Rising gas price raises question: What is gouging?

What is gouging?

The dictionary says it means to exact an "exorbitantly" high price for something. And, Webster's New College dictionary goes on to say, exorbitant is defined as "exceeding appropriate limits."

And it’s potential legal trouble, too.

It's been prohibited by the governor, invoking his right to ban gouging during "a state of emergency."

The law, as the AJC reported, allows gas stations to only hike prices based on the increased cost of transporting fuel or the cost of the gas, not on the increased demand for the fuel.

Figuring that out could be difficult, since retailers generally buy their fuel in advance, so they are often selling their gasoline for more – or less – than what they paid for it, pitching their price against the others in the market and hoping it works out as a profit in the end.

Okay, fine. But what is gouging?

Where is the line between a justified increase and a crime? Where’s the division between a little normal profit-taking and an exorbitant hike? If you were the regulators – or the governor – where would you blow the whistle and write up the offender?

Is it $3 a gallon? Well, we’re past that. How about $4? Or maybe a fiver – would that cross the line into crime?

Unable to find a precise point, the AJC sought out an expert.

But it's not really an economic concept, said economist Jeff Korzenik, the chief investment strategist of Fifth Third Bank. "I know of no real definition of gouging."

In general, the notion seems to apply in a situation where there’s a need for some product and no competition – and when Colonial’s pipeline stopped pumping fuel, no one could really replace it, he told the AJC after an interview after a Buckhead talk Tuesday. “It takes a long time to build a pipeline.”

So that at least raises the possibility, he said.

But in general, the best way to prevent a shortage is let the market work, he said. “The price is the price. The only alternative is rationing by the government.”

The cold-blooded position of the rational economist, he acknowledged, is not one that is likely to be popular with hard-pressed motorists gritting their teeth as they fill up and watch the little numbers spin…

Thirty bucks. Forty bucks. Fifty…

Gasoline, of course, is a necessity for many people – but perhaps they could be more efficient about how they use it. They can find ways to combine trips, drive less, buy high-mileage vehicles or use mass transit.

“But historically, consumers don’t adjust quickly, they don’t change their habits – especially when they think the problem is going to be temporary,” Korzenik said.

And in the short-term, most people in metro Atlanta still need a car to get to work, drive carpool and do the shopping.

With worry in the air about shortages, a lot of people will fill up before they need to. And if the government puts a lid on prices – keeping them below, say, $3 a gallon– it’s a lot more likely that many stations will sell out.

The advantage of letting prices rise, the economist says, is that consumers will figure out for themselves how much they really need the fuel. At a high price, you’re not likely to go buy a couple gallons just to top off your tank. But if you are on empty and you’ve got to go to work or pick up the kids, there’ll be gas for you – and you’ll gladly pay.

Well, maybe not gladly. But you’ll pay what you need to keep rolling.