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Colorado price ‘gouging’ bill makes flawed law worse

In Washington, DC in the 1990s, the leading local AM radio station used to run fake ads for a non-existent chain named Bread, Milk, and Toilet Paper, open only when snow was predicted.  Yes, the ads were funny because of the traditional chaos that seized the place whenever snow was on the forecast.

But they were also funny because people would panic-buy stuff that they generally had around the house, or could be buying plenty of in the normal course of daily life, but suddenly decided were absolute necessities.

Unfortunately, State Representatives Yara Zokaie (D-Larimer), Kyle Brown (D-Louisville), and State Senator Mike Weissman (D-Aurora) have taken those ads a little too much to heart, and are seeking to expand Colorado’s anti-gouging statute to mimic New York’s draconian definitions and copy some of the most restrictive pricing metrics imposed by other states.

Unfair and unconscionable

House bill 25-1010 may call so-called price gouging “unfair and unconscionable,” but that description actually better fits the bill itself, by unreasonably expanding the already-questionable practice of anti-gouging laws.

The proposed law has two primary components.  First, it changes the standard for price gouging from “charging a price so excessive as to amount to price gouging,” to 10% higher than the preceding 90-day average price.

Second, it substantially broadens the definition of the items covered to “goods are services that are necessary for the health, safety, and welfare of consumers or of the general public,” from the narrower “necessary for human or animal survival during a disaster period.”

Under New York’s law, the items that have been subject to action or threatened action range from hotel rooms, Lysol spray and wipes, infant formula, gasoline, generators, batteries, flashlights, and even car cleaning in Jewish communities in the days leading up to Passover.

The attorney general and district attorneys would continue to have sole discretion on enforcement, but the possibilities for abuse are endless.  And the burden of proof remains on the business, not on the authorities.

The pricing police

As pointed out, the price limitation means that a convenience store owner could be held liable for raising the price of a $1.50 snack to $1.65 if that just happened to occur after a disaster declaration.  It’s unlikely that law enforcement has enough to resources to go after the QuikMart for raising the price of peanuts, but such price hikes are unlikely to occur in isolation, and may attract notice when the store raises many prices at once.

What’s more, we now live in inflationary times, where price rises are caused as much by too much money floating around as by any actual supply and demand imbalances.  Stores and restaurants may try to hold the line as long as they can on price increases, but find themselves unable to stay in business otherwise.

Colorado is mercifully mostly free from acute catastrophes, but the declared disaster from Covid-19 lasted for over a year, and covered the whole state.  If supply chain pressures have been building for more than 90 days, the business may find itself stuck putting its entire business model on trial, incurring legal expenses the whole time.

The law also fails to take into account government action that raises costs.  Beginning on January 1, Colorado required all eggs sold here to be cage-free, significantly raising the cost of production and lowering the margin for error on the part of producers and retailers.  A wildfire or tornado might produce a local disaster, and result in local shortages of eggs given the tightened supply.

As the Cato Institute points out, using bottled water as an example: “The rising price compensates suppliers and merchants for bringing more bottled water to market. The higher price justifies the costs and risks associated with opening stores in damaged areas, transporting bottled water from surrounding states, paying overtime to workers and truckers, or ramping up production or transportation through acquiring new inputs and storage space.”

Politicians want to make hay over the western North Carolina hurricane damage and the Los Angeles wildfire catastrophe.  The good news is that the public can be educated about the economics involved, accepting temporary price increases as the cost of increasing supply and availability.

With any luck, the supply of this kind of price “gouging” grandstanding exceeds the demand for it.

Joshua Sharf is a Denver resident and regular contributor to Complete Colorado.

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