Where were you during the war on price gouging?

Hurrah! Washington has heard the call to battle and is taking up arms to protect us all from price gouging.

“Anyone who is trying to take advantage of this situation while American families are forced into making tough choices over whether to fill up their cars or severely cut back their budgets should be investigated and prosecuted,” House Speaker Dennis Hastert, (R-Ill), and Senate Majority Leader Bill Frist, (R-Tenn), wrote in a letter to President Bush. Of course they only mean taking advantage monetarily, not politically.

What better way to protect us than with a mountain of useless paper? This explains why many, many different bills are winding their way through Congress to deal with this threat. The one just approved by the House would impose criminal penalties and fines of up to $150 million for energy companies unable to distinguish the difference between making money and making too much money.

This offensive against excessive profit continues the trend of declaring war on chimerical concepts that began with our efforts to curb “terror.” Don’t you miss the good old days when we only attacked nouns? The wars against cancer and poverty weren‘t any more successful than the current bunch but at least you knew what the hell we were trying to eradicate.

Just as no one can define terror, no one has any idea what price gouging is either. This fact is made plain in the GOP-sponsored House bill, which leaves it to the Federal Trade Commission “to develop a definition of price gouging.” You have to love a law that is so specific about the penalty and so vague about the crime.

It is imprecise because it has to be. Otherwise it would be totally laughable. Witness the efforts of Sen. Maria Cantwell (D-Wash.) who has proposed a bill that would levy fines of up to $3 million on oil companies, refiners, distributors, or retailers found to be “taking unfair advantage of the circumstances to increase prices unreasonably” or imposing “excessively unconscionable price increases.” This suggests that oil companies and their ilk would have a legal defense as long as they could prove a price increase was either excessive or unconscionable but not both.

The Cantwell bill does offer some guidance on the issue, saying that gouging depends on whether the price charged amounts to “a gross disparity” from the usual price of oil and gasoline. However, it does not give any specific dollar or percentage increase to define what “a gross disparity” would be. Once again the dirty work is left to someone else, in this case that would be the judiciary. (I found out about Sen. Cantwell’s bill while reading a story on MSNBC with the misleading headline: What is price ‘gouging,’ and can it be stopped? It was misleading in that it answered neither question.)

Price gouging, on capitol hill at least, is not unlike the old definition of obscenity – I know it when I see it. Consider this quote by Rep. Bart Stupak (D-Mich):

When we were doing the Energy Policy Act last fall, in the town of Midland, right by my district there, gas went up 90 cents in one day. Now, is that not gouging?

If you take a look at it, from September 2004 until September 2005, refineries have increased their prices 255 percent. Isn’t that gouging?

I mean, I think we all know what gouging is. What we need is a federal standard so we can hold the oil companies’ feet to the fire and make sure we know what factor goes into every gallon of gasoline, so at least the American public will have some transparency and get a fair shake on what goes into a price of a gallon of gasoline.

Well, that certainly clears things up. So if the folks in DC don’t know what price gouging is, does anyone else?

New York Attorney General Eliot Spitzer writes (in a column which makes repeated references to 9/11 – surprise, surprise) that

“New York State law prohibits price gouging during a state of emergency. The law specifically provides that, in order to prevent any party from taking unfair advantage of consumers during an abnormal disruption of the market, the charging of “unconscionably excessive” prices is prohibited.

New York’s law, like that of most other states, says that price gouging can only occur during a time designated as an emergency by the government. So it IS price gouging if a hurricane hits my state and you jack up the price of duct tape by 1000%, but it is not price gouging if you charge me $2 to conduct an electronic bank transaction that costs you $.002 as a part of normal business. Apparently no one has yet thought to make highway robbery illegal.

That is not just my opinion either. This is from Arizona Attorney General Terry Goddard’s testimony to the Senate:

Traditional price gouging laws are not in effect during periods of “business as usual”. Rather, they only go into effect when the normal competitive checks and balances of the free market are disrupted by a disaster or other emergency. When a population is trapped and desperate for essential supplies, like food, water, shelter and gasoline, victims do not have the opportunity to shop around or wait to purchase essential products until the prices go down. Demand is steady regardless of the price, so unscrupulous businesses can and sometimes do take advantage of consumers.

Need a rule of thumb? Then just remember unscrupulous business practices during an emergency = BAD. But unscrupulous business practices under other circumstances = Good.

(Special note should be made of Louisiana’s price gouging statute:

During a declared state of emergency, a merchant is prohibited from selling goods or services at values which exceed the prices normally charged for comparable goods and services in the same market area at or immediately before the time of the state of the emergency. Businesses may raise prices on items for which they incur additional costs, however, these price increases should not be excessive. Price gouging is a misdemeanor and can result in a $500 fine or six months in jail.

Well, if the threat of a $500 fine doesn’t keep Exxon in line what will?)

There are other definitions as well:

The sages at Princeton say it is “pricing above the market when no alternative retailer is available.” Which could be read to mean that any time you have a monopoly, you are a price gouger. So much for an Ivy League education.

My favorite definition is from a site called Neutral Source:

There is no objective definition. Economists–who specialize in price theory and the behavior of markets and can study these things ad nauseum–have no definition for it, either. In fact, economists have avoided the term as if it were a social disease. A review of all the microeconomics textbooks on Neutral Source’s bookshelf reveals that none have as much as an index entry.

…Price gouging is defined by a buyer, generally after the fact, who is deeply unhappy that the price he willingly paid was much higher than the price he would have preferred to have paid. As the gap between actual and preferred prices rises, the buyer’s sense of unfairness and anger towards the seller intensifies.

Equally good is one from a website called Truck and Barter, (which has the wonderful tag line “Where Sympathy and Hedonism Collide”):

Price gouging is the raising of prices 1) far above one’s costs and far above competitors prices, 2) far above what many people think is just, 3) during a human crisis. I disagree with those that state that PG is a non-concept. It is an intentionally vague and deceptive, morally abstruse, and economically harmful concept, but for those very reasons, it must be taken seriously.

Or you could go with the words of some lunatic named Neil Boortz: “What is price gouging anyway? Just a buzzword used by the anti-capitalist, government-educated among us.”

Yep, Bill Frist, George Bush and Denny Hastert – anti-capitalists. I’ll have some of what Mr. Boortz is drinking please.

Anti-capitalists Hastert and Frist have asked fellow Commie President Bush “to direct the Justice Department and Federal Trade Commission to investigate the rising oil prices.” Across the aisle, the Dems are also using the FTC as a whipping boy.

Quoth Rep. Stupak again: “See, when the president calls for an investigation by the FTC into the price of oil to see if there’s gouging going on, it doesn’t do us any good, because the FTC, the Federal Trade Commission, has never brought a case for price gouging on petroleum products ever.”

One slight problem: One FTC official, though, told CNN that the trade commission can only look into anti-competitive practices and has no legal authority to investigate price gouging.

The GOP has also floated the idea of hitting the energy companies with a windfall profits tax which has got to be the funniest thing I’ve ever seen. Aren’t windfall profits the Republican’s raison d’etre? Next thing you know George Bush will be calling for abetter mileage on cars. Oh, wait …

One of these “price gouging” bills will inevitably pass through Congress’ digestive tract and get placed in a steaming pile on the president’s desk where it will promptly get signed. Why not? Our elected officials will be able to say they have done something without actually running the risk of doing anything. This law will never be enforced. If someone tries to it will be laughed out of court.

To really address this issue would require a long and critical look at how we choose to define capitalism or what the late Mr. Galbraith called the “free markets where nothing is free.” But that hasn’t happened since 1931.

There is one simple solution to the problem, but no one in this hemisphere has tried it. It’s called a Bolivian. But remember, simple does not mean good.

6 thoughts on “Where were you during the war on price gouging?

  1. This is one of those classic: I don’t know whether to laugh or cry posts.

    Need a rule of thumb? Then just remember unscrupulous business practices during an emergency = BAD. But unscrupulous business practices under other circumstances = Good.

    Very funny.

  2. Let me begin this incredibly long comment (sorry) by saying that Hastert and Frist’s comment to Bush excludes South Florida. Gas prices haven’t affected the driving habits of people here in the least. Most people drive as though gas were $1.00 a gallon – and that’s across all socio-economic lines. They’re not concerned about decreasing demand. Right after Wilma, when there were lines many smoots long at the few stations selling gas, there was supply rationing and the gas price was not much different than it was before the storm. That demand and supply situation lends itself to chaos even without the influence of price gouging (feel free to replace the term “price gouging” with “Skeletor” or “Mojo Jojo”).

    I’ve seen people have tantrums accusing station proprietors of gouging at stations where the local gas taxes are high, as they are in Florida’s Palm Beach County, Alachua County, etc. (and there shouldn’t be local county and city gas taxes, in my opinion). Gas stations make about 1-2% margin on the gas. It’s so tight that the credit card interchange fees can make the difference between making a profit and losing money. It’s also worth noting that the largest percentage of the price at the pump is the price of crude (47% in 2004 according to the EIA – more for light sweet like Nigerian, less for heavy sour like Venezuelan), followed by Federal & State Taxes (23% in 2004, and State is usually more than Federal, not even including additional State taxes), Refining Costs & Profits (18% in 2004), and then Distribution and Marketing (12% in 2004).

    Consider also how hard and time-consuming it is for a US oil company to deal with oil field costs (before they even get to refining and processing) in projects with Mad Hatter-like foreign state-controlled oil companies, both OPEC and non-OPEC, and the increasing geopolitical risk involved with sourcing and development. No, I don’t work for the oil industry.

    In terms of a windfall profits tax, has the GOP suggested any kind of baseline for this, like taxing the oil supers 80% of any profits they’re making in excess of what the typical S&P company is making? Hardly, because you’re right – the legislation isn’t meant to be enforced. “Go back to driving like maniacs – we’ll stop the nasty price gougers!” Are the people who “are quite fed up” going to protest to OPEC? The global market? China? Hardly.

    Ludwig von Mises: “In fighting profits governments deliberately sabotage the operation of the market economy.” And you know the FTC is assigning an intern to this.

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