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THURSDAY, MAY 4, 2006
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EDITORIAL

Anti-gouging laws need more in-depth scrutiny

The U.S. House of Representatives should look hard at whether interference with the free-market through anti-gouging legislation would have greater social costs than benefits.

It would be tough to find anyone who is not disgusted by gasoline prices, which makes the issue an attractive bandwagon upon which legislators can jump. The long-term consequences of meddling, however, could overwhelm the short-term popularity.

If effective, anti-gouging laws deprive those people who are most in need of gasoline from getting it.

Gas Station A, supplied by a Mobile refinery, faces a disruption of that supply because of a hurricane. In a free market, he would increase his price to maximize profit on the gasoline he has left. An anti-gouging law, however, would prevent him from raising his prices. The end result: He runs out of gas.

Gas Station B, supplied by wholesalers unaffected by the hurricane, cannot, consistent with anti-gouging legislation, raise his prices because his own costs are flat. That means those customers who cannot get gas at Gas Station A because the pumps are dry will instead go to Gas Station B, which will run out because of an unanticipated increase in demand.

You get a call saying your child in Atlanta needs a transfusion from you. You are running on empty, so you head for Gas Station A to fill up. Tough luck; Station A is out of gas. So on to Station B. He's sold out. You're not making it to Atlanta.

Absent the price-gouging laws, you'll pay a small fortune to buy gas for your trip, but you will get to Atlanta. The free market has regulated gas sales in such a way that those whose needs are greatest can get the gasoline.

Before second-guessing the marketplace, legislators should make sure they know the consequences of increased regulation.

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