Guest Post
written by: Jonathan Tancer
edited by: Marc Tancer
written one week after Hurricane Sandy in the midst of power outages and gas lines in New Jersey
(I've only edited my brothers spelling and grammar, and added a couple points here or there, and wrote the last paragraph)
People, the reason why the gas lines are so long is because of the bogus law that prohibits "price gouging". I am a registered Republican and I disagree with Chris Christie for not reversing the "price gouging" law during this time.
Supply side:
There is not a shortage of gasoline*, there is a shortage of pumping stations. If more stations were open, the perceived "shortage" would be much less. By removing the price increase cap, more stations would be open. If gas station owners were able to charge more, they could afford to become more creative. For example, it might be economical and profitable to burn their own gas to run generators in order to pump gas if gas was allowed to go to $5 or $7 or how ever much the markets dictates per gallon. Also, receiving a shipment from further away might cost a gas station more money, but the station cannot by law increase their prices to consumers by more than 10%, so this might not be economical either. Perhaps most importantly, as a general matter of natural disasters, the best way to encourage individuals and companies in other states to come to provide goods or services is to allow the prices to increase! They in fact they might need to be paid much more in the wake of a natural disaster to compensate for the risk they are taking by going into or shipping something into a dangerous area. Imagine I owned a gasoline refinery. If I could sell my gas for the same price in PA is I could sell it for in Jersey, but New Jersey was half way under water, I wouldn't risk my workers, delivery trucks, or gasoline... I wouldn't send them to New Jersey. But if gas went to $7/gallon, maybe I would take the risk. I don't pretend to know because I don't own a refinery, but this is a decision best made by those who do!
Nj is full service, gas attendants have to be paid. A gas station may normally have just one or two attendants, but to keep the lines moving the owner may want to have more attendants, as many as one person per pump! Because stations are prohibited from increasing the price they can't afford to hire more workers to keep the line moving.**
Demand side:
By artificially keeping the price of gas down in a time of "shortage" the government is creating artificial demand.
People see long lines (caused by the supply factors discussed above) and that causes people to panic and run to the gas station on a daily basis, even if it is just to top off the tank. The lines become even longer, and people burn 60 miles of gas waiting in a 2 hour gas line, further wasting more of the scarce resource.
This confluence of a sort of crazed demand and stunted supply will always create long lines which could lead to worse problems.
As a matter of principle, if I as a hardworking American am willing to pay $10 a gallon for gasoline in order to not wait in line for it, why should the government say no?
There will be talk about how increased prices will hurt the poor. I have no doubt it would hurt the poor directly. I think it would hurt the poor the most; the poor consume much more gasoline (and other necessities... food for example) than the rich do as a percentage of their income or wealth. However, we need to look at the seen versus the unseen and how the alternative (anti-price gouging laws) might be worse for the poor, and for society. If a poor person has a minimum wage job and is living paycheck to paycheck, it is very likely that he cannot miss much work if he wants to stay afloat. I work, as many of you do, and I know that if I had to wait on a 5 or 6 hour line for gasoline, there is no doubt I would miss work. It is the poor who most need to continue working, and gas lines will force everyone to miss work. Every non-ultra-wealthy consumer would suffer from $6, or $10 gasoline, but would this temporary suffering which may last a couple of weeks be worse than missing work? I suppose that's subjective, but I say no, it would not be worse than missing work. Also, society cannot afford to allow those with certain high skilled jobs to miss work either. An ER doctor can afford $10/gallon gas, but he cannot afford to be waiting on a 5 hour line when there are all of these emergency patients who get hurt as a result of the natural disaster! Now, the people in between the minimum wage worker and the ER doc are the ones who actually produce and deliver food, energy, and other physical goods, and provide people with services, if they are forced to wait on gas lines instead of working, the economy would definitely suffer... as production is stunted.
*By definition, the difference in the amount of gasoline demanded and supplied at price created by a government price control is a shortage, so this was actually a gasoline shortage. But the subsequent point is very legitimate and important.
** Christie also should have stopped enforcing the full service law in New Jersey. That would have, at least to a small extent, helped reduce the lines.
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