Over at National Review Online today, IWF’s Carrie Lukas lays out the real deal on price controls:
“Price controls have superficial appeal. The average gas-price rose more than 10 percent last month, allowing pandering politicians to promise relief. They don’t say that consumers will suffer worse consequences if the government begins dictating how much oil companies and refiners can charge. And they ignore that government regulations and taxes already are largely responsible for high fuel prices. Instead they offer fantasy.
“Take Rep. Bart Stupak’s (D., Mich.) ‘Federal Price Gouging Prevention Act.’ This legislation would empower the Federal Trade Commission to crack down on anyone in the energy supply and distribution chain who ‘artificially inflates the price of energy.’ Those found guilty would be subject to multi-million dollar fines and possible jail time. Overlooking the distasteful Stalinist flavor of this bill –locking up people for trying to sell at the best possible prices– this is economic ignorance on steroids.
“Harsh penalties might discourage companies from raising prices, but also would convince many not to do business at all, particularly in times of crisis. In dire circumstances it costs more to deliver products, and companies have to charge more. Business owners who fear that raising prices will expose them to criminal penalties may simply close up shop.
“This would have been a disaster, for example, during Hurricane Katrina. Suppliers would have been reluctant to ship fuel into devastated areas, and fuel would become even scarcer there. According to a study by the American Council for Capital Formation, if this legislation had been in effect during that tragic 2005 hurricane season, it would have imposed $1.9 billion in economic costs.”
Read more here.