The Democrats promised a roll out of their energy agenda. Last week, they announced a call to nationalize the oil industry and it didn't take long for them propose legislation pointing us in that direction. Yesterday, they offered their first piece of legislation which they claim to be aimed at lowering gas prices. Unfortunately, their policy would have the opposite effect.
The Federal Gas Gouging Prevention Act (H.R. 6346) was taken up yesterday by the Democrats "to address our energy supply needs." The U.S. Chamber of Commerce, the National Association of Manufacturers, and several other free market organizations dedicated to growing our economy and creating jobs are ardent opponents of this legislation. Luckily, the bill was defeated.
This bill's approach was flat-out wrong on several fronts, but most jarringly threw the concept of supply and demand right out the window. Americans for Tax Reform provides a nice, clear example of how the supply and demand model works:
"When a product, like gasoline, becomes scarce, that information is incorporated into the price. This amount is then raised by the producer as a warning to the consumer to curtail consumption. As a result, the consumer will respond to this scarcity by reducing their demand to meet the expected supply.
“However, when prices are fixed, as H.R. 6346 proposes, the demand will exceed the available supply, a fuel shortage will occur, gas will be rationed, and an inevitable black market will develop in response."
Although this bill was supposed to drive gas costs down, it would most likely create shortages and higher gas prices for U.S. consumers and companies. It would also create disincentives to invest in energy production and distribution.
Other problems with the bill?
Terms within the bill such as “unconscionably excessive,” “gross disparity,” and “grossly exceeds,” are without definition, subject to widely varying interpretations, and provide no guidance to suppliers. The inevitable outcome of this ambiguity is litigation.
The FTC—despite numerous investigations—has never found any evidence of collusive price fixing or “gouging” behavior amongst oil and gas companies – which, of course, points out the obvious, that the FTC has existing authority to go after collusive price fixing under current antitrust law. Furthermore, federal legislation is unnecessary as any price gouging is localized and aggressively prosecuted by state governments.
The Democrats only prescription for rising gas prices so far is bad medicine.