Tuesday, September 06, 2005

Spitzer against Price Gouging/Spitzer for Gas Rationing


Last week Spitzer issued a press release stating that he would be prosecuting any gas stations found to be engaged in "price gouging."
Under the New York State General Business Law, price gouging has occurred if "the amount charged represents a gross disparity between the price of the goods or services...and their value measured by the price at which such consumer goods or services were sold or offered by sale..." Violations of this law are punishable by civil penalties of up to $10,000, and where appropriate, restitution to the aggrieved consumers.
But how then, with raised prices being outlawed, should gas stations respond to the increased demand caused by the decreased production and increased consumer demand caused by Katrina. (I should note the Spitzer is far from the only politician guilty of this. He should be held accountable, however, because he claims to be such a pro-capitalism Attorney General.)

But as pointed out in this article, all "price gouging" really represents is the market rationing gas by demand. The only alternative to price gouging, and one that Spitzer isn't talking about, is rationing like they had during the oil crisis of the late 70's.
About 12 percent of the nation’s refining capacity has been damaged and the pipelines that deliver fuel from the Gulf Coast are still mostly offline. Oil companies are carefully rationing what they have and are uncertain when the flow of gasoline from refineries might return to normal. Meanwhile, panic is driving up demand as motorists line up for gasoline out of fear that it might be a lot more expensive -- or perhaps not even available -- tomorrow. Some communities are literally seeing the pumps run dry.

So, how should we ration our limited pool of gasoline? In a free market, scarce goods are typically rationed by price. People who value gasoline most are willing to pay higher prices than those who value it less. The former get the gasoline -- the latter to some extent go without. Allocating resources to those who value them most is one very important reason why our economy outperforms economies where resources are allocated by political action...

Price controls are offered as a means to cushion the blow on the poor and to ensure a more equitable distribution of fuel.

Price controls, however, come at a cost. Lower prices result in more demand for fuel than do higher prices. That’s why the first thing we notice about price controls is that they lead to shortages. Price to the left of the intersection of the supply-and-demand curve and you are guaranteed to vaporize whatever you are attempting to keep inexpensive.
Shouldn't then Spitzer be honest with New Yorkers about what his crackdown on so-called "price gouging" really is.

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