Paul

Ibrahim

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September 16, 2008

Price Gouging: Because of the Hurricanes, We Need It

This column examines current examples of anti-“gouging” impulses in areas affected by recent hurricanes. For an in-depth explanation of the benefits of “price-gouging,” please see yesterday’s column.

The following is part of a press release issued yesterday by the Florida Department of Agriculture and Consumer Services:

[Commissioner] Charles H. Bronson today announced that his office received nearly 2,200 price-gouging calls over the weekend and 816 complaints – virtually all involving the price of gasoline. All of the complaints are being investigated, and subpoenas will be issued later today for oil company records . . .

“We are committed to making sure that Florida residents and visitors to our state are being treated fairly,” Bronson said.

Under state law, persons or companies engaged in price gouging – defined in the law as charging excessive prices for basic commodities such as fuel, shelter, water, ice and lumber during a state of emergency – face fines of up to $1,000 per violation up to a maximum penalty of $25,000 a day.

Bronson is encouraging any citizen to report price-gouging activity that they encounter to his toll-free hotline at 1 800 HELP FLA (435-7352).

This is in addition to the following news from Florida:

On Sunday, Florida Attorney General Bill McCollum announced the activation of the Attorney General’s Price Gouging Hotline for Floridians to report anyone attempting to take advantage of people preparing for or evacuating from the hurricane, at 1-866-9-NO-SCAM.

“Complaints?” “Subpoenas?” “Fairly?” “Excessive?” “Fines?” “Scam?”

What is going on here?

Let’s get this straight. Due to reductions in production and interruptions in supply lines brought about by hurricane activity, gas station owners have ended up with limited gas to sell. At the same time, due to widespread fear of shortages, consumers look to purchase much more gas than usual. So, there is significantly increased demand and significantly decreased supply. And you call raising prices a “scam?”

Not only should gas station owners be allowed to raise prices in such a situation, but they absolutely must raise prices. If they don’t, shortages will happen and the gas will run out. More worryingly, people who really, truly need the gas will find themselves helpless as they lose out to those who were merely lucky to get to the pump first.

Gas station owners already know this economic fact. That is why, for fear of being called “price gougers,” they have found that the only alternative to merely rewarding the fast and the lucky is to attempt to spread out distribution as much as possible. As a news article tells us:

Some Central Florida retailers are limiting fuel sales, and one convenience store chain with a store in Bonita Springs is asking customers to limit gasoline purchases to 10 gallons.

In other words, they are forced to give equal treatment to teenagers, who are buying artificially cheap gas while gallivanting around town, and to those who run a business dependent on gas or who need to drive to help sick grandma. And because the teenagers now have nothing deterring them from buying gas, they will wastefully empty the stockpiles as long as the price is low. Due to all the “price gouging” hotlines, gas stations cannot raise prices in order to allow the latter group – those who truly need the gas – to get the gas on which their lives and health depend.

The hotlines are preventing gas stations from taking the only course that would ensure a continuing, non-ending supply of gas to those who need it for an emergency or an otherwise crucial trip across town.

Why should this vital public service be something to “complain” about? How is it “unfair” to anyone but the lucky few who otherwise would have been rewarded merely for their coincidental proximity to a gas station at the right time? How exactly does the Florida Department of Agriculture and Consumer Services know that any price is the “right” price, as opposed to an “excessive” price? Where is the talk of “subpoenas” and “fines” appropriate in a situation where gas station owners are doing their best to ensure continuing supply to those who need it?

Commissioner Bronson also says that retailers should not raise prices arbitrarily merely because they anticipate higher prices in the future, which of course is incongruous because if they are anticipating higher prices in the future, a current price raise would not be “arbitrary” – it would be a response to economic factors.

Instead, the commissioner is going to force gas stations to reduce their prices arbitrarily regardless of economic factors and the realities of supply and demand, leading to severe shortages. That makes so much more sense.

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