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gas Archive

Tuesday

14

October 2008

0

COMMENTS

More On Gas Shortages

Written by , Posted in Energy and the Environment, Free Markets

More on the government created gas shortages, from Robert Prechter:

Q: Doesn’t reduced supply — scarcity — create shortages?

A: No. In a free market, shortages are impossible; there is only a price. Rubies and Picassos are scarce, but there’s never a shortage of them. You can buy all you want any day of the week. Just pay the price.

Q: So how is the state causing a shortage?

A: The overriding cause of the shortage in the Southeast is state legislatures’ mandates that anyone selling gasoline at market prices will be labeled a “gouger” and fined $10,000 to $25,000.

Q: That’s it? That’s the reason?

A: That’s all there is to it. Only government can create shortages. If the price for gasoline had been allowed to fluctuate freely and rise to $5 a gallon locally, it would have provided plenty of incentive for truckers to siphon gas from other states and haul it to Georgia, Tennessee, North Carolina and Alabama. But as it stands, every one of these states has an “anti-gouging” law, and every one of their governors stood up to announce that he would vigorously enforce it. They may as well have said, “I demand a gas shortage.”

Wednesday

1

October 2008

2

COMMENTS

More Consequences Of Market Interventions

Written by , Posted in Free Markets

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.

Thursday

7

August 2008

0

COMMENTS

Strategic Reserve Or Vote Buying Stash?

Written by , Posted in Election Time, Energy and the Environment

Barack Obama has a solution to high gas prices: use the Strategic Petroleum Reserve (SPR).

Sen. Barack Obama called Monday for using oil from the nation’s strategic reserves to lower gasoline prices, the second time in less than a week that he has modified a position on energy issues, as he and Sen. John McCain seek to find solutions to a topic that is increasingly dominating the presidential race.

…His proposal comes a month after Obama said he would consider using oil from the reserves only in a “genuine emergency,” such as “terrorist acts.” Aides said the plan is not a reversal because he would replace light crude oil in the reserves with less-expensive heavy crude. They also noted that the senator from Illinois last week described the country’s economic conditions as an “emergency.”

So not only is this yet another in a long line of flip flops, it’s also a stupid idea. Granted, it’s not as morally repulsive and economically damaging as his rehashed call for government sanctioned thievery (“windfall profits tax”), but it’s a blatant misuse of the strategic reserve for the purpose of electoral benefit.

The SPR was established in response to the Arab oil embargo. Its purpose is to provide a temporary cushion against physical shortages in the oil supply, thus protecting the economy from excessive damage during emergency situations and also to discourage attempts at using oil as a political weapon. The key point here is that SPR is intended to be used for transient emergencies.

There is no such physical shortage at present. The price of gasoline right now is reflective of growth in global demand, not dramatic decreases in supply. Opening SPR would likely have a depressive affect on gas prices, but it would be temporary and would do nothing to solve the issue that has created those prices in the first place. Unlike the situations SPR was designed for, this is not one we can just wait out. Furthermore, as oil demand grows the size of the reserve that is needed to successfully protect the economy during times of physical disruption increases. Using SPR now would only make it more difficult to protect the economy should a true shortage or interruption arise in the future.

Although the reserve has been used for political purposes in the past (in the nineties some was sold off to trick people into thinking the government had become fiscally responsible), such actions should be opposed. The SPR is not a vote buying slush fund to get Barack Obama elected.

Sunday

22

June 2008

0

COMMENTS

Kill The Speculators!

Written by , Posted in Energy and the Environment, Free Markets, Liberty & Limited Government

Democrats have responded to rising oil prices as one would predict: not by seeking to alleviate the primary cause of price increases (a widening gap between growth in supply versus demand), but by finding a new boogeyman to justify increasing government involvement in and control over markets.

The evil-doer behind the conspiracy to hurt average people at the gas station? Oil speculators!

Obama vows to crack down on oil speculation

U.S. Democratic presidential candidate Barack Obama offered new steps on Sunday to crack down on speculation in oil markets, saying his plan would help rein in runaway fuel costs.

A jump in gasoline prices above $4 a gallon has spurred consumer anger and is a top theme in the race between Obama and his Republican rival in the November election, John McCain, who has proposed more U.S. offshore oil exploration as a way to boost energy supplies.

“I think everyone believes there’s too much speculation in the oil markets,” said New Jersey Gov. Jon Corzine, an Obama ally who announced the proposals in a conference call with reporters. “A lot of the price of oil, I think, people put at the doorstep of speculators bidding up and holding supplies off the market.”

Corzine said Obama’s plan aims to close the so-called Enron loophole, which exempts some energy speculators who trade electronically from U.S. regulation. It takes its name from the now-collapsed energy firm that benefited from the law.

Obama would require U.S. energy futures to trade on regulated exchanges. The campaign also said he backed legislation that would direct the Commodity Futures Trading Commission, the top U.S. futures market regulator, to investigate proposals such as increasing margin requirements in the market.

In addition, the Illinois senator wants to see more transparency and oversight of institutional investors in commodities markets.

“Too much speculation!” cries Corzine. These people are vultures, preying on the misery of average Americans! Or are they? To listen to democrats, you wouldn’t even know speculators served a valuable economic purpose.

Speculators correct false prices in markets, allowing them to function more efficiently. This is not to say that prices are always at the appropriate level in the short run. Irrational exuberance can drive prices to unjustifiable heights, as we’ve seen in both the 90’s tech-bubble and the recent housing-bubble. But both of these bubbles were popped, and price followed with sustained down periods.

Market critics often sight the alleged near-sightedness of capitalism. Speculators incorporate future considerations into the current price of goods. If a war is likely to break out in several oil producing countries, thereby disrupting supply, speculators who buy now, and thus increase current prices, in anticipation of selling when supplies are more scarce, give markets time to react to coming changes and encourage reductions in consumption. This behavior softens the blow of sudden changes in market conditions.

Whether or not the current prices are at the correct (most efficient) level remains to be seen, but central authorities don’t have the capacity to make that determination. People may want lower prices for themselves, but that doesn’t make such prices are the correct ones. Pressuring the market either through price controls or regulation to implement lower prices will result in greater inefficiencies such as shortages. If people really desire such prices, they should argue for increases in supply, not greater regulation or a disruption in the functioning of speculators.

Thursday

24

May 2007

0

COMMENTS

Assault On Economic Liberty Passes House

Written by , Posted in Economics & the Economy, Free Markets

Almost the entire Democratic House majority, aided by 56 Republicans, passed a blatant assault on economic liberty in H.R. 1252: Federal Price Gouging Prevention Act. Price gouging is that terrible act of charging a price that the market will bear but that government or some other party judges to be “excessive”. Naturally, this attitude prevents the rapid influx of needed goods from arriving into disaster areas by prohibiting the market from providing incentives for the selling of these goods. The result is a prolonged period of shortages, but at least when you go to the store in search of needed supplies you can rest assured that, had they any in stock, you wouldn’t have paid too much for them.

This particular piece of legislation is aimed only at gasoline and petroleum products, but that provides little comfort. Price controls are never good policy, but when you elect a group of demagogues you get demagogic policy.