Recently in the news consumers have been complaining of price-gouging at the pumps, some even claiming that big oil has increased it's profit margins to a whopping 40% . Dina Titus, a state senator from Las Vegas, has proposed a bill to Congress to regulate companies and keep them from taking advantage of consumers through price-gouging.
The bill classifies as illegal price gouging that is labeled as a "deceptive trade practice" in which the sale of a consumer good or service is set at "an unconscionable price before or during a state of emergency." The bill is intended to target businesses like those after Hurricane Katrina that were, apparently, "price gouging." But what exactly is "unconscionable"? The bill lays this definition out as "the selling at a price 25 percent higher than average price of said good or service over the past 30 days unless approved by an appropriate government or governmental entity. However, if you continue to read you'll find that such an increase can be justified in the exception that the producer has incurred an increase in costs. Wow.
The entire point of a "free market" is to allocate scarce goods and services in such a way that those who need them get them. Those who are willing to pay a higher price should receive the goods and services. Adam Smith would be decidedly unhappy with our lady Dina over this. In a time of shortage, not unlike those times for which the bill is intended, a restrictive price will mean those people who do not receive the highest utility from a good or service will consume at an unequal proportion to those in real need. You feel me? Probably not. Ok, for example, during Katrina there was certainly a shortage of gasoline. The consumers are not unaware of this shortage and restricting price will cause a flood of consumers who have no immediate need for the gas but will horde it because they fear the rise of gas prices in the near future. Soon the gas will run out and will be sitting in tanks, unused, when it could be going to - for example - trucks, caterpillars, and clean-up equipment that rely on this gas to fix homes and repair damages. If the price was allowed to rise naturally, these problems would be avoided.
Patrick Giesecke, Melissa Barry, Jonathan Sutton
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P(Team Awesome feeling you) = low
As predicted, while we recognize the valid free market views you express and the down-home insights offered by the guest on The Opie and Anthony Show, we do not entirely agree with the opinions you voiced in your post. The bill's definition of price gouging seems very reasonable. If the price of a good or service rises that fast in such short a time in such a way that the government does not approve it, it seems that this would be an artificially high price, and not one induced by the market.
Thus, in contrast to your opinion, Team Awesome does not think the bill keeps prices artificially low. Furthermore, during drastic occurrences such as Hurricane Katrina, factors besides purely economic efficiency should be taken into consideration. The societal impact of such disasters can be enormous - it is not enough to only consider the economics of the issue.
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