What They're Saying About Misguided Price-Gouging Legislation
Lem Smith
Posted May 18, 2022
America’s economic success throughout history is not an accident. Our system is built on some basic principles, such as the economic laws of supply and demand, which ultimately determine prices paid in the marketplace. Whether a mom-and-pop store owner or C-suite business executive, a basic understanding of economics notes the impacts of scarcity or abundance of a good or service upon prices in the marketplace.
Then there is Washington, where empty “messaging bills” are dressed-up to look like real policy intended to address record-high inflation, geopolitical turmoil and energy supply shortages.
One recent example is H.R. 7688, the Consumer Fuel Price Gouging Prevention Act – ill-conceived legislation spurred by unfounded claims of “price gouging.”
Over the years, numerous robust investigations by the Federal Trade Commission have shown that increases in gasoline prices are based on market factors – including supply and demand fundamentals – and not due to illegal behavior.
With H.R. 7688 slated for the House floor this week, below is a sampling of how individual leaders across the economic and political landscape are reacting.
“The problem we're facing with gas prices has two roots. First, the pandemic. When COVID struck, demand for oil plummeted so production slowed down worldwide, and because of the strength and the speed of our recovery, demand for oil shot back up much faster than the supply. That's why the cost of gas began to rise last year. The second root is Vladimir Putin.”
Former U.S. Treasury Secretary Larry Summers:
“The price gouging at the pump stuff … is dangerous nonsense. There is no material prospect that in any enduring way gouging legislation can have any substantial effect on inflationary pressure, but it can cause and contrive all kinds of shortages. It can distort a complex network of flows between crude and refined product. It can inhibit the supply responses that are what’s ultimately the best way to overcome inflation. This gouging talk is a diversionary confusion. … All of this gouging talk is a pandering diversion from all of that.”
Dr. Jason Furman, professor of economic policy at Harvard University and former chair of the White House Council of Economic Advisors under President Obama:
“When more people want to buy things than companies are capable of making, prices go up. That's just the law of supply and demand. Companies always want to maximize their profits. I don't think they're doing it any more this year than any other year.”
Washington Post Editorial Board:
“Mr. Biden is also berating businesses for price gouging. But it has long been true that gas prices have a tendency to rise much faster than they fall, and presidential tweets are unlikely to change that.”
Garrett Golding, Dallas Fed business economist:
“It’s not price gouging or a grand plot by the industry. This is how the business functions.”
Catherine Rampell, Washington Post columnist:
“The solution to the broader increase in prices, then, is ramping up supply (e.g., getting more workers in the labor force, removing trade barriers, encouraging oil-drilling); and/or, tamping down demand (e.g., raising interest rates). … It may feel good to throw red meat to the anti-corporate populist left. Righteous fury about evil businesses earns plenty of retweets. But it has also hampered Democrats’ efforts to get inflation under control — and in so doing, sabotaged their reelection prospects.”
MIT Economics Professor David Autor:
“Price controls can of course control prices — but they’re a terrible idea.”
Bob McNally, president of Rapidan Energy and former energy advisor to President George W. Bush:
“Republican presidents do it. Democratic presidents do it. To my knowledge, there’s never been any gouging found.”
These voices lend credibility to the debate and are supported by the facts: Prices at the pump currently reflect – to name a few factors – workforce and supply-chain challenges, increasing demand post-pandemic, and lagging supply due to government policy.
American families and businesses are facing some of the highest prices they have ever paid. Many are anxious and in search of real solutions – not just more rhetoric. Washington policymakers should consider policies that would foster additional investment and bring on new energy supplies, which the U.S. and our allies abroad are desperate to secure now and over the long-term. Click here to learn more about the policies that advance U.S. energy leadership.
About The Author
Lem Smith is API’s vice president for Federal Relations. Lem joined API in February 2020 as vice president for Upstream Policy & Industry Operations. He previously served as a principal at Squire Patton Boggs, an international law and public-policy firm, where he advised private and public sector clients on federal and multi-state policy matters and provided counsel on communications strategies, campaign affairs and crises management. Previously, Lem was director, U.S. Government & Regulatory Affairs at Encana, and responsible for all aspects of U.S. government relations and regulatory policy matters at the state and federal levels. Prior to that, Lem was director of Government Relations for Kerr-McGee Corporation. Lem began his career on Capitol Hill, working for U.S. Senate Majority Leader Trent Lott, U.S. Rep. Roger Wicker (Mississippi) and the late U.S. Rep. Charlie Norwood (Georgia), where he negotiated key member priorities within the 2005 Energy Policy Act (EPAct). Lem is a graduate of the University of Mississippi.