Are gas prices stressing you out? Do you find your eyes glued more to the fuel gauge than the road while driving? Are you losing friends because you no longer think it's worth the $3.25 to go across town to see them?

If so, you may be part of the camp of Americans who have had enough of these darned price hikes at the pump. You may even be one gray hair away from going out and doing something about it. Like maybe joining those price gouging protesters. Never before have you been a political activist, but hearing all the media talk about how the Shell Oils of the world are taking advantage of consumers and reaping all those profits may just bring you to your feet...

But before you go hike the mile to buy your poster board and "Down with Exxon" buttons, make sure you think through the consequences. Depending on how you look at it, price gouging might not be so bad.

The word "gouge" has an ugly connotation. Alone it renders images of bloody thigh wounds or damaging dents in pricey furniture. But is the act really this bad in the context of prices?

In fact it depends on where you are. Some states, like Arizona, don't recognize price gouging and simply view price increases like those in today's oil prices as natural as any other tides in supply and demand. Other states, like Louisiana, attack fiercely by assigning biting penalties and dragging executives through court when companies take "excessive profits", as many were deemed to have done during Hurricane Katrina, for example.

Which view is better for the economy? Should companies be restricted from raising profits when demand soars? Again, this is a matter of perspective. Some think that any and all detriments to consumers should be prohibited, even if short term pain leads to long term gain. Others view "excess profits" as rewards that keep more vital participants in the industry, contributing to its ultimate long-term health.

No matter what side you're on, the key is to make guidelines clear in advance. Not recognizing price gouging is easy: just make sure the law states it is that way, and that it's gonna stay that way. If price gouging is going to be recognized and restricted, the "gouge" should be well defined and formulaic. Many states fail the market by defining gouging post-facto, such as in this recent oil up-tick or after the hurricanes. Not telling companies what's fair beforehand and then punishing them with fines later imposes great uncertainties in the industry. Uncertainty leads to inefficiency, and that can never be good, no matter how you look at it.

Posted by Michelle Smith on May 10, 2006 06:23 AM