Wednesday, June 27, 2007

"Unconscionably Ridiculous" Price Gouging Laws

The chart above appeared in today's Detroit News, as part of my commentary "Energy Bill May Gouge Consumers: Price Controls, Taxes Would Curtail Oil Exploration and Hurt Workers."

"In the name of supposedly protecting consumers, Congress also wants to empower the Federal Trade Commission (FTC) to prosecute companies and individuals who engage in "price gouging" for gasoline and other petroleum products.

Leaders want this even though a congressionally-mandated FTC study of gasoline price increases in the aftermath of hurricanes Katrina and Rita two years ago found no evidence of widespread price gouging or any anti-competitive behavior. The FTC concluded that the price increases were due to the market forces and not to any illegal manipulation by oil companies.

"Price gouging" provisions in the energy legislation could have a chilling effect on the oil market. The severe civil and criminal penalties -- substantial fines and possible jail time -- would force everyone in the oil industry, from the biggest refiner to the smallest gas station, to reconsider everyday business decisions, including whether they should remain open, particularly in disaster areas.

Gasoline suppliers and wholesalers may choose not to move any additional supplies into affected areas when doing so exposes them to possible fines and jail time if the government finds them guilty of the ambiguous crime of "unconscionable pricing."

In that case, consumers certainly won't be better off when they face artificial, government-created shortages of gasoline after future natural disasters."

7 Comments:

At 6/27/2007 9:54 AM, Blogger juandos said...

Well apparently learning from recent past history is NOT something the Congress is guilty of...

So what is behind this politically shallow ploy?

 
At 6/27/2007 11:27 AM, Blogger Trevre said...

I agree that congress rarely makes a good decision based on facts, and a good cost benifit analysis based on non-emotional arguments. However, comparing the profit margins of these industries is comparing apples and oranges and it does not lead straight to the conclusion that the legislation congress is trying to pass is missing the mark on industry oversight. Many things play into profit margins including risk, reward, and the scale of the industry. Does the graph's data include risks associated with these industries? What is the best way to know if an industry is taking too much or too little profit and what measures can we convince congress to take or not take to control them for the benifit of all?

 
At 6/27/2007 11:59 AM, Anonymous Walt G. said...

"What is the best way to know if an industry is taking too much or too little profit" If they have competition and they are still in business.

"and what measures can we convince congress to take or not take to control them for the benifit of all?" Congress works for money (votes). They are concerned about reelection.

 
At 6/27/2007 12:37 PM, Anonymous Walt G. said...

"since most of the tax money would come from eliminating the manufacturing tax deduction, which Congress authorized in 2004 and was designed to boost the number of U.S. jobs, including those in the oil and gas industry."

Will cutting this tax deduction cause the oil companies to absorb the costs, or will the additional tax be passed on to the consumer at the pump? Somehow this stinks of a politically correct way to get more tax money from the “greedy oil” companies. Won’t consumers ultimately foot the bill for the tax?

 
At 6/27/2007 1:48 PM, Anonymous Bob Wright said...

trevre:

"What is the best way to know if an industry is taking too much or too little profit"

Your comment seems to imply that you or someone else knows and should be able to legislate what profit a business or individual makes?

The problem lies in trying to define exactly what is "too much"?

Any attempt by congress to declare by royal fiat what profit other people should be allowed to make would in the long run be exposed as folly just as the Wizzard of Oz was shown to be merely a man standing behind a curtain pretending to be something he wasn't.

 
At 6/27/2007 2:14 PM, Anonymous Bob Wright said...

Amazingly, the U.S. Congress seems to have no problem with people buying property in Florida and flipping it for twice what they paid for it.

Note that this was not an uncommon occurrence in the early 2000's. Many people doubled their money - a 100% profit!

Talk about windfall profits!

Should Congress step in and prohibit this kind of greed in the future?

Many individuals who have no problem with the U.S. government stopping the evil oil companies from making their 9% to 12% profit think themselves to be merely shrewd business people when they were able to flip property at a handsome profit in the Florida real estate market.

 
At 6/29/2007 2:04 PM, Anonymous bob wright said...

According to the 06-29-2007 Detroit News, General Motors made $340 million out of $2.2 billion in sales from its Allison Transmission unit [which they just agreed to sell].

If my math is correct [profits/sales], this amounts to a 15.5 percent profit margin, more than twice that of the oil companies shown in the chart in this post.

Do you think Carl Levin and John Dingell would vote for a windfall profits tax on this GM subsidiary?

 

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