01 Aug 2007 Maybe It’s Time for A Law Against Price-Gouging After All

A Personal Reflection

Free market advocates have long opposed price gouging laws on the grounds that such laws interfere with market forces and ultimately lead to shortages.  But I’m now rethinking this position.

It is getting increasingly difficult to ignore the facts: Prices have increased by almost 42.6% over the past year.  Most Americans have little choice but to pay the higher prices due to the lack of practical substitute products.  People are hurting and demanding action.

So, let’s round up all those responsible and throw them in jail…

…namely, the corn farmers.

That’s right, it’s not gasoline that has risen in price so dramatically, but corn.

Between April 2006 and April 2007 alone, the price of corn increased by 42.56%.¹  During that same period, the price of gasoline rose by less than 4% — increasing from $2.78 to $2.89 per gallon — according to Energy Information Administration² figures.  If gasoline prices increased at the same rate as corn, we’d be paying nearly $4 per gallon at the pump instead of about $3.

But gasoline and corn aren’t comparable commodities, some are sure to argue.  We can eat beans, peas, or carrots as substitute vegetables and use wheat instead of corn in our tortillas.  Gasoline is a necessity, but corn isn’t, right?

Wrong. 

Thanks to the 7.5 billion gallon ethanol mandate now in force, corn is no longer just on your plate, it is in your tank, too.

The ethanol mandate is one of the reasons you’re paying more at the gas pump — not to mention at the grocery store.  According to the Government Accountability Office, the price of ethanol in 2006 was “about 102 percent more expensive on a gallon of gasoline equivalent basis.”³

If some in the Senate get their way, the price of corn will go up even further.  The Senate Energy Committee recently passed a bill that would double the corn ethanol mandate to 15 billion gallons by 2022.⁴  This requirement will increase demand for corn, leading to even higher corn prices. 

Regrettably, corn farmers may have to go to jail. 

You see, according to the anti-gouging bill recently passed by the House of Representatives, “price gouging” is defined as charging “unconscionably excessive” prices.  It matters not that prices were driven by the law of supply and demand (though it wouldn’t be the first time politicians believed laws didn’t apply to them).  It only matters that someone makes a profit deemed by someone, somewhere as “excessive.”

So, after we’ve rounded up all the corn farmers and shipped them off to prison, why stop there?

Why not send Speaker of the House Nancy Pelosi there, too?  She’s clearly a price gouger.

Ms. Pelosi and her husband own a Napa Valley vineyard – strictly non-union, mind you – that produces grapes for premium wines.  Napa grapes can fetch a price of $4,000 per ton⁵ and sell for about five times the average price of grapes in California.⁶  Five times the average grape price? That looks “unconscionably excessive” to me.

Of course, it wouldn’t be fair to send Speaker Pelosi to the slammer without sending former Speaker Dennis Hastert and Rep. Alan Mollohan⁷ (who voted in favor of the anti-gas gouging bill) along with her.  Both have made millions of dollars off real estate deals, so much so, that the profits could be deemed “excessive.”

How ironic it would be if Mollohan, who is under investigation for possible improprieties relating to his federal earmarks, ended up being found innocent of wrongdoing in the federal probe, but sent to the big house for “unconscionably excessive” real estate profits.

And, if you’ve made a killing in real estate yourself — perhaps the sale of your home — you might as well turn yourself in right now.  Remember, following the logic of the U.S. House of Representatives, any high price can be considered price gouging, whether driven by market forces or not.

Does all this sound ridiculous?  We’ve already started down a terribly slippery slope.

The House of Representatives passed its anti-gouging legislation with significant bipartisan support, 284-141. 

Such an overwhelming vote was possible because the target of the regulation is an industry — oil and gas — that produces a politically-incorrect product and doesn’t enjoy wide public support.

But sound public policy should not be determined by one’s popularity.

So am I serious about sending the corn farmers and other sellers of products we willingly buy to jail?  No.  And Congress should join me.

There’s a simple way to know when a product is too expensive, and that’s when we’re no longer willing to pay for it.

David Ridenour is vice president of the National Center for Public Policy Research.

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Footnotes:

¹ Michael S. Rosenwald, “The Rising Tide of Corn,” The Washington Post, pg. D1, June 15, 2007.

² Energy Information Administration, U.S. All Grades All Formulations Retail Gasoline Prices (Cents per Gallon), as updated 6/11/2007, available at http://tonto.eia.doe.gov/dnav/pet/hist/mg_tt_usM.htm as of 6/11/2007.

³ Ben Lieberman, ” S. 1419: Bad News for Any Energy Consumer,” Heritage Foundation Web Memo, June 13, 2007.

⁴ Ibid.

⁵ “Nancy Pelosi’s Sour Grapes,” Investor’s Business Daily, October 31, 2006.

⁶ Danny King, “California’s Napa Valley Expects Best ‘Crush’ in Four Years, Bloomberg, September 19, 2005.

⁷ Matthew Mosk, “Lawmakers Cashing in on Real Estate, Financial Reports Reveal,” Washington Post, June 15, 2007.