That's the question asked in a recent study by Professor James Griffin at Texas A&M. It's timely, given that Congress is considering legislation to punish "price gouging" on gasoline and diesel fuel during periods of national emergency (like Katrina).
His conclusion? We can't afford not putting our trust in the price system:
"Curiously, by attempting to treat the symptoms of the disease, we not only make the current problem worse, but also exacerbate future supply shortages in three ways:
(1) Price controls impose hidden costs on consumers in the form of added waiting time and wasted fuel from longer waiting lines at the pump.
(2) Price controls lead to lower supplies in future emergencies as gasoline producers / marketers are denied the incentives from higher prices to build spare capacity and to hold extra inventories for emergency situations.
(3) Foreign refineries, which provide about 10% of U.S. gasoline supplies, are immune from price controls. They can simply divert their supplies elsewhere, compounding the shortage problem.
[...]
History tells us that a new price-control program is not the answer as some in government might think, but a progenitor to even greater problems... "
It's an interesting read -- hat tip to Rob Bradley for bringing it to my attention.
Comments