Thomas Sowell

A newspaper headline -- "Lawmakers Struggle to Define Gasoline Price 'Gouging'" -- shows how phony the current Congressional jihad against the oil companies is. "Price gouging" is one of those phrases that evoke strong emotions but have no definition.
Where particular states have passed laws against "price gouging," their different definitions reveal how slippery and arbitrary the concept is. Kansas attempts to define price gouging as selling at prices more than 25 percent higher than they were before some disaster. Georgia makes it illegal for prices to rise after the state government has declared a state of emergency, unless the seller can prove that his costs have gone up.

 What all this boils down to is that prices higher than what observers are used to are called "gouging." In other words, prices under normal conditions are supposed to prevail under abnormal conditions. This completely misunderstands the role of prices.

 Why do prices exist at all? To cause things to be produced and made available to the public -- and to cause consumers to limit how much they consume. Why then do prices suddenly shoot up? Because there is either less of a supply available or more of a demand, or both.

 When hurricanes knocked out both oil drilling sites and refineries around the Gulf of Mexico, there was suddenly less supply of oil. That meant higher prices and higher profits.

 What do higher prices do? Force people to restrain their own purchases more so than usual. What do higher profits do? Cause more money to be invested in producing whatever is earning higher profits, and this in turn expands output. Isn't a larger supply of oil and a reduced consumption of it what we want?

 Whenever there have been sharp rises in gasoline prices, whether nationwide or locally in California, Senator Barbara Boxer has loudly demanded an investigation of the oil companies. These repeated investigations over the years have repeatedly failed to turn up anything other than supply and demand.

 The real irony is that it has been precisely liberals like Barbara Boxer who have been the chief obstacles to increasing the supply of oil because they are dead set against drilling for oil in more places and against building more refineries.

 When you refuse to let supply rise to meet rising demand, why should you be surprised -- much less outraged -- when prices rise?

Thomas Sowell

Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.

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