Hawaii comes to its senses

by Russ Roberts on May 9, 2006

in Prices

Hawaii has removed the price controls on the wholesale price of gasoline. From the AP story:

Hawaii’s gasoline price controls have sputtered to a stop. The island
state whose drivers pay the highest pump prices in the nation has given
up on price caps after an eight-month, first-in-the-nation experiment.
Some complained that the restrictions actually led to higher prices,
because oil companies knew they could charge up to the maximum allowed.

If the price control did cause higher prices, I don’t think it had anything to do with informing oil companies but rather from discouraging supply.

Of course, there was some dispute over the true effect of the wholesale caps. More from the AP story:

One study by an economics professor showed the gas cap cost consumers 5
cents more per gallon. An analysis by the state Department of Business,
Economic Development and Tourism estimated that island motorists paid
$54.9 million more than they otherwise would have in the first five
months under the cap. But research by cap supporter Rep. Marcus Oshiro
indicated the limits saved drivers $33 million.

Always good to hear both sides, isn’t it? Research by an economics professor and research by a politician. Six of one, half dozen of another!

But here’s the best part:

At the same time, the new law provides for the computation of a
hypothetical gas cap to let customers know what gasoline would cost if
there were price controls.

That’s like telling consumers the velocity of a flying pig.

(HT: Peter St. Onge)

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  • John Dewey

    I'm amazed that politicians stupid enough to implement price controls would be smart enough to remove those controls after only eight months.

  • Ammonium

    But I thought Hawaii's price controls were a success!?! Obviously these politicians are getting paid off by oil companies.

  • spencer

    I guess I'm too much of a cynic. When I first heard about this I saw that there were two refiners in Hawaii and assumed that they and their lobyiest would get together with the politicians and cut a deal where the politicians would write legislation for price setting that would not be significantly different from what the duoploly suppliers had been using for years.


    As far as I can tell I have seen nothing to disprove my original analysis that the price controls would not make any difference except maybe to allow the refiners to be more profitable. Don't most academic economist teach in their introductory economics clasess that firms almost always capture the regulators?


    I can not understand why anybody would have though the results would have been any different in the crony capitalist system that dominates the oil business.

  • >I can not understand why anybody would have though the results would have been any different in the crony capitalist system that dominates the oil business.


    Right, it works much better when the price setting is done by good honest representatives of the proletariat; such as in the USSR.

  • Don't worry, someone will try it again. ;-)

  • Kevin

    What's funny is the idiot Hawaiian politicians couldn't even get price-capping right. They capped the wholesale price but not the retail price. That's smart: squeeze the supply chain to make supply scarce, and then allow the retailers to charge whatever they want for the reduced supply.


    I don't think you could come up with a better formula for MAXIMIZING prices. Producers usually have to engage in illegal collusion to pull that off!


    Morons.





  • xteve

    Yeah, but they're bound to get it right next time.

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