Gouging Law: Spike It

Gov. Tim Kaine's administration is seeking ways to close a persistent budget gap. While the prospect of further layoffs and program cuts is an unhappy one, it might have a silver lining. May we suggest, both as a cost-cutting measure and a sound policy decision, that the attorney general's office reassign those staffers who chase down price-gouging allegations?

Attorney General Bill Mims recently announced three more legal actions stemming from supposed price-gouging in the wake of a state of emergency Kaine declared two years ago as Hurricane Ike bore down on the Gulf Coast. The new cases -- affecting two service stations in Salem and one in Roanoke -- bring the running total to five.

The cluster of cases around Roanoke (another case involved stations run by Bucko's Pantry in Radford) illustrates the flaw inherent in Virginia's Post-Disaster Anti-Price Gouging Act. The law forbids charging "unconscionable" prices during an emergency. It defines as "unconscionable" a price that "grossly exceeds" prices charged before an emergency. The economically illiterate notion behind the price-gouging law seems to be that a merchant who raises prices during an emergency is ripping off his customers. But the premise ignores the law of supply and demand. The stations in question were not randomly jacking up their rates. They were responding to real-world market forces.

Hurricane Ike caused disruptions in the supply of gasoline. For that reason, Kaine suspended rules that normally require the selling of certain types of specially reformulated gasoline blends -- thereby enabling retailers to sell blends they would not have been able to at the time. The decision amounts to an implicit admission that supplies of reformulated blends were running short.

Demand also was soaring. News reports related tales of "panic buying" as "motorists began topping off their tanks and filled cans of gasoline for their personal reserves." Many stations ran out of gasoline, as WSLS-10 reported on Sept. 15, 2008: "Ike sent prices soaring and put people in a frenzy. In fact, the Pure gas station on Franklin Road is one of the many stations in our area that ran out of regular unleaded gas . . . .The station ran out Saturday and has not had as much business in their store since . . . .Other gas stations in our area including some Sheetz stations and at least one 7-Eleven are also waiting for a new shipment of gas."

When demand greatly exceeds supply, either prices go up or shortages occur. Unlike the stations mentioned above, the Bucko's Pantry stations that briefly jacked up prices to stem the panic buying did not run out of gasoline.

Prices are signals. Sharply higher prices send the message that consumers should buy no more than they need, so that some of the limited supply will be available to others. They are an efficient means to say: No hoarding. Indeed, emergencies are precisely the times when price spikes ought to be expected. It's time Virginia repealed its irrational price-gouging law -- and gave the lawyers charged with enforcing it more productive work to do.