gas sellers accused of gouging will repay drivers
Jordan Schrader | Asheville Citizen-Times | October 21, 2008
Gas stations in Western North Carolina will repay motorists $2,320 that Attorney General Roy Cooper says they overcharged, according to a legal settlement filed Monday.

How The Price System Works [video]
Jörg Guido Hülsmann | Mises Institute | October 07, 2008
Recorded during the 2008 Mises University, Jeffrey Tucker interviews leading Austrian Economists on the topic of Henry Hazlitt's classic book "Economics in One Lesson." (Interview 9 of 12) [27:38]