Friday, May 06, 2005

Government Protects Citizens from "Cheap" Gas

The Washington Post reports on a gas price war in Maryland, and its effects. Link.
A gasoline price war erupted in St. Mary's County last week after one station slashed its price for regular to $1.999 a gallon and spurred three others to follow suit, giving drivers some hope of relief at the pump.

But the price dip proved fleeting.

Maryland regulators quickly stepped in and told the stations that their prices were too low. They needed to go up by 5 cents.

In as much time as it takes to fill the tank of an SUV, prices at BJ's Wholesale Club, Sheetz and two Wawa outlets bounced to $2.049 a gallon.

Nothing surprising here. Economist have long known that whenever government has the power to regulate prices, they use it to raise minimums, not to lower maximums. Just remember what happened when Ronald Reagan started to deregulate oil, gas, and gasoline. Prices dropped for decades, and they are only getting back now to where they were then in nominal terms. In real terms, prices are still significantly lower than where President Carter had left them.

Other examples are airline fares when the FAA set them, and trucking rates when the ICC set them. You would also be very surprised at how inexpensive medical insurance was before President Johnson rammed Medicare through Congress. Over time, free markets treat consumers better than government mandates 100% of the time.


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