April 19, 2007
Current Congressional proposals to address alleged practices of gasoline "price gouging" through intervention to control prices, reduce demand or increase supply, however temporary, will create more instability in the marketplace, not less, say Bill Archer (R-Texas), the former chairman of the House Ways and Means Committee and Charles Stenholm (D-Texas), the former ranking Member of the House Agriculture Committee.
Nevertheless, Congress is set to consider proposed federal legislation to make "price gouging" illegal. If enacted, proposals such as the Federal Price Gouging Prevention Act recently unveiled by Rep. Bart Stupak (D-Mich.), would function like controls on gasoline prices. According to a recent study by the American Council for Capital Formation:
- The estimated costs associated with price controls, had they been implemented as defined under current legislative proposals during the supply disruptions that occurred during the 2005 hurricanes, would have totaled $1.9 billion.
- In every case, price increases were due to the market operation of supply and demand -- not withholding supplies.
- Imposing criminal charges for price increases would discourage suppliers from obtaining higher-priced replacement supplies, therefore limiting consumers' access to gasoline supply.
- The expectation of price controls could discourage refinery investment, resulting in tighter capacity at all times.
Even when price controls have been designed carefully and included very specific rules defining legal prices and specific enforcement mechanisms, they have proven to be failures of enormous consequence. History and basic economics teach us that price caps result in shortages in the market and hardships for consumers. Anyone who remembers the gas shortages and inflation from the 1970s knows that this is not a legacy to fall back on.
Source: Bill Archer and Charles Stenholm, "Gasbags," Wall Street Journal, April 19, 2007.
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