Testimony before the House Consumer Protection Committee on SB 118A, imposing price controls in a disaster

Steve BucksteinGood afternoon Chair Holvey and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a Portland-based think tank that promotes individual liberty, personal responsibility and economic opportunity in Oregon.

Imposing price controls to protect consumers is one of the worst things government can do in an emergency. Rapidly rising prices signal those outside the affected area to conserve scarce products, and they signal producers to ship more of those products into the affected area quickly. Price controls short-circuit these signals, turning a natural disaster into a political one.

Let me give you just one example of how this bill might backfire and hurt the very people you’re trying to help:

Imagine a catastrophic storm hitting Oregon, like the Columbus Day Storm of 1962. The windows in your house are broken and the rain is pouring in. Everyone is scrambling to board up damaged buildings.

Overnight, the price of plywood in Oregon skyrockets. The sudden high prices send a message to casual consumers who aren’t affected by the storm: “Conserve plywood.” At the same time the spike in prices sends a message to producers, brokers and retailers that we need plywood in Oregon and we need it now. The faster they get it here, the more profit they can make before the prices come back down after the crisis.

Casual users of plywood will reduce their purchases because of the high prices, allowing those who have a critical need to find the product, even at what this bill calls “unconscionably excessive prices.” But in these circumstances they’re happy to find it at all.

Now imagine that this bill becomes law and the Governor applies it to keep plywood prices down. Stores in the affected area sell out quickly because demand greatly exceeds supply if prices can’t rise. Imagine homes being severely damaged and homeowners not being able to buy a sheet of plywood at any price. While some Oregonians’ property is being destroyed, consumers in other parts of the state, or in California or Washington, might unknowingly be building play-houses for their kids with cheap plywood. Under this scenario, would this law protect you or hurt you?

The law of supply and demand is actually a better friend to disaster victims than any price control law coming out of this building.

Thank you for listening, and I’ll be happy to answer any questions.

Listen to the hearing, beginning at 45:00. My testimony begins at 46:00.

Text of Senate Bill 118A

“Price Gouging is Not the Problem,” Nick Stearns, Cascade Policy Institute, March 2005. (This commentary was written to address a similar bill, SB 209, in the 2005 session.)

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