Laws Against “Price Gouging” Aren’t Helpful

by Antón Chamberlin

Last week on September 9th, a gas pipeline in Alabama began leaking, significantly shrinking the supply of gasoline in the Southeast, including the state of Georgia. This pipeline alone is estimated to supply the East Coast with up to 40 percent of its gasoline. Pipeline volume has still not returned to normal, although normal levels are said to return “fairly soon.”

On the 19th of September, Georgia governor Nathan Deal issued an executive order reinstating Georgia’s anti-price gouging law in lieu of the sudden gas shortage facing the state and the rest of the Southeast. This is a move that is surely to be cheered by Georgia citizens as an act of protection by their benevolent governor. But alas, this decision should not be praised, for it is an apparent indication that Governor Deal was asleep during his Principles of Microeconomics class.

Don’t Restrict the Pricing Mechanism

Prices act as a rationing mechanism. The state of mankind is one of infinite wants coupled with finite resources. The task of economics, then, is to figure out what is to be produced with our scarce resources. It is through prices that the resources we have get put to their highest-valued use in the economy. In order for this allocation to work, however, prices must be allowed to fluctuate freely. Let us look at an example.

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