When Lack of Government Authority is the Emergency, a Kentucky Story

Federal and state governments declare emergencies or disasters for many reasons. Currently in Arizona an estimated 25 emergency or disaster declarations are in effect. Most common reason in Arizona right now are wildfires, major storms and flooding, and a few continuing Covid declarations. Arizona has both a Covid 19 emergency declaration and a Covid 19 major disaster declaration. A FEMA dataset shows 838 emergency and disaster declarations across the U.S., though not all remain active.

Emergency declarations trigger a number of steps to facilitate government actions like disbursing funds and making it easier for state and federal responses to coordinate responses. In most states with laws prohibiting price gouging typically declaration of an emergency triggers application of the law.

Which brings us to Kentucky.

On June 23, 2022, Kentucky Governor Andy Beshear declared a “state of emergency relating to inflation and gas prices” so as to “implement provisions of KRS 367.372, et seq. as to the sale of goods and services, specifically gasoline or other motor fuels…” The declaration makes clear that all the emergency declaration is intended to do is activate the price gouging authority of the state. In other words, the emergency was the inability of the state to retroactively penalize gasoline retailers for price increases.

Average Gasoline Prices (Regular) for Ohio, Kentucky, and Tennessee, June 6-July 5, 2022

We might notice that prices had peaked about two weeks before the Governor declared the emergency and that prices have continued to fall in the nearly two weeks since. The price gouging law remains in effect only for 15 days unless extended. The enacting of state authority appears to have had no effect so far, as prices in Kentucky track the fall in prices in neighboring states.

As the law prohibits prices “grossly in excess of the price prior to the declaration” (Ky. Rev. Stat. § 367.374), permits prices to rise with fluctuations in commodity markets, and allows for other cost increases, it seems wholly unlikely the law will have any economic effect or legal consequences at all. In fact, that may be just fine with the Governor.

The real emergency in Kentucky was political, not economic. Consumers are unhappy about high gasoline prices. Understandably so; even after adjusting for inflation prices have been at record levels. Unhappy consumers are unhappy voters. Unhappy voters want to see elected officials do something. The Governor did something, and next time he is running for office he can remind voters that he did.

Of course he’ll leave out the part his “something” had absolutely zero effect and he expected it to have zero effect. The news release was the point. Governor Beshear wants voters to know he is “on their side.” Empty symbolism is good enough for Kentuckians in the Governor’s eyes.

Comments filed in New York rulemaking process on price gouging enforcement

One comment consisted solely of the email subject line “Let the market be free.” It was not a view shared elsewhere in the comments.

In March of this year the New York Attorney General’s office initiated an effort to improve the state’s price gouging law enforcement practices. The “Advance Notice of Proposed Rulemaking” explained the intentions behind the state’s price gouging law and suggested experiences over the last two years indicate a need to refine the rules. (See an earlier post on the subject here: Anti-price gouging laws get rulemaking process in New York. The NY AG’s press release has more information.)

The rulemaking process is being overseen by the NY AG’s Senior Counsel for Economic Justice Zephyr Teachout, a former candidate for NY AG and a law professor at Fordham before becoming appointed to the AG’s office this past January. In October 2021, Ms. Teachout’s article on antitrust policy, “Why Judges Let Monopolists Off the Hook,” was published in The Atlantic. That article, along with the text of the ANPRM itself, may provide some insight into the direction the NY AG’s office wants to take New York’s price gouging enforcement activity.

Comments on the ANPRM were due in late April. These comments have been posted on the NY AG’s website in a single 252-page document. In all about 65 separate comments were filed. The vast majority of the comments were either specific price gouging complaints–gasoline prices and new cars were common targets, but Chinese restaurants and the Dollar Store also drew remarks–or generic remarks urging the AG onwards in her fight.

A dozen comments were more general and in-depth comments, with half from the political left and another half dozen from industry. For your reading convenience, I have extracted these 12 comments from the AG’s document and posted them here. Just 64 pages!

A formal “Notice of Proposed Rulemaking” is expected to come sometime in the next several months. If you, like the lone commenter quoted above, would like the NY AG’s office to “let the market be free,” you may want to get involved at the next step in the proceeding.

Anti-price gouging laws get rulemaking process in New York

James Hanley and I have an op-ed on New York’s price gouging law appearing this week in Crain’s New York Business.

The New York attorney general’s office has initiated a rulemaking process intended to better ground the state’s price gouging law enforcement practices. The New York rulemaking may be the first time a state took seriously the idea that price gouging law enforcement requires careful thought. Here we take the occasion of the rulemaking process to suggest ways the state can improve its enforcement practice and reduce the compliance burden.

Sure, our favorite improvement would be simple repeal. However, as that is not on the table in New York, so we offer a few more modest suggestions.

(Plenty of economists have op-eds on price gouging that lay out the basic “supply and demand” arguments against them. I wholly endorse the standard economist’s op-ed against price gouging laws: basic economic literacy is important and and the lessons bear repetition. But many economists have written such pieces, including me. And I’ve had a longer piece on price gouging laws published in Regulation magazine. In the Crain’s op-ed we try another approach.)

I admit it, I was wrong (about a federal government price gouging investigation)

Recently a handful of politicians called upon the Federal Trade Commission to investigate oil companies for potential price gouging. I was reminded of an episode from a few years back in which politicians called upon the US Department of Transportation to investigate potential price gouging by airlines.

An Amtrak train derailed in Philadelphia in May 2015, interrupting passenger service in the area for several days. Air travel rates jumped along some affected travel routes. In response Senators and Members of the House called upon the DOT to investigate.

I blogged about the calls for investigation in a July 2015 post at Knowledge Problem. There I made the following prediction:

After a month or two the DOT will report finding that airline prices did jump suddenly after the derailment as demand for air travel jumped up. They will observe that initial price spikes resulted from airlines’ computerized pricing mechanisms and did not reflect an intent to “take advantage of stranded passengers in the wake of such a tragic event.” They will note that airlines responded by adding flights and pressing larger aircraft into service. The report will conclude temporary price spikes reflected the ordinary workings of supply and demand under short-lived extraordinary circumstances. No finding of unfair practices will result, and no trade practices will be condemned.

I did not recall whether the investigation led to any particular conclusion, so I Googled it. To my surprise, my prediction was wrong in a key part.

I wrote “after a month or two the DOT will report…” but it was actually 18 months before DOT concluded its investigation. There was no report. Rather, as the Associated Press described it, the “department quietly sent letters to the airlines” stating the investigation had concluded. The DOT said it found “no evidence of unfair manipulation of airfares or capacity, nor evidence of unconscionable increases in fares beyond normal pricing levels.”

I was wrong on the timing of DOT action, but right about what it would find.

One wildcard this time around. The new chair of the FTC is a strong critic of existing competition policy practice. Last September the FTC announced several efforts to boost scrutiny of gasoline markets. Perhaps under new management FTC lawyers and economists will come up with some new theory of price gouging to justify doing something.

More likely, sometime after the November 2022 elections, the FTC will conclude they found no widespread market manipulation or price gouging. It won’t make much news when they conclude the report.

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.]