Tax Holidays, Feebates, Price Gouging Laws? Are proposals for gas price relief good policy?

• Author: Parsons, Steve G.
• Position: ENERGY & NATURAL RESOURCES

This May, the U.S. House of Representatives passed an anti-price gouging bill that would give the president authority to declare an energy emergency and make it unlawful to increase gasoline and home energy fuel prices in an "excessive" or exploitative manner. The Senate Commerce Committee then deadlocked on the bill, making it unlikely to become law. But this year's persistent high gas prices--coming just before a pivotal election--is pressuring elected policymakers to "do something" to show their concern for consumers, whether in the form of anti-price gouging laws (APGLs), gas tax holidays, or something else. Politics aside, just how sensible are these ideas?

ANTI-PRICE GOUGING LAWS

Economists almost universally disdain any form of government price control, which is what APGLs are. Price is the mechanism that mediates between supply and demand; it rations scarce goods. A higher price encourages consumers to conserve and look for alternatives and it encourages suppliers and potential suppliers to produce more.

Accordingly, economic theory and substantial empirical evidence indicate that APGLs make society worse off by:

* encouraging hording and shortages,

* not sending the correct price signal to consumers to conserve and search for alternatives,

* not directing goods to their highest-valued use and users, and

* not providing the proper price signal for current and potential suppliers to increase supply.

If price can't perform the critical rationing function, then other mechanisms must do so. These could include consumers waiting in long gas lines, employing special knowledge or contacts to get deals on gas that other motorists are not privy to, using technology to scour suppliers for better prices, or relying on luck. Such non-price rationing was typical in old-style Soviet economies or in modern Venezuela where the average shopper spends 35 hours a month waiting in line for price-controlled goods. It was also part of the rationing process when President Richard Nixon imposed price controls on gasoline in 1973, triggering customers to spend up to three hours in lines at gas stations while gas retailers reduced the quality of their services.

During World War II, federal price controls triggered shortages for which ration cards and federal coupons were required to purchase many goods. This led to black markets and other rule-breaking such as selling or giving coupons to friends.

Recently in these pages ("Anti-Price Gouging Laws: Why a Pandemic Is Different from Other Emergencies," Summer 2022), I described how a pandemic differs from other emergencies (such as a hurricane) in which APGLs can be triggered. These differences include:

* A pandemic is worldwide scope.

* It has a much longer duration than typical emergencies.

* There is no physical destruction wrought by a pandemic.

* A pandemic is driven by infection.

The first three of these characteristics are also present in the current energy price spike. Gas prices are soaring around the globe and price controls implemented in...