The news stories appear daily: gas prices inch up from previous record-breaking highs; food costs soar and shortages spread in much of the world. When combined with the souring housing market, it’s no wonder that so many Americans are pessimistic about the country’s economic future.
These economic reports reflect a glass-half-empty mentality. After all, March’s 5.1 percent unemployment rate is still low by historical standards, and the current economic slowdown comes after six years of uninterrupted growth, which means the economy remains bigger than at any other time in history. Yet that doesn’t mean that Americans shouldn’t worry about our economic future. One real cause for concern should be the policies opportunistic politicians will pass in a rush to “solve” current economic challenges.
Consider what’s being pushed by the House Majority in the name of addressing high gas prices. One piece of legislation being championed by Speaker Pelosi is the “Energy Price Gouging Act,” which would expand the federal government’s power to target anyone in the energy supply chain who “artificially inflates the price of energy.” Those found guilty would be subject to fines and possible jail time.
The Federal Trade Commission already has the power to investigate charges of price gouging, and numerous government studies have failed to find any wrongdoing. But this legislation and the threat of harsh penalties against business executive could have a real effect on the marketplace by discouraging companies from doing business.
Consider what this could mean after a big natural disaster. With access to the region disrupted, transportation becomes more costly and supplies are scarcer. In a free market, prices play an important role in ensuring that supply meets demand. Prices jump, sometimes precipitously, which signals suppliers, both domestic and international, that it’s worth making the extra investment to get their product to affected areas. High prices also encourage consumers to buy only what is necessary.
Legislation discouraging price adjustments would thwart this important process, which would deter suppliers from coming online, encourage overconsumption--even hording--in affected regions, and could result in shortages. One study examined this legislation’s potential impact during the 2005 hurricane season (which included hurricane Katrina) and found it would have imposed $1.9 billion in economic costs.