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Gas price hysteria may have reached its zenith on May 3, when the House of Representatives suspended its normal rules to pass H.R. 5253, the “Federal Energy Price Protection of 2006.” The bill purports to criminalize “price gouging” in the sale of gasoline and other biofuels. But as Ayn Rand would say, “price gouging” is an anti-concept employed to confuse laypersons about how markets actually operate.
Many commentators have done a fine job explaining why “price gouging” does not exist, and they won't be reiterated in this article. Instead, the focus here is on the substance of H.R. 5253, or lack thereof. The bill has a curious objective—it criminalizes behavior without defining it. The bill's sponsors, led by Rep. Heather Wilson (R-New Mexico), consciously chose not to define “gouging,” instead delegating that task exclusively to the U.S. Federal Trade Commission (FTC).
The Federal Tyranny Commission
The FTC is composed of five commissioners appointed by the president for seven-year terms. Although the FTC is classified as part of the executive branch, the president may only remove commissioners for “inefficiency, neglect of duty, or malfeasance in office.” This guarantees the FTC near-total independence from both the White House and Congress. While attractive to statists who favor rule by self-selected “experts,” the FTC meets James Madison's definition of tyranny, as explicated in Federalist No. 47: The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, selfappointed, or elective, may justly be pronounced the very definition of tyranny. Were the federal Constitution, therefore, really chargeable with the accumulation of power, or with a mixture of powers, having a dangerous tendency to such an accumulation, no further arguments would be necessary to inspire a universal reprobation of the system. The FTC exercises legislative powers by deciding what the law is, as H.R. 5253 commands with respect to gasoline prices; the Commission then acts as the executive by investigating and prosecuting alleged offenders; and finally, the commissioners exercise the judicial power by serving as the initial trier of facts. This “mixture of powers” has been euphemistically called “administrative litigation” by its advocates. In practice, it's nothing more than a form of tyranny.
Most tellingly, the House rushed to further empower the FTC without offering any proof that the agency possesses the competence to, in effect, determine gas prices nationally. The language of H.R. 5253 gives the FTC carte blanche to prohibit any price that it deems excessive or “unfair.” But what gives the FTC expertise—indeed, omniscience—to run the gasoline market? The present Commission is composed entirely of career antitrust lawyers. A small, self-selected segment of the cartelized legal profession should not be given dictatorial powers over any part of the economy (including their own!) The ability to pass a bar exam is not an indicator of how well someone will function in the free market.
Having said all this, it's not clear what the FTC might do with its new price control powers. The Commission has not publicly lobbied for H.R. 5253 or similar legislation. When pushed in the past by legislators and the White House to conjure “price gouging” cases, the FTC has demurred, acknowledging that normal market processes are at work. The Commission has imposed conditions on some energy industry mergers, but these have been high priority items.
Indeed, an extensive “price gouging” regime goes against the FTC's preferred regulatory model, which relies heavily on nickel-and-dime extortion of businesses. Merger review provides the bulk of the agency's budget via a special tax imposed by Congress. Only a handful of mergers are actually scrutinized, and those deals are usually permitted with conditions, generally a mandatory sale of assets to an FTC-approved buyer.
The balance of the FTC's resources are devoted to maintaining demand for the nominally private antitrust bar. Since commissioners are antitrust lawyers who return to private firms after a few years, they are driven to use their temporary government positions to ensure high demand for their services down the road. Every year the FTC discovers new applications of its vaguely-worded mandate to punish “unfair methods of competition,” and those applications force businesses to retain more antitrust counsel at higher fees. It's common practice for companies to hire ex-FTC lawyers to protect against policies developed by those same lawyers while at the agency. (And oftentimes, such protection does not prevent an FTC investigation and subsequent “settlement”.)
H.R. 5253 presents challenges to the FTC's status quo. Energy companies are unlikely to accept the Commission's definition of “price gouging” without putting up a huge fight. Unlike merger review, which all large companies accept as a necessary form of political tribute, the “price gouging” statute goes to the core of a company's business. Energy firms have the economic and legal resources to fight the FTC every step of the way. This means the Commission will have to devote more of its limited resources—H.R. 5253 doesn't increase the FTC budget—to dealing with a single industry.
And even if the Commission uses its judicial powers to rule against “Big Oil,” the companies can then appeal to the Article III courts, a venue that has not been friendly in recent years to expansive views of FTC authority. Thus, the FTC is faced with the prospect of spending years of manpower and dollars on what will ultimately prove a futile campaign, at least at the federal level.
Aspiring Governors, Rejoice!
Now on the state level, the situation may be quite different. H.R. 5253 grants state attorneys general the power to bring suit “on behalf of the residents of the state.” This means an AG can sue even if his own state's “price gouging” statute doesn't apply to a particular situation. (Many state laws require an executive declaration of emergency before “gouging” can take place.) Thus, the House bill usurps the authority of state legislatures and invests lawmaking power with the attorneys general, a violation of the Constitution's requirement that the federal government guarantee a “republican form of government” in every state.
Unlike the FTC, whose institutional interests conflict with H.R. 5253, state AGs have every incentive to use a federal “price gouging” law to their benefit. Unlike commissioners who usually return to the private bar, state AGs are career politicians who often use their posts to seek other office. A well-timed “price gouging” lawsuit can yield substantial political benefits even if no case ever goes to trial.
Companies also have a greater incentive to settle with an AG as opposed to the FTC because the former may be a governor or senator someday. And AGs can also threaten businesses with any number of derivative prosecutions such as “obstruction of justice,” a type of power the FTC generally lacks.
Conclusion
H.R. 5253 is the latest indictment of republican—not to mention Republican—government. The House passed this bill only one day after it was introduced, under a “suspension of the rules,” thus precluding any opportunity for debate or dissent. The bill punishes an undefined non-crime and empowers an unconstitutional body of unelected lawyers to impose unlimited price controls on a key sector of the economy. The House didn't even bother to impose checks on the FTC's powers, because legislators apparently have unbounded faith in the ability of antitrust lawyers to “run” the economy, the lack of any supporting evidence notwithstanding.
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