Troy King's fishing expedition

Southern Appeal blogger Michael DeBow commented recently on the Attorney General's investigation of the post-Katrina spike in gas prices.

According to a press release from the Alabama AG's Office, dated today, 45 state attorneys general are "issuing the first round of subpoenas in the multi-state inquiry of rising fuel prices following Hurricane Katrina." ...

No explanation was given as to what would constitute "a legitimate reason" for price increases. Similarly unexplained: why we should ask the respondent firms to spend time and effort rummaging through their files, etc., to comply with the two-week deadline on the subpoenas, rather than using all their efforts to serve their customers.

I can predict, with sublime self-confidence, what will eventually come of all this: Absolutely nothing. The oil industry's pricing decisions have been investigated umpteen times over the years (usually after a price spike) by various government agencies, Nader groups, etc., etc., and nothing has ever come of it. So it will be with this fishing expedition.

When all is said and done, I think that Professor DeBow's prediction will prove accurate. If King's investigation is conducted fairly and objectively, its conclusions are likely to be similar to those of past inquiries. There is little or no evidence to show that gasoline producers, distributors, wholesalers, or retailers have raised prices in response to anything other than market forces such as short supplies and heightened market uncertainties.

But, given the vagueness of Alabama's price-gouging law, there are legitimate concerns over whether a fair and objective investigation is even possible. According to the Attorney General's office:

The state law that prohibits "unconscionable pricing" of items for sale or rent comes into play when the Governor has declared an official state of emergency. Although what constitutes an unconscionable price is not specifically set forth in state law, a price that is 25 percent or more than the average price charged in the same area within the last 30 days--unless the increase can be attributed to a reasonable cost-- is a prima facie case of unconscionable pricing. The penalty is a fine of up to $1,000 per violation, and those determined to have willfully and continuously violated this law may be prohibited from doing business in Alabama.

A great potential for mischief stems from the law's ill-defined concept of "reasonable cost." For example, does that encompass the risks of miscalculating future costs or of losing customers to competitors if there is nothing left to sell? Cost is often indeterminable, at least monetarily, making it very difficult to quantify its reasonableness. It may be that the legislature intended only to look at actual monetary expenditures when it crafted the anti-gouging law, but most business owners and economists would balk at such a narrow definition of "cost."

In any case, Alabama does have an anti-gouging law, and it is the Attorney General's job to enforce it. Thus, King's inquiry is not entirely unjustified. It is the fact that he has given it such a high profile and has resorted to the tactics of a demagogue that seems inappropriate. Accusing oil companies and gas station owners of wrongdoing may serve to enhance King's popularity, but it doesn't do a thing about high gas prices.

If Troy King is serious about understanding the high costs of energy, he should subpoena a few lawmakers and bureaucrats, since they are the ones responsible for the onerous regulations that limit productive capacity and stifle innovation. He should ask oil company executives what restrictions impede additional oil exploration here in the United States. He should inquire as to why no new refinery has been built in the U.S. in almost 30 years. He might even want to investigate what can be done to assuage popular resistance to building new pipelines. All of that may take some time, but I'm sure that he would find it to be pretty enlightening. In the meantime, he can get out of the way and stop being part of the problem.