Posted by
American Yank on Monday, May 14, 2007 7:36:28 PM
A new bill set to be introduced by Democrat Congressman Bart Stupak from Michigan would address the ‘issue’ of current gasoline prices. The bill entitled Federal Price Gouging Prevention Act (HR 1252) would penalize any person or corporation that engages in the drilling, brokering or refining of crude oil and/or natural gas while charging what would be considered as being unconscionably excessive. In short this is price ceilings. This is sort of a consumer protective act that will perverse free markets.
The phrase unconscionably excessive may be murky and what the bill describes as such is nothing more than a mere curbing of price increase. The bill states that if gas prices significantly increase from the prior 30 days an investigation is to be launched. The fines levied for those who don’t follow this law-$150 million for a company, $2 million for an individual.
First to believe this initiative will work one must believe that A. there is a conspiracy of collusion between oil drillers and gas producers and B. economic laws of supply and demand are irrelevant. Also the believer must skip the face of crude oil to gasoline conversion, which is facilitated through refining. Okay now that the reader has dumb down, let’s explore why such legislation is ineffective.
If there was collusion between gas distributors and oil drillers this must be the best kept secret kept from the public since the second gunman on the grassy knoll, providing the reader believes the nonsense of JFK assassination conspiracies. The great statesman Benjamin Franklin once said ‘three can keep a secret if two are dead’. If such a relationship existed an oligopoly economy or at least an oligopoly industry would persevere. If that was the case such examples rarely last a significant amount of time unless you consider when the government is involved as in the case of utilities, water and Ma Bell. When speaking of these one must remember they lasted for decades. It is then the consumer is left paying whatever price and providing top quality is not priority because there is no need to do such a thing.
Two notable examples of price ceilings are rent control apartments commonly found in New York City and some of the economic strategies employed by the Nixon Administration. Each time such techniques are employed the price remains at the top of the ceiling. Another reaction is that those engaged in such industries or services that are forced to adhere to these policies will often cut corners or shut down completely. In the case of rent control the apartment owner could charge the maximum allowed by the ceiling and forego maintenance in order to maintain a profitable asset. In some cases if the government imposes a maximum price to sell, the producer may opt to simply replace the product. Ultimately in the end the consumer, the very person that the government is trying to protect, suffers.
One theory on why gasoline prices were so high during the 1970s was because of the price controls placed on oil and fuel in the earlier part of the decade. Although originating during the Carter Administration, it was in the Reagan Administration that removed price ceilings and effectively ended the fuel crisis.
Consider also what impact these ceilings would have on the working poor. While living in urban areas public transportation may be an alternative means of commuting to work; how many from this group do not have access to such facilities? Furthermore with industries predictably charging the consumer a ceiling price the rich will be able to afford what will ultimately become a pseudo luxury.
If we as consumers know these price ceilings never work then why is there an attempt to revisit them? The Democrats may prefer description Progressive over Liberal but they should be referred to as nostalgic. It is a stroll down memory lane that we cannot afford.
AmericanYank.com