May 21, 2007

Dear Colleague:

I wanted to share with you the following editorial, published on May 20,
2007 in the Houston Chronicle, by former Ways and Means Chairman Bill
Archer and former Agriculture Ranking-Member Charlie Stenholm. Both
currently serve as members of the American Council of Capital
Formation\'s Board of Directors:

**Forget price gouging: Gas prices flow with market\
**Controlling prices creates worst kind of public policy

As Texans first and as past members of Congress second, sometimes we are
left shaking our heads at the actions of our former colleagues. Despite
the disastrous lessons learned in the 1970s when federal price controls
were imposed on gasoline, Congress is now set to consider legislation
that would bring a return to much of the same failed policies.

This time, however, proposed price control laws are being offered under
the guise of protecting Americans against incidents of so-called \"price
gouging.\" Call them what you want, but they are essentially the same
thing: bad public policy that will ultimately hurt consumers.

Rather than providing needed legislative leadership to address issues
affecting gas prices specifically or our nation\'s energy challenges
more generally, congressional proponents have instead chosen a political
strategy that publicly casts specific individuals and industries as
culprits before the American public. They have chosen this path despite
all the historic, legal and economic evidence that price controls cannot
and will not work, and will ultimately have the exact opposite of their
intended purpose.

Hurricanes Katrina and Rita served as the initial impetus of this effort
in 2005, and with renewed focus following any subsequent increase in the
price of gas since then. In each instance, opportunistic policymakers
have wasted no time in charging \"price gouging\" as the reason.
Interestingly, during cycles where gasoline prices decreased, such as
last year, apparently so did the political motivation to yell \"fire\"
in the movie theater.

A more objective interpretation shows that the Hurricanes of 2005 did
result in increased gasoline prices, but not for the reasons proponents
of price controls would like you to believe. Because of the location
where these disasters occurred, the nation\'s energy infrastructure was
significantly damaged, which interrupted the delivery of energy supplies
not only in the Gulf region, but also to other parts of the country. In
response, gasoline prices rose to allocate the temporary reduction in
available supplies.

Higher gasoline prices resulted, stirring questions of whether refiners,
distributors and retailers were possibly taking advantage of the
situation. As such, the federal government sought to address these
concerns. Following Hurricane Katrina, the Federal Trade Commission
investigated allegations during the period of the supply interruption
and found no evidence of widespread price gouging.

In fact, over the last several decades, the U.S. Department of Energy
and the FTC both have investigated numerous instances of regional price
spikes. The conclusions have been the same: Gasoline price increases in
every case were due to basic supply and demand economics and that price
variances corresponded directly to changes in supply. In short, official
investigations at every turn have shown that gasoline price increases
were not caused by any manipulation of the markets as politically
motivated individuals and groups have claimed.

Yet, such investigations have done little to quell the political
motivations of those who continue to push misguided \"price-gouging\"
laws. If enacted, legislative proposals, such as Michigan Congressman
Bart Stupak\'s Federal Price Gouging Prevention Act, would function like
controls on gasoline prices. To highlight the economic impact such laws
would have on consumers and industry, the American Council for Capital
Formation recently unveiled a study reviewing investigations of past
gasoline price increases and the results of previous efforts to control
prices during supply interruptions. Key results of this study found:

• Price controls, had they been implemented as defined under current
legislative proposals during the supply disruptions that occurred during
the 2005 hurricanes, would have totaled \$1.9 billion.\
• Price increases were due to the market operation of supply and demand
not withholding supplies.\
• Criminal charges imposed for price increases would discourage
suppliers from obtaining higher priced replacement supplies, therefore
limiting consumers\' access to gasoline supply.\
• Price controls could discourage refinery investment, resulting in
tighter capacity at all times.\
Ultimately, price caps will actually result in gasoline shortages,
causing unnecessary hardships for consumers and disaster affected
regions. Why? Because whether in times of crisis or normal operations,
price fluctuations serve as basic signals to producers to either
increase or decrease supplies and direct them accordingly. This holds
true in all industries.

The current proposal before Congress relies on extremely vague terms,
placing retail and wholesale fuel providers in a position to act in ways
that would discourage re-supply out of fear of prosecution. Even the
failed efforts of the past included specific definitions and detailed
enforcement mechanisms. If these were such failures, why would even more
ambiguous policies succeed? Simply put, they won\'t. Further, in times
of emergency such laws would likely ensure even more disastrous
consequences, impeding residents from getting the fuel needed to
evacuate and potentially hindering recovery efforts of first responders.

Policymakers should also take note that the United States continues to
import a significant amount of gasoline from foreign producers. In the
event price caps are triggered, foreign producers will simply sell their
products elsewhere at higher market prices. Price controls don\'t work;
never have, never will. Proposed \"price-gouging\" laws would return the
United States to the horrors of gasoline price controls witnessed under
the Carter administration and effectively harm the very U.S. consumers
such policies are meant to protect. What Congress seems to learn from
history is that it never learns from history.

<http://www.chron.com/disp/story.mpl/editorial/outlook/4820526.html>.

**Please oppose the Stupak Price Gouging bill (H.R. 1252).** The lack of
a concrete definition for \"unconscionable\" could lead to severe supply
shortages in a time of emergency. Price Gouging is unethical and should
be illegal, but we must make sure that we do not create a statutory
climate which causes business owners to stop selling gasoline rather
than face losing their businesses \-- and their livelihood. 

Sincerely,

> Michael C. Burgess, MD