Say Anything Blog

...and so naturally it’s time for protectionist, anti-free trade panderers like Byron Dorgan to start their annual jihad against the oil industry.  Last year it was his absurd “windfall profits tax” plan that would do nothing but make gasoline more expensive for all of us, now this year Dorgan is going after so-called “price gouging.”

(WASHINGTON, D.C.) --- The U.S. Senate Commerce Committee today approved an amendment by Senator Maria Cantwell (D-WA) and Senator Byron Dorgan (D-ND) to crack down on price gouging on the price of gasoline.

The action came as the national average price for gasoline was setting a new all time high-price record.

The amendment gives the President authority to declare a national energy emergency and make it illegal for suppliers to sell crude oil and gasoline at excessive prices in areas declared to be experiencing an energy emergency. It also gives the Federal Trade Commission and State Attorneys General greater authority to investigate price gouging year round.

“We learned in the Enron scandal that energy markets are not only vulnerable to market manipulation, but in fact, have been manipulated at a cost of billions of dollars to consumers. And we learned after Hurricane Katrina, that there are some who will take advantage of unfortunate circumstances to price gouge,” Dorgan said.

There are two major problems with this plan:

When there’s an “energy emergency” there’s usually a reason for it.  Like a natural disaster or something like that.  And energy prices always go up in response to it as a way for the private companies who deliver our energy to cope.  Dorgan complains about gas prices after Katrina, but remember that the oil industry didn’t come through that hurricane unscathed.  There were pipelines, refineries, oil platforms and all sorts of other things to repair.  Plus there was a manpower shortage as a lot of the oil company’s employees were effected personally by the disaster.  To get all that infrastructure back online took a whole lot of money, so temporarily gas prices went up.  Both because the oil industry was producing less gasoline and because it had repairs to do.  Yet, if Byron Dorgan has his way, the oil industry wouldn’t be able to recoup those expenses.  They wouldn’t be able to charge more for gasoline in disaster areas.  So what would happen?  Well, the oil industry would probably end up recouping those expenses elsewhere in the country, only we’d all pay more because the disaster zones wouldn’t be paying an increase at all. 

Because whether Byron Dorgan likes it or not, supply and demand still dictates prices.  And repairs still have to be made.

There’s also the idea that there’s no such thing as “price gouging.” If prices for gasoline (or hotel rooms or water, etc.) go up during a natural disaster it’s simply a reflection of increased demand for those things.  And it should be seen as a good thing because those higher prices serve to conserve more resources for more people.

Think of it this way: In the aftermath of a hurricane a guy and his family rushes to the local Select Inn where rooms are usually $34.00/night.  Because the rooms are cheap this guy rents out four of them, one for him and his wife and one for each of his two kids.  Now that’s four rooms that aren’t available to the next person who comes along.  But if the Select Inn “price gouges” and charges this guy $100/night maybe he only gets two rooms, thus leaving two more available for the next people that come along.

It works the same with gas prices.  If the prices go up people are more likely to take just what they need instead of more than they need leaving less for everybody else.  “Price gouging” is simply Adam Smith’s “invisible hand” in the market working to conserve resources while still giving the people what they need.  And trust me, we’ll be worse off if we let people like Byron Dorgan screw with it.

Besides, if Byron were truly interested in cheaper gasoline he’d call for a few less “bridge to nowheres” paid for by federal highway dollars and then would cut some of the massive taxes on the oil industry, which pays more in taxes than it takes in for profits.

And just to go in an entirely different direction to show that government interference cuts both ways, consider this rather stupid example of a gas station getting in trouble for not charging enough for gasoline.  This is what happens when we start letting the politicians dictate what private industry can charge for goods and services.

It’s high time we told people like Byron Dorgan to butt out.