Inflation and the origins of anti-price gouging regulation

Inflation and price gouging are both in the news. You likely don’t need reminding about inflation, currently running at an 8.5% annual rate. Not surprisingly, the story on inflation was accompanied by a picture of a gas pump. The New Jersey government reports receiving more gasoline price gouging complaints in March than it saw in the previous two years.

Inflation, oil prices, and price gouging laws have a surprising historical connection. At least this is my claim: had inflation not been a problem in 1970 and 1971, we would not have price gouging laws in 37 states in 2022.

The links in my chain of reasoning are as follows:

  1. In 1970 and 1971 inflation had become a public policy problem. President Nixon, looking forward to his 1972 reelection campaign, imposed broad-based wage and price controls in August of 1971.
  2. While most price controls disappeared quickly (consumers hated shortages even more than price increases), oil price controls remained politically popular and continued through the 1970s.
  3. In 1979 President Carter began slowly lifting the price controls, with the predictable short run consequence of higher and more volatile prices.
  4. Higher heating oil prices and cold weather in New York prompted an outcry by voters, and the state legislature responded with the nation’s first anti-price gouging law.
  5. New York’s law was followed by three more states in the 1980s, eleven more in the 1990s, another sixteen in the 2000s, and six in the 2010s.

I rely on a bit of speculative consumer psychology: my view is that during the 1970s consumers became used to (a) relatively stable home heating oil prices, and (b) oil prices as an intensely political matter. Maybe (b) is true even if (a) is not, but it seems notable that it was home heating oil price increases that motivated legislative action.

It is possible, of course, that other states would have pursued price gouging laws even had New York not done so in 1979. In fact, New York might have acted anyway sometime later, in response to some other price jump. The three states that followed in the 1980s were Connecticut, Alabama, and Hawaii. I don’t know the circumstances of the legislative actions in those three states, so don’t know if New York’s action was important. Research on these three histories would be suggestive, either for or against my view.

But plausibly without New York’s action in 1979, other states would have responded to the politics surrounding emergency price increases in other manners and price gouging laws would be fewer than 37 in number in 2022.

[I blogged copiously on price gouging related topics at Knowledge Problem. See also my “The Problem with Price Gouging Laws” in the Spring 2011 issue of Regulation magazine.]