"Legislation to curb 'price gouging' is a solution in search of a problem. Time and again, the federal government is asked to spend what must amount to millions of taxpayer dollars to investigate claims of market manipulation and 'price gouging,' and has never found evidence of it on the part of our businesses. If only there was as much fanfare when the results of the investigations come in as there is when the investigations are announced."
Charles T. Drevna
Executive Vice President, National Petrochemical & Refiners Association (NPRA)
May 21, 2007
"A Solution in Search of a Problem"
The Federal Trade Commission (FTC) stated in its May 22, 2006 report to Congress that, in the wake of Hurricanes Katrina and Rita, refiners deferred scheduled maintenance to keep refineries operating, and companies drew down existing inventories to meet shortages. The regions that experienced the largest price increases were those that normally receive supply from areas affected by the hurricanes, not the hurricane-impacted areas on which Rep. Stupak's legislation is focused.
- " After Katrina, the FTC found "[n]o evidence to suggest that refiners manipulated prices through any means, including running their refineries below full productive capacity to restrict supply, altering their refinery output to produce less gasoline, or diverting gasoline from markets in the United States… ." (FTC Press Release, May 23, 2006)
An Unsound Policy and Contrary to the Lessons of History
As the FTC's chairman stated before Congress in 2005, the "omission of a Federal price gouging law is not … inadvertent, nor does it condone the practice. Rather, it reflects a sound policy choice that we should not be quick to reverse."
Federal price gouging legislation would be difficult to enforce and cause more problems than it solves. According to the FTC, if "prices are constrained at an artificial level for any reason, then the economy will work inefficiently and consumers will suffer." Rep. Stupak's bill is eerily similar to the laws enacted in 1973 to deal with oil and gas shortages, which led to higher prices, "no gas today" signs and long lines at the pump. Price controls are a proven failed energy policy.
A No-Win Situation for Wholesalers, Distributors, and Retailers
Every person in the distribution chain, down to the local gas station owner, would be faced with the Catch-22 of having to set a price at which to sell their gasoline, and then having to wait to see if someone complains that it was "excessively unconscionable." This is unavoidable for market participants because under Rep. Stupak's bill, if they refuse to sell their supply during an emergency, they may face criminal penalties for withholding supply from the market. Exceptions in Rep. Stupak's bill do not consider market conditions or the free flow of supply and demand.
An Ill-Conceived "Quick Fix" That Is More Harmful Than Helpful for Consumers
The Carter Energy Policy of the 1970s proved that the federal government is not better at allocating scare resources than the market. The free movement of prices signals to producers to increase or decrease supply and encourages suppliers to send more product into areas where there is the greatest need or demand. The free movement of price signals can also help to decrease demand and reduce the possibility of shortages.
Rep. Stupak's bill would cause emergency areas to run out of fuel. While it may force market participants to sell all existing supply, it would also discourage them from seeking additional supply to send into an emergency area - leading to shortages.
Gasoline Prices Should Be Determined by Market Factors, Not Government Bureaucrats
Other than the cost of supplying it, the prices consumers pay for gasoline are also driven our reliance on imported oil and increased global demand, particularly in developing nations like China and India. The federal government cannot improve the situation by telling producers, refiners, and retailers what they can charge for their product.