House Passes “Price Gouging” Bill

Lynne Kiesling

On Wednesday the U.S. House passed a gasoline price gouging bill.

The bill’s chief sponsor, Democratic Rep. Bart Stupak of Michigan, said he had no doubt the FTC would be able to determine price gouging once the agency had a law to uphold.

The measure would establish the first federal law against energy price gouging. The FTC now can investigate price manipulation under antitrust laws. Currently, 29 states have price gouging statutes; enforcement varies widely.

Stupak’s proposal only would go into effect – and then for just 30 days – if the president declared an energy emergency.

The bill calls for penalties of up to $150 million for companies and up to $2 million and 10 years imprisonment for individuals found to be engaged in price gouging.

Twenty-nine state have various price gouging statutes, but the vary widely in enforcement.

The FTC has investigated allegations of price manipulation but failed to find widespread violations. In a report last year, the agency said an investigation after Hurricane Katrina hit in 2005 uncovered 15 incidents that could have been price gouging. But other factors also could have explained the high prices, it said.

We’ve commented here before on how anti-consumer, ridiculous, specious, and ineffective such legislation would be. Part of the reason that’s true is that Rep. Stupak is wrong: “price gouging” is such a subjective and ill-defined concept that the FTC is quite unlikely to be able to determine it once they had a law to uphold. One thing that really grates on me about his attitude is the presumption that laws don’t exist until Congress says they do. Wrong. For more on this argument, see Hayek, Law, Legislation, and Liberty Furthermore, FTC already has antitrust jurisdiction as justification for them to investigate price changes in markets. In theory, the only other type of behavior that Rep. Stupak’s legislation would add to that capability is the ability to investigate unilateral ability of individual gas stations to raise prices. But in the course of the numerous investigations that the FTC has done, motivated by antitrust concerns at the wholesale level, they have amassed evidence on this ability, and they have found over and over and over that it does not exist. Retail gasoline markets are too competitive for a single station to raise its price unilaterally and maintain that higher price (wholesale markets are also more competitive than is convenient for the arguments of the political class, so they ignore the FTC’s repeated efforts on that front too).

So not only is Rep. Stupak’s legislation vague and ill-defined, it’s substantively vacuous. It’s a strong statement on the populist demagoguery that characterizes politics that such a strong majority of the House voted for it, reinforcing my perception that this is all about posturing and nothing about underlying economic fundamentals or the true well-being of their constituents.

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One thought on “House Passes “Price Gouging” Bill

  1. What is even worse than the FTC not knowing when “price gouging” is occuring, is that the gasoline retailers are not going to know when they are breaking this ridiculous law. There is no such this as an “unreasonable” price. There is a price that sells and a price that doesn’t sell.

    How about a wage gouging law? If you apply for a job and ask for an “unreasonable” wage, then the employer can report you, and you go to jail and pay a fine. Any takers? But then why do some Americans want to throw the retailer in jail for asking to high a price but not themselves if they ask too much from an employer?

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