Gov. Jennifer Granholm has called for legislation to increase the power of the state
to investigate "gas-gouging." While many Michiganders may feel cheated at the
pump, House Bill 6250 is neither fair nor desirable. If passed, the legislation
may actually increase gas prices and exacerbate the broader economic woes of the state.
According
to the governor’s office, "The legislation would … [grant] the attorney general
the ability to issue a civil investigative demand against companies believed to
be in violation of the act without having to first obtain a court-ordered
subpoena based on probable cause. …" The new authority is aimed at local gas
stations and any sudden increase in prices. The governor’s office states the
bill will facilitate responsiveness to consumer complaints and "make sure that
consumers are treated fairly."
The
proposed legislation makes gasoline retailers sitting ducks. True, the bill
appears to permit retailers to raise prices if they can prove their own costs
went up, but they can face such fluctuations daily. Gas stations are squeezed
between the input costs of refined gasoline and price competition from other
stations. Threatening to investigate these businesspeople for price-gouging
whenever consumers complain about spiking prices would not only be misguided but
could drive up gas stations’ legal bills and force them to either raise prices
or close up shop. Fewer gas stations would mean less competition and fewer jobs
— that is, costlier gas and, for some, less money to afford it.
Empirically, efforts to regulate gas prices have backfired, hurting the
consumers they were supposed to help. For example, Michael G. Vita of the
Federal Trade Commission reported that states’ anti-collusion laws restricting
refiners from owning gas stations actually raise gasoline prices by generating
economic inefficiencies, such as compelling two markups on gas prices instead of
just one. These antitrust regulations were supposed to protect drivers from
price-gouging, yet as Vita notes, they were only "harmful to gasoline
consumers." The oil industry is complex, and governmental intervention, no
matter how well intentioned, can easily lead to costly outcomes for motorists.
HB 6250
still has troubling legal implications. Though the search-and-seizure
protections in the U.S. and Michigan constitutions do not appear to affect
noncriminal investigations such as these, the legislation’s encroachments on
privacy should concern any state resident. The bill eliminates the current
requirement for a court-ordered subpoena in consumer-protection probes and
replaces the need for probable cause with "reasonable cause," thereby creating a
nominal standard that an attorney general could hardly fail to meet. The
governor’s reference to consumer complaints suggests that any disgruntled
customer might initiate an invasive investigation, threatening an innocent
station owner’s reputation and livelihood.
Furthermore, while the legislation was prompted by high gas prices, the proposed
amendment to the consumer protection act does not limit the attorney general’s
increased latitude only to gasoline retailers and price-gouging. Under the
proposal, all Michigan businesses would be vulnerable to the attorney general’s
expanded powers whenever they faced allegations that they had violated any of
the numerous provisions of the state’s consumer protection act.
A genuine
solution to rising gasoline prices does not require such drastic measures;
instead, it would involve deregulating oil and gasoline markets to allow greater
competition. Contrary to the theory of price-gouging, gas stations cannot simply
charge whatever they please for gasoline; if they could, they would have been
charging $5 per gallon for years. In a competitive market, if one station raises
its price, others will undercut it as much as they profitably can to lure away
the station’s customers. Competition, not undue power for the attorney general,
will "make sure that consumers are treated fairly."
Hair-trigger investigations can only reduce competition, hurt consumers and make
the state’s business climate even more unfriendly. Stripping businesspeople of
safeguards of their civil liberties is a high price to pay for the dubious
effects of this legislation — a brutal form of price-gouging indeed.
#####
Hannah K. Mead is a senior at Hillsdale
College in Hillsdale, Mich., and a communications intern for the Mackinac Center
for Public Policy, a research and educational institute headquartered in
Midland, Mich. Permission to reprint in whole or in part is hereby granted,
provided that the author and the Center are properly cited.
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