Economics and Government

REPOSTED -- STILL LOOKING FOR COMMENTS

From the Washington Times:

"Congress should consider raising fuel-economy standards for all vehicles for the first time in 30 years in light of the gasoline shortages and huge spike in pump prices caused by Hurricane Katrina, key senators said yesterday.

'I believe we must take another look at the CAFE standards,' said Sen. Pete V. Domenici, New Mexico Republican and chairman of the Senate Energy and Natural Resources Committee, referring to the Corporate Average Fuel Economy rules enacted in the mid-1970s but not updated since.

'We looked at that before, and it was not politically possible. I'm not sure that will be the case after Katrina,' he said.

His comments came as the government reported that gas prices last week breached the $3 level for the first time on average nationwide, with the biggest increases seen in Mid-Atlantic states such as Virginia and Maryland, and in the District, where the average price for regular was $3.29 a gallon.

Republicans and Democrats both said they suspected price gouging as gasoline costs soared in the aftermath of Katrina, but they complained that the government doesn't have the ability to prevent such market abuses.

'The American people are being victimized more than any free market would warrant,' said Sen. Gordon H. Smith, Oregon Republican.

Mr. Smith and other senators at a committee hearing yesterday said regulators, including the Federal Trade Commission, are not aggressively pursuing price gouging and other market manipulation by energy companies reaping huge profits.
'There are growing concerns that oil companies are making too much in profits at the expense of consumers,' Mr. Domenici said.

Some relief at the pump is on the way as the prices of crude oil and wholesale gasoline dropped for a second day in New York trading, and are close to levels that prevailed before the hurricane struck the Gulf Coast, the heart of the nation's oil-producing sector.

Witnesses at yesterday's hearing said pump prices will remain high for weeks and possibly months, however, because the hurricane knocked out about 10 percent of production at oil wells and 5 percent of production at refineries that could take up to a half-year to restore. "

How can we use economic analysis to consider the public policy issues raised here? I can suggest some specific questions:

Is there a market failure justification for the national government mandating fuel economy standards for our vehicles?

Does the term "price gouging" have an economic meaning in general, and do you think "price gouging" is an accurate way to describe what has happened after the hurricane?

Is there a market failure justification for the national government to try to deal with "price gouging?"