According to an NBC News report [“Are motorists getting gouged on gas prices?” Popkin, Jim. 15 September 2008] Florida Attorney General Bill McCollum is subpoenaing four companies that are supposedly engaging in gas-price gouging in the aftermath of Hurricane Ike. “We will not tolerate gouging for greed,” Mr. McCollum is quoted as saying as he condemned the companies. It was reported, including by motorist snapping pictures with their cell phones, that although the Florida average of gasoline is $4 a gallon, several stations had been charging prices from $4.87 to $5.50. The aforementioned article cites several other states and lawmakers efforts to check price gouging there as well.

The complaint against price gouging has obvious emotional appeal, and is heard every time a storm comes through. How can anyone be so greedy as to increases prices of necessary goods during an emergency and thus take advantage of people when they’re venerable, goes the argument. The consumer is seen as being hapless against a vile merchant, he has no choice but to buy $4 water bottles. But it is precisely because people are rushing to the store in desperate need of supplies due to an impending storm that the merchant is doing a public service by increasing prices.

When people panic they can become risk-adverse and tend to overstock on supplies. If supplies were to be maintained at normal price levels the first consumers to access them would dry up the stock, so to speak. Thus leaving the second and third with little if any necessary goods. But when prices are raised it becomes prohibitive for most consumers to buy more than their “fair share”. The momentary increase in price is a reflection of the momentary change of the market equilibrium; where supply meets demands. Merchants thus charge a price that leads to a circumstance where all those whom now wish to buy supplies (demand) can they do so (supply).

The price level when free from government intervention always leads to demand equaling supply. This is not to say the all merchants are aware of this cause-and-effect. Some might genuinely be seeking to “gouge” the consumer, nonetheless unintended as it may be what results is a public service. Although the self-righteous denouncers of price gouging like to portray themselves as “consumer advocates” what they do, albeit unintentionally, is lead to a shortage of goods for many consumers. Greed is a constant, consumers do not often think about the individual behind them when making a purchasing. But what can temper that greed is a change in the price level, thus allowing all to benefit. The simply question on price gouging that has to be posed is this: is it better to be with a few bottles of water at $4 or without any because the man in front of you bought all of them at $.75?

Lets look at a case example: The Herald Tribune, a South Floridian paper, details the “price gouging” that occurred over the past weekend after Hurricane Ike. The Florida State Attorney General office received 14 complaints about, specifically, several gas stations in the Manatee, Sarasota and Charlotte counties. Additionally, seven complaints were personally filed against a Dodge’s Store gas station at the corner of a Fruitville and a Beneva road.

Dodge’s Store raised prices to $4.77 a gallon last Friday night. But after the complaints and, presumably, the state subpoenas the station lowered gas prices to $3.77 Saturday afternoon. Predictably the station ran out of gas on Sunday. Prior to Hurricane Ike moving past Florida, on September 5th Governor Charlie Crist declared a state of emergency. Thus Florida’s price gouging law went into effect and similar allowing the state to prosecute such cases. In the state of Florida price gouging carries the penalty of $1,000 an offense to up to $25,000 a day.

The gas station managers raised prices due to a shortage in oil. Valero, an oil company with Floridian operations, shut down three refineries with a combined output of 700,000 barrels a day. Thus with fewer gas coming in, gas station managers increased prices to a new market equilibrium level. By doing so they sent a signal to consumers to purchase less and leaving more gas for second and three purchases. If people are buying less gas it’s because there is a shortage of oil not because the heightened price level created a “shortage” of demand, such is the proper causation. Without a change in price level the market does not adjust and there is a shortage with the government price gouging law acting as a price control, thus supply does not meet demand. As can be seen in the Dodge’s Store case, the station ran out of gas. Not that such facts matter to an opportunist publicity-seeking Attorney General.

- Marco Villa