Wednesday, May 09, 2007

Orwellian Regulation in Wisconsin

Citing the ironically-titled Unfair Sales Act, the government of the state of Wisconsin has ordered the immigrant entrepreneur of a small gas station to stop offering discounts to his customers.

That's right: According to the state of Wisconsin, it is "unfair" to take a couple of cents off a gasoline purchase, currently costing as much as $3.14 per gallon locally.

According to the Wausau Daily Herald and reported internationally by the Associated Press:

A service station that offered discounted gas to senior citizens and people supporting youth sports has been ordered by the state to raise its prices.

Center City BP owner Raj Bhandari has been offering senior citizens a 2 cent per gallon price break and discount cards that let sports boosters pay 3 cents less per gallon.

But the state Department of Agriculture, Trade and Consumer Protection says those deals are too good: They violate Wisconsin’s Unfair Sales Act, which requires stations to sell gas for about 9.2 percent more than the wholesale price.
Offering the discount no doubt brings Mr. Bhandari goodwill among his customers, but it is unlikely to help his bottom line. Gas-station owners operate on a notoriously narrow margin, and they are unlikely to reap many profits -- if any -- from the sale of gasoline alone.

Rather, they rely on the sale of peripheral items, such as the odd candy bar, soda pop, or beef jerky, to fill their cash register drawers. Unfortunately, as gas prices rise, customers are less likely to spend their spare change on a snack or a drink -- and so the mom-and-pop gas station suffers a decline in revenues.

Given this situation, it is remarkable that the same newspaper that broke this story -- the Wausau Daily Herald -- has an editorial today that cruelly suggests that the state should regulate gasoline prices in such a manner that the small-time entrepreneur would suffer even more losses. In so doing, it completely misreads why the "Unfair Sales Act" -- a name George Orwell would relish -- is itself unfair to consumers and business owners alike:
Wisconsin requires all retailers to mark up the price of fuel at least 9.2 percent above its wholesale price.

The rule is intended to prevent retailers from undercutting competitors to drive them out of business.

But as gas prices rise, so do profits; at $1 a gallon, retailers make 9.2 cents on every gallon sold. At $3, they make 27.6 cents.

The formula needs to be changed. Make it a dime a gallon, no matter what the wholesale cost, to protect competition and consumers.
It is not the government's role to set prices for any product. If the state or federal government told supermarkets that the shelf price of cornflakes, for instance, must be 9.2 percent more than the wholesale price, there would be an uproar. If the government told furniture retailers to stop advertising "North Carolina prices" and to jack up the numbers on the price tags of sofas and coffee tables, consumers and store owners alike would be furious.

Somehow, the economically illiterate seem to think that the laws of supply and demand cease to have relevance when it comes to gasoline and that the government should play a role for which it is singularly unsuited.

Hat tip to Bart Hinkle for bringing my attention to this item.

1 comment:

CathyB said...

I so wasn't even born yet. Do you remember when mine was? I guess I can look it up. Why did I have to dress like a bride? Its kinda weird in retrospect.
Nice work with the stuff you kept