The Electric Commentary

Friday, August 26, 2005

Hawaii to Create Gasoline Shortage

Oh yeah, this will work.

Let's start at the Cafe:

The belief in magic never dies. Politicians in Hawaii apparently believe that ink on paper (backed up by policemen with guns) can keep the cost of gasoline lower than the price that would prevail on the market.

They're wrong. Shortages and queues will result from Hawaii's price controls on gasoline -- shortages and queues that will cause motorists to suffer higher costs than otherwise for each gallon of gasoline they manage to buy.

The silver lining around this politically induced foolishness is that it makes the teaching of economics easier.

And The Coyoteblog makes an important point:

Beyond the obvious run-up in world-wide oil prices and Hawaii's logistical isolation that raises all of the prices on the island, the article on CNN identified one other possible culprit for high prices: the state government

"Higher-than-average taxes on gasoline in Hawaii contribute to those high prices. The state levies a 16 cent per gallon tax, and various local authorities add on other taxes.

In Honolulu, for example, total state, federal and local gas taxes amount to about 53 cents per gallon, one of the highest rates in the United States. The national average, according to the American Petroleum Institute, is about 42 cents per gallon"


Update: This is interesting, from Megan McArdle:

Weirdly, it is imposing that price not at the pump, where it would at least lower prices to consumers, but at the wholesale level.

In traditional economic theory, when prices are capped, consumer demand keeps going strong but suppliers curtail supply, leading to the shortages that those who were sentient in the seventies will remember--long lines for gas, alternate day gas purchases, and so forth. More recently, this is basically what happened in the California blackouts, although there were added wrinkles there due to defects in the regulatory setup of the electricity market. I'm not sure what happens if you cap wholesale prices. There are two plausible scenarios. Wholesalers will undoubtedly curb supply in response to the price caps. The resulting mismatch between supply and demand could simply result in higher prices as consumers get into a bidding war for the available gasoline; in that case, the market will clear, and a handsome windfall profit will be transferred to gasoline station owners from the pockets of consumers and wholesalers. Or, the gasoline station owners may be afraid to raise prices for fear of attracting regulatory attention, in which case the result will be shortages and rationing. I'd bet on the former, and would also bet that there is a powerful gasoline station owner's lobby which has been agitating fiercely for wholesale price caps.

2 Comments:

  • I think what Hawaii did about gas prices is a good thing, the oil companies are taking the american public for a ride to line thier pockets with cash, and the Bush's are at the head of the line. Somebody needs to do something about the gas price, Pres. Clinton did so why can't OIL BARREN Bush

    By Anonymous Anonymous, at 1:14 PM  

  • In that case, why don't you bring an anti-trust suit against the oil companies?

    Or buy some stock in them?

    Or boycott oil?

    And if you think it's so easy to do something about gas prices, why don't you conjure some oil out of thin air? That's what you're demanding of Bush here.

    What Hawaii did will likely create shortages (unless their caps exceed the natural price, in which case their will be no effect).

    And if you'd read the whole post, you would have noticed that this is a whoelsale cap, which means that it's a giveaway to gas companies.

    Please take an economics course, for the good of the nation.

    PS: The preferred spelling is B-A-R-O-N. If you're going to yell at me at least spell correctly.

    Also, Clinton did nothing about gas prices. President's can't control prices.

    By Blogger PaulNoonan, at 1:43 PM  

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