I'm in favor of gas price ceilings
By Arnold Kling
The price gouger’s best friend is my colleague Don Boudreaux. His latest letter-to-the-editor (he emails these to those of us on a distribution list, whether they wind up published or not) puts it quite succinctly.
Byron Kass correctly notes (Letters, Sept. 1) that as soon as gasoline’s wholesale prices rise, retailers raise prices at the pump even on gasoline that they bought earlier at lower wholesale prices. Mr. Kass calls this practice “gouging” and wants government to investigate.
I wonder if Mr. Kass owns a home. If so, would he wish to be investigated for gouging if he sold his home for a price higher than the one he paid for it?
In my Economics for the Citizen class today, I tried to explain that if the futures price indicates that next week gasoline will be at $3.00 a gallon and you as a dealer bought it at $2.00 a gallon, it is neither in your interest nor society’s interest for you to sell your gasoline at $2.00 a gallon.
I suggested that the best policy now would not be a price *ceiling* to hold down the price of gas, but a price *floor* to immediately raise it to a level that would slow panic buying. My idea is to have the government recommend a price per gallon of $6 through Labor Day, $5.50 from then until October 1st, and $5.00 for the month of October. The idea of having a pre-announced, staggered schedule is that it reward the people who put off buying gas and punish the idiots who are rushing to top off their tanks.
My experience with presenting the proposal in class is that it would be difficult to make it credible. That is, many students thought that such an announcement would be interpreted at a gut level as “Gas prices are going up! I have to buy now!” Indeed, several students predicted that this would be the reaction.
One approach might be to announce the recommended prices as ceilings. Perhaps people would believe that the government would stand behind a ceiling that is scheduled to drop from $6 to $5.50 to $5. And perhaps those who are intelligent enough to know that ceilings cause shortages would also know that when a ceiling is set high enough it is not binding and therefore will not cause a shortage.
I do believe that for the next few months, we need to curtail unnecessary driving. And we also need to do something to tamp down panic buying by idiots. That is what motivates my price “ceiling” proposal.