Wednesday, March 14, 2007

Gauging Gouging

Dozens of members of Congress have signed onto legislation that would make price gouging by oil and gas companies illegal at the federal level, with criminal penalties and large fines for offenders. There's just one problem -- they don't define "gouging."

Is it gouging when prices go up ten cents a gallon as they did yesterday at gas stations here in the St. Louis area, to around $2.45? That's up more than a quarter in the last month, so does it qualify? Michigan representative Bart Stupak said he is worried that "this summer, prices may once again exceed $3/gallon." So, is that the gouging milestone?

In most places in the country, price gouging laws only kick in during an emergency. In a natural disaster, stores that sell necessary daily supplies shouldn't be allowed to jack up the prices to take advantage of people at their neediest.

Price gouging isn't simply the law of supply-and-demand. Conditions matter, and we have to see the difference between gouging and legitimate business conduct, even when it affects our own bottom line. Standing on a street corner on a hot summer day selling bottles of water for $3, when you bought them for 50¢? That's not price gouging, it's seizing a sales opportunity (as retail outlets, movie theaters, and sports stadiums do every day!). No one is surprised that patio furniture is more expensive in June than it is in December, and the reverse is true for snow shovels. But we would all agree that charging triple the regular rate for a motel room when hundreds of people have had their homes wiped out by a tornado or hurricane does qualify as gouging.

Oil and gas are an intrinsic and important part of our lives, so at what level are the prices set by their sellers considered gouging? Exxon-Mobil, Chevron-Texaco, BP-Amoco, and the other oil hyphenates are making record profits and are thus a likely target for the gouging gun, as are OPEC suppliers. Where's the line for them -- $70 a barrel, or $75, or a $100?

As retail gas prices climb back up from their sub-two-dollar lows of this winter to the inevitable over-three-dollar highs of this summer (yes, California, I know that you're already there!), let's try to keep some perspective on who's to blame and who can change things. We have to look in the mirror and remind ourselves that the best way to pay less for gasoline is to use less gasoline. Deep down, we know that, yet Americans have been slow to jump on the fuel efficiency bandwagon (it's only in the last year that we've made the bandwagon a hybrid vehicle). Some automakers have noticed and begun to change, but there are still a huge number of gas guzzlers being sold. Until we accept that responsibility and make fuel efficiency our number one prerequisite when buying, the demand side of the equation will lose.

If we're not willing to do our part -- collectively, not individually -- let's not rely on politicians to rescue us. The last time we tried that, during the 1970s, we got price controls that led to massive oil shortages, lines around the block, odd/even rationing, and headaches from coast to coast.

I don't mean to come off as a defender of Big Oil. I do mean to come off as a defender of laws that work, rather than laws passed to make people feel better.

The anti-price-gouging proposal is not effective legislation. It's political pandering. As every American knows, there's no end to the supply of that.