The Knoxville News Sentinel is reporting severe gasoline shortages (HT: Instapundit):
Knoxville-area drivers are seeing more bags on gasoline pumps today as
a petroleum shortage spreading throughout the Southeast hits local gas
stations, groceries and convenience stores.Refinery outages along the Gulf Coast in the wake of Hurricane Gustav
have created severe shortages, causing retailers like Weigel’s to
scramble to keep their pumps flowing. And Hurricane Ike is bearing down
on Texas, drawing a bead on North America’s petroleum manufacturing
capital of Houston and portending a worst-case scenario for dealers and
consumers.
The phrase "bags on gasoline pumps" is a reference to stations being out of gas and closing pumps.
Here is a multiple choice question for good economics students everywhere:
Gasoline shortages are caused by:
A. Hurricanes
B. Something else (scroll down or do a find on "Tennessee"
The correct answer is B.
I’m guessing North Carolina and Arkansas will be having some challenges as well.
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It's happening here in SC too. Many gas stations are responding by limiting purchases.
http://www.greenvilleonline.com/apps/pbcs.dll/article?AID=/20080912/NEWS01/80912022&referrer=FRONTPAGECAROUSEL
My logic goes:
Fuel shortages are caused by an increase in demand and prices being kept artificially low. If the price were allowed to increase, presumably demand would decrease.
Of course, the *desire* for fuel is still there, but it would be tempered by the rising price.
However, the increased demand for fuel is caused by an approaching hurricane.
So, I'm tempted to say that the hurricane is the root cause of the shortage because that is what is initiating the increased demand, and the shortage is exacerbated by price controls.
But I don't think that's what you're implying.
In North Carolina, we are indeed. The ironic thing is that North Carolina's price gouging statute starts off saying this:
"The State also realizes the difficulty in regulating prices while not defeating the ability of the market in goods and services from bringing supply back in balance with demand and not defeating the function of price in allocating scarce resources."
It would have been better off written as "the impossibility of regulating prices." If you want prices to reflect the market clearing price, then you CANNOT regulate them.
People never learn.
I'm driving from Georgia to Alabama tomorrow, so I'll be filling up soon regardless. Wish I had done it yesterday, because I hear that people are lining up to fill up now as prices are rising. If Georgia has no "gouging" law, I suppose I can expect less difficulty finding gas despite the lines, compared with Tennessee. I wonder if anyone is collecting statistics this weekend.
I agree that "Hurricanes don't cause shortages" is misleading in common vernacular, but the shortage can manifest itself at the consumer level either as a price spike or as bagged pumps. I might run out of gas on my trip to Alabama tomorrow for want of available gasoline. I sometimes let the needle touch red before looking for a station, because stations are so common along the interstate, but in this scenario, with supply stretched, a lower price could decrease my likelihood of finding a station with gas to sell, a circumstance I ordinarily don't imagine.
Price-gouging laws are the surface-level cause, of course. But the underlying problem is that voters do not understand very basic economics.
Elected officials didn't enact price-gouging laws because they, the elected officials, wanted the laws. They responded to the economic ignorance of voters – voters complaining loudly and frequently because they had to pay more at the pump during some high demand emergency situation.
Maybe the way to combat this willful ignorance of the public would be to pass a law adding 3 questions about gasoline economics to state driver tests. This would have the positive side effect of getting at least half the old people off the road because they would never accept that price is a signal and not an attempt to steal their social security checks.
The answer is obvious! Gas shortages are caused by the greed of callous, evil oil companies and Wall Street. You Libertopian types are just too busy foisting free markets on everyone against their will that your minds are closed to reality.
If I'm a station owner, turning off the pumps for a few days is a lot cheaper than defending myself from a "price gouging" action.
Now wait a minute. People are complaining about the gas stations raising prices. So this must mean they are actually raising prices. Yet there are shortages.
You can not have it both ways. Claiming raising prices would prevent shortages while reporting both higher prices and shortages.
Something does not add up here.
Your story is so full of holes that it is actually funny.
Your entire premise is that the government is preventing higher prices and causing shortages. But when you read the article
it is obvious that this is not correct because prices are actually higher — otherwise there would not be massive complaints.
Now which one is it?
John Dewey,
Elected officials didn't enact price-gouging laws because they, the elected officials, wanted the laws. They responded to the economic ignorance of voters -
I can't argue with that. However, that's an unsolvable problem because to solve it you would have to change the nature of man. If we can neither dissuade the ignorant from voting nor restrict government so that it can't meddle with markets, we can only be satisfied that people get what the vote for and they get it good and hard. Unfortunately, those who didn't vote for it also get it good and hard.
spencer, if you own a gas station, your ability to raise your price is curtailed by the presense of the other gas stations near you. However, as you are all affraid of lawsuits, the reward of raising prices only a little bit is not worth the lawsuit. But, as your competitors run dry and shut down, your ability to raise your price is no longer curtailed, and thus the price you can charge goes up. As such, once you are the last gas station in driving distance (or get close to it) and can therefore charge $10 a gallon, the risk of fine is dwarved by the potential profits and so you go ahead and jack up your prices proclaiming "bring it on". However, without the anti-gouging laws, the price would have gone up early, competition would not have dried up, and people could have purchased $5 gas anywhere they wanted in town. But, thanks to the laws, the only place to buy gas is at only a few stations for $10 a gallon.
Spencer,
Prices are rising. Just not enough. To raise them to what it would take to eliminate the shortage risks violating the gouging ordinances. So stations run out of gas.
Spencer,
If you have some general theory on the effects of price ceilings other than the standard supply and demand explanation found in nearly every basic microeconomics text, please share.
For starters, do you believe that supply curves don't slope up? Or that demand curves don't slope down?
Spencer,
Suppose you and I are neighbors, and both of us are preparing to leave town, since we know a hurricane is coming. Up to this point the thought of the two of us traveling together has not crossed our minds. However as we go to fuel up before leaving we see that gas is no longer $4 or even $6 but rather $20 a gallon, we realize that if we want to leave it will cost us approximately $300 each to be able to do so.
At this point in time most humans would look for an alternative, thus the idea of our families traveling together would essentially cross our minds.
The govt. assumes that individuals are too stupid to find alternatives and thus create laws that 'protect us' when in essence they really harm us. By having these laws we actually hinder the number of people that can have access to fuel. The number of vehicles fueling up won't change but the number of people per vehicle will.
In one case we have 30 cars with 4 people per car, in another case we have the same 30 vehicles with 6 to 8 people per car. The benefits from this would be great in more than one way:
A: The obvious more people can leave since the amount of fuel required to get a greater amount of people out is smaller.
B: And one that many would miss; is that in having a greater amount of people car pool, we decrease the flow of traffic exiting a city during a time of crisis.
Well Eddie, To be fair to spencer here, it's not going to cost you $300 to fill your tank at $20/gallon, because you'll do the smart thing and get 5 or 6 gallons and take your chance getting gas when you make it to the safe inland area. But the point is well taken, High price signals make people pretty creative.
Boscoh,
Suppose people only fill up 5 or 6 gallons at a time, then there would still be more gas than at the previous price of $4 or $6. Thus in essence still allowing for a greater amount of people to have access to fuel.
I knew the questions and the answer after a sentence or two. I knew it would be a cautionary story about price controls. Not that I am complaining, it is obvious from those anti-gouging laws that humanity needs more warnings and plain explanations that will dissuade people from supporting price controls. Not everyone will get excited about invisible hands, spontaneous orders or the magic of prices. However, more people would back off from emergency price controls if they understood that floating prices, even "obscene" prices will promote their self preservation moreso than price caps that come into effect when they are most damaging.
Ever since graduating with my degree in Economics, in a very austrian leaning program, I have found myself being asked about economic issues like Freddie-Fannie, free trade, energy, fuel standards and other items. Almost always, I will indepedently offer an assesment and later on find that a bunch of strongly market oriented economists will write articles that say what I said, more or less point for point.
Either I have been very much enlightened by my educate and have a fairly good understanding of Economics or I have been thoroughly indoctrinated. Fortunately, most empirical evidence points to the former.
But our huge recent hurricanes are anthropogenic (human-caused), and we create the supply and demand in the atmosphere, so that’s a negative externality caused by evil big oil, the Rand Corporation, and Amway Global, who is sponsoring Tina Turner’s tour.
Obviously, Tina Turner is causing massive global warming which is destroying our coastal cities via big oil, driving up the cost of gas.
"Allowing", i.e. not getting in the way of the natural order of things, people to engage in what big government idealogues call price gouging has some fabulous effects, some of which have been touched on here by others.
I spent a lot of time living in the Boston area, and I encountered the occasional tail end of a hurricane (more like a strong wind by the time it got there) as well as some major snowstorms.
Inevitably "everyone" would rush to the stores and buy batteries (we bunkered down instead of running away from storms. The "hurricanes may have knocked out power, but weren't really threatening, while the major snowstorms left nowhere to run to), amongst other things. Often batteries would run out as all kinds of people suddenly stocked up on batteries. This is with batteries at the "old" quasifixed price, not at a "price gouging" price.
Now imagine what would happen if everyone knew that prices would soar in the event of a storm. Batteries have a pretty long shelf life, so many people would buy them in advance of any storm warnings while they could buy them cheap. Some of them might even buy more than they need, to sell to others when the storm approached, or to give them to their friends. (I still remember the "blizzard of '78" when the parents of one of my friends offered to give my mother some bread after everyone had been snowed in for several days and the local roads were still largely impassable. I thought this was quite generous, although I later realized that bread had a shelf life of only so long….)
In addition to what I outlined, what happens when farsighted individuals buy batteries (or candles, with a shelf life of "forever", if less convenient for reading or finding ones way around in the house) in far enough in advance (weeks or months) of a storm is that the stores restock, and thus have fewer customers to sell them to during a storm, thus being less likely to run out. Also the higher prices discourage people from buying too many batteries during a panicked shopping blitz from carelessness.
The same arguments apply to other emergency "neccessities", such as bottled water, canned goods, spare shovels (so that everyone in the family can help shovel, even the kids who might actually like it), perhaps some propane, gasoline—especially at gas stations located at lesser traveled roads that are less likely to run out, etc.
Which is uglier, price gouging which results in more needs being met, or anti-price gouging laws which result in far more shortages than otherwise would have been the case if not for government meddling?
P.S. Spencer, just becuase there are laws against retail price gouging doesn't mean that wholesalers (i.e. refineries) are covered by them, and therefore retailers simply must raise their prices anyway.
"The price of a gallon of regular gas shot from $3.79 to $4.39 overnight at a Texaco station on Arendell Avenue in Zebulon. The station manager didn't provide a reason for the sudden increase, except to note that he would have to pay $5.32 a gallon for his next shipment."?!?!?!?!?!?
Sounds like a reason to me. Where is he getting the $5.32 a gallon for the next shipment?
This is pretty skeezy:
It should, though, be dealt with as unclear labelling, not "gouging".
Martin,
I checked the Georgia “gouging” statute for you. It is pretty tame and can only be invoked if the governor declares a state of emergency. Since the emergency is in Texas I see little chance of this. The good news is that since all the states neighboring Georgia are rattling their sabers about gouging, I would venture that there will be plenty of gas in the State of Georgia—just fill up before you hit Alabama.
Charlotte is indeed having problems now, just like we did three years ago.
Prices are rising significantly, but people seem insensitive to the changes. They're still lining up around the block. Apparently they think this is the last time they'll ever be able to buy gas.
In reality we still have just as much gasoline as before. But now, instead of being stored in underground tanks, it's in a million people's gas tanks.
This is the problem with just-in-time inventory management; when people suddenly decide to increase their stocks, we have capacity problems. Even if our area imports and consumes gasoline at the exact same rate, people will still have the impression that we're out of the stuff.
I stopped to fill up in Georgia, and sure enough, the first station I found had bags on every regular pump. I could have bought premium, but I drove on and found a station with $3.99/gal regular. The clerk told me he was supposed to limit each customer to $30 worth, but he let me pump $20 worth followed by another $20 worth, so I made the trip with a single stop.
Martin,
Glad you made it. I called a friend in Atlanta—gas may be up 20 cents but it is still there. There is plenty gas in Atlanta.
Man none of you actually read what I said.
Everyone is talking about gas prices raising sharply.
I agree that prices are up sharply.
Except, I'm on vacation. Over the last couple of days I watched gas prices rise sharply in Atlanta. But yesterday as I was driving from Atlanta from Charleson about 50 miles east of atlanta I bought gas at $4.23 per gal.
The only person on this blog who is claiming gas prices are not going up is our good host.
Go back and read what he said. He said that gas stations were running out of gasoline because anti-gouging laws prevented them from raining prices.
All I pointed out is that he is completely wrong.
The only person on this blog who is claiming that anti-gouging laws are preventing gas stations from raising prices is Russ. Everyone else agrees that gas prices are risising.
Everyone else, including me and the article Russ cited says gas prices are rising.
Why are you jumping on me for saying gas prices are rising when Russ is the only one claiming that gas prices are not rising.
He is the only one off in some fantasy world that has no basis in reality.
I guess that is why he had to written his fantasy book about shortage in an natural disaster because he could not find in real world example to support his theories.
I said gas prices are rising.
Russ said they were not rising.
Why are your jumping on me when Russ is the one who is completely wrong?
Russ said gas stations in Tennessee were running out of gas because they were not raise prices.
As support for his argument he cited two stations that raised their prices from $3.50 to $5.00 and $7.00.
Please explain to me how a station raising its prices by 100% is evidence that stations are not raising prices.
Russ has a theory that in times of shortages that prices should rise to the point where demand falls so sharply that some of the remaining supply is not sold.
He keep claiming that a gas station running out of gas is the worse thing that can happen.
Can someone explain to me why we are better off after an interruption in supply for the remaining supply to be left at the tank in the gas station rather than being pumped into someone's care so that can have transportation?
Spencer:
You are suffering from the dellusion of engineering; that any solution is a designed one, either binary choice A or binary choice B.
What Russ is saying is that as the price continues to rise, the large aggragate of people who want (at various levels) to buy gass, will have increasing reasons to determine their own needs weighed against their own costs.
This is an organic solution. Neither a full pump with an infinite price tag, nor a low price with an empty tank. But an organic system where people continue to make new decisions based on changing ratios of cost and benefit.
Hmm, according to some of my peers it's because gas stations take particular pleasure in exploiting people when they've just gone through tragedies. Christmas-time and birthdays must be so miserable for gas station owners.
Interesting discussion. I think, however, neither A or B is correct. The hurricane contributes, since several refineries are closed. More importantly, though, it serves as the catalyst for hysteria.
First, Big Oil says "all our refineries could be destroyed." Then media hype and so-called experts predict doom-and-gloom. Like frenzied sharks after blood in the water, everyone rushes to buy gas as if this is the last chance they'll get! In one article I read, a lady was filling up five cars! In another case, a man filled up his car and was filling 3 gas cans. He wasn't in a storm zone, so he didn't have any higher risk for needing a generator than the day before.
As a result, prices went up. This self-fulfilling prophecy became like chum for the gas sharks so we end up with lines and stations out of gas. There are only so many delivery trucks in an area. When excessive demand outstrips delivery capability, it's no surprise. But, that serves to ratchet up the hysteria some more.
Most areas have adequate supply of gasoline on hand. But, the hoarding over the weekend has reduced inventory. With less production capacity on line for at least several days, there will be less gasoline flowing. As a result of stupid, selfish people, a short-term price hike will be with us for a much longer time until things return to normal. Since OPEC is reducing production, we've probably been robbed of any dividend from $100/barrel crude. The price is going back up once the refineries are back on line.
I seriously doubt anti-gouging laws had much to do with pricing. Gouging requires a declared state of emergency, so that doesn't apply in most places. Initial raises were normal supply-and-demand economics. Excessive hikes and wide differences between stations in the same area suggest profiteering to me. Yes, SteveO, some people are like that.
Spencer:
I believe Russ stated and I quote,
"Prices are rising. Just not enough."
to actually alter the demand for it (gas).
If you had read the example I gave, it displayed why high gas prices are actually more beneficial, than the current price gouging laws in place. You claim nobody read your post, but apparently you didn't read anybody elses post as well.
Cynical Synapse:
I believe you missed the discussion on the effect that prices have on human behavior. When gas hit $4 a gallon at the beggining of the year, society started changing their consumption patterns. We saw the number of people traveling out of state largely decreased, as well as seeing more individuals going towards public transportation.
Do you think the individuals you listed in your example would have purchased the same quantity had prices increased drastically probably not. In terms of profiteering, there's nothing wrong with making a profit, if and when you are providing the service for which you are being paid for.
But why is the supplier the guilty one? Isn't everyone who could afford to buy out the gas station and provide it free of charge or at below cost just as guilty?
What if someone set up a non for profit charitable foundation that anyone could call ( or have some sort of automatic arrangement) where if price competition failed to eliminate these "short term emergency monopolies" and a mark up of over say, that threshold 50% was observed, then foundation would agree to pay the difference above the short term monopoly level and keep it from going any higher.
Companies that repeatedly bleed the foundation would get bad press, the consumer would have some insulation from any short term monopoly , competition would be given first shot at solving the problem, and the supplier would have insulation from legal action against it.
I think the important lesson here is that we don't construct anymore refineries or drill for oil.
That way. . . stupid blogs like this can keep going forward.