Gas Prices Soaring: Are Price Controls the Answer?

Posted on September 23, 2005
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September's spike in gas prices, the result of Hurricane Katrina devastating Gulf Coast oil facilities, has some Arizonans demanding the state crack down on high prices. Arizona attorney general Terry Goddard has promised to introduce anti-gouging legislation next year.

"Pump price increases this week of 30 cents or more a gallon in this state are not justified by Hurricane Katrina or the higher cost of crude oil," Goddard said. "Consumers deserve more protection from this kind of profiteering."

However appealing that might sound, anti-gouging laws are poor public policy.

Price spikes are painful, but they beat the alternative. Anti-gouging laws, and other kinds of price controls, discourage producers from supplying more product, leading to rationing, hoarding, and long lines. Those who lived through the gas lines of the 1970s know first-hand what effect government price controls can have on the availability of goods we need.

The free movement of prices helps both producers and consumers make decisions. High gas prices encourage drivers to economize, combining several errands into a single trip for instance. High prices also tell producers to increase supply, in this case encouraging oil producers to repair damaged facilities as quickly as possible.

Price controls amount to pouring sugar in the gas tank, and should be a non-starter.

Key Links:

-Arizona Attorney General: "Terry Goddard Presses Need for Price-Gouging Protection"
- Tucson Citizen: "Arizona AG to monitor gasoline prices"
-Cato Institute: "Let 'Em Gouge: A Defense of Price Gouging"
-Thomas Sowell: "'Price gouging' in Florida"

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