BrianGarst.com

While much of the discussion lately has been over one big interventionist created disaster, the “financial crisis,” I thought I’d highlight another, though ultimately less severe, government created mess.

Several southern states are currently experiencing gas lines and shortages. News reports typically chalk these up to nothing more than the consequence of supply disruptions from Hurricanes Ike and Gustav. While the closing of refineries has reduced supply, mere reductions in supply do not create shortages and lines. What creates shortages and lines are rules that prevent prices from adjusting accordingly.

The affected states all have one thing in common: price-gouging laws that kicked into effect after the hurricanes hit. In Tennessee,

It’s safe to say all drivers in the Middle Tennessee area felt some pain over the past two weeks. At first, there were only signs of possible price gouging. Reports came from East Tennessee and North Carolina of $7 a gallon gas. Tennessee officials began monitoring an increase in consumer complaints of price gouging and warned of penalties.

Price complaints tapered off when the shortages began. For the first time since the late 1970s, the Nashville area saw tempers flare in lines at the gas stations, and large numbers of residents worried less about the price of gas than about whether they would have enough fuel to get to work or home.

The same happened in Georgia:

Earlier in September, the governor asked for and received several waivers from the U.S. Environmental Protection Agency on clean-fuel regulations. He also declared a state of emergency — the first part of the emergency plan — which enabled anti-price gouging laws. On Tuesday, he eased licensing restrictions for haulers.

Here‘s how it worked out for them, as described by a September 29th article:

As a gasoline shortage in the South drags through its second week, drivers have gone from being mildly annoyed to deeply frustrated, with lines hours long at service stations in Georgia, North Carolina and Tennessee.

Let me reiterate to make it perfectly clear: “Early in September” the government enables anti-price gouging laws, by the end of September there had been 2 weeks of gas lines. In every case the government price gouging actions precede the shortages.

Price gouging laws -> shortages and lines.

The John Locke Foundation describes the same phenomenon in North Carolina:

Consumers can blame North Carolina’s price-gouging law for the gas lines and shortages appearing in the wake of Hurricane Ike. That’s the assessment of a John Locke Foundation analyst who has studied the unintended consequences of price-gouging legislation.

“Gas station owners are afraid to raise prices in light of threats of prosecution from state government,” said Dr. Roy Cordato, JLF Vice President for Research and Resident Scholar. “Because those owners refuse to raise prices, consumers continue to flock to the pumps, and the stations run the risk of running out of gas.”

The current problem with shortages and gas lines is far different from the situation that followed Hurricane Katrina in 2005, Cordato said. “North Carolina had no problems with shortages or long lines at the gas pumps after Katrina because the price system was able to work,” Cordato said. “The only difference between 2005 and 2008 is the new version of the state’s price-gouging law.”

The news reporters and commentators fail to make this connection.

The same Tennessee article from before suggests that part of the problem was hoarding:

Finally, there are lessons for us, average consumers, many of whom were not on best behavior during this gas shortage. As state officials have rightly noted, hoarding tactics — jumping into lines at the station to top off the tank, and filling up extra cans with gas — only made the shortage worse. Not to mention that lugging around multiple containers of gas poses a safety hazard.

And Georgia:

Both supply and demand are perpetuating the shortage. Refinery damage and power failures in Texas created the conditions, said Brandon Wright, a spokesman for the Petroleum Marketers Association of America, but drivers contributed by refueling more often than necessary.

“You hear stories about tankers pulling into gas stations and people are already waiting — and they have half a tank,” Dr. Medlock said. “It’s akin to hoarding.”

If only we had a system to discourage this kind of behavior, something that could take into consideration the supply of a product and insure it goes to those with the greatest need.

In fact, we have such a system, though politicians refuse to allow it to do its job without interference. If the market was left alone, the result would be less irrational and unnecessary hoarding, limited or no shortages, and far less hassle. We would all benefit if politicians would let the price system work.

"price gouging" gas