How to Avoid Gas Lines, Now and Forever

Let’s imagine for a moment what we want to happen when gas stations are all of a sudden faced with a shortage of gas.

We would want to encourage consumers to consume less gas. There are several ways they could do this. For trips they absolutely need to take, they could carpool much more often than they used to. There might be a whole set of trips that they decide they shouldn’t take right now, during this time of increased scarcity, so as not to reduce the overall supply further.

We would also want to encourage suppliers to divert from their usual routine to bring more gas to the area with the shortage.

So how do we get to a world where this is what happens during a shortage? Do we have to make laws about how gas is allocated nationally? About how many miles people are allowed to drive, or what the minimum number of passengers per car needs to be? Or more directly, how much gas per person we’re allowed to consume?

The Ideal Policy

In fact, there is a much more elegant solution, totally uncontroversial among economists and proven by the American experience of the 1970’s: just allow prices to rise. As soon as the price controls begun by Nixon were overturned, gas lines in America became something mostly confined to history books.

I say mostly because every so often, after a disaster like Sandy, we hear about gas lines cropping up temporarily again. But surely this is inevitable, right?

Wrong. What has happened consistently in these scenarios is that prices have not been allowed to rise.

You might ask how can economists be so cold and unfeeling as to say that the victims of a disaster should have to pay higher prices. Well, let’s do a little thought experiment.

What would happen if prices in New Jersey shot up to an astounding $20 per gallon?

The person who was thinking of doing a 5 minute drive instead of a 30 minute walk might opt to walk instead, since filling up will be so expensive. The group of friends all going to the same place a 30 minute car ride away or farther might all pool their money to pay for the gas. In other words, people will economize on their gas usage.

Meanwhile, since they are paying the cost in money rather than in time spent in gas lines, gas stations will be gaining more funds, which in turn will allow them to outbid gas stations outside of Jersey for additional supply. The influx of supply will eventually–and history has demonstrated that this can happen surprisingly quickly–start bringing prices back down.

In short, during a shortage the price system both forces people to reduce their consumption and bids additional supply towards the area that needs it the most. In other words, it accomplishes exactly what you would want to accomplish during a shortage.

Every alternative to the simple solution of relying on the price system has proven itself pathetically inept. In the 1970’s they tried a whole gamut of different regulatory allocation approaches, and nothing worked until the price controls were ultimately revoked entirely.

It is frustrating that we still have not learned this lesson. But I suppose history has also demonstrated that we are terrible at learning from repeated failure.

 

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Adam Gurri

Adam Gurri works in digital advertising and writes for pleasure on his spare time. His present research focuses on the ethics of business and work, from the perspective of virtue and human flourishing.

12 thoughts on “How to Avoid Gas Lines, Now and Forever”

  1. Adam, I agree that escalating prices would prompt more efficiencies for gas used for driving, but I suspect a significant amount of the need during this specific series of shortages is related to generator use. Given that it is a terribly inefficient way to generate electricity, but if you have no lights or heat yet, it’s a rational decision with temperatures in impacted areas falling below 40 degrees each night. In an emergency scenario such as the continuing Staten Island outages, controlling price/volume purchases leads to a scare resource being more widely available. Having had to run a generator for an extended period of time (8 days during Isabel) I can assure you that nobody runs a generator a minute longer than they have to!

    1. The logic of price controls applies to everything, including generators. I’m not sure why you think that controlling price would lead to wider availability–it doesn’t. It leads to things selling out and not being restocked. What are you specifically referring to as having wider availability?

      The gas used for generators has a price as well–if that isn’t being controlled, then naturally there won’t be a problem. If it is, then generators will just run out of gas more quickly.

      1. I was specifically addressing gas, with is what most home generators use as fuel. Diesel, which commercial grade generators use is a whole other issue.

        What I suppose I am trying to point out is the intersection where logic (let the market determine the price) intersects empathy (people are freezing and need electricity) during catastrophic events, specifically.

        In effect, price gouging allows people with money and resources to buy however much fuel they need/want, whereas people with less money/resources can’t compete fairly for a scarce resource (fuel for their generator).

        Of course I know this already happens on a larger scale – people with money/resources have left the area, checked into a hotel or lodged with friends who have power.

        Generally speaking, though, price controls during a catastrophe are intended to allow everyone -some- access to scarce commodities, especially gas. Surely you can see where allowing the market to determine price just leads to people who really do *need* it go without because they lack the means to purchase it at top of market price?

        1. But this isn’t what happens at all. The result of price controls is not that more people of modest means are able to get what they need. The result is that everyone ends up with less in the short run and there’s no incentive for outside suppliers to bring more in the long run.

          Rising prices does not mean that the less materially wealthy can’t afford things at all. It might mean that a community has to pool their resources and have more people sharing buildings than might otherwise. But experience has shown that when price controls are lifted, the result is not people freezing to death and going without power. It’s that they find more efficient ways to economize what they have, and then in the long run the higher prices brings in greater supply which in turn brings prices back down–to the benefit of everyone, including the poor.

          Price controls on generators has all but guaranteed that they will be out of stock indefinitely during any disaster for years. So again, everyone ends up worse off.

          I dislike it when people accuse me of lack of empathy for making this argument. I am making this argument precisely because I believe it makes everyone, including those of more modest means, better off in the short run AND the long run. You may disagree with that, but please don’t characterize it as an argument that lacks empathy.

          1. Adam,

            Again, your argument works quite logically outside of catastrophic events (like the gas shortages of 1973, say) but yes, I think it fails the empathy test in the aftermath of a Sandy. Let’s keep this specific to gas as you set up in the post – the problem isn’t lack of generators (or even the cost of them), it’s the fuel to power them.

            Yes, in the short run, preventing price gouging on gas does mean supplies are limited but priced at or near the price before the catastrophe. So, call that $5 per gallon in a controlled environment, $20 per gallon in a free market scenario (I’m all about making the math easy).

            A family that has managed to come up with $100 in emergency funds can then theoretically purchase up to 20 gallons of fuel in a controlled scenario, vs 5 gallons in a market free-for-all. 20 gallons of fuel means 40 hours of power generation vs 10 hours (we’re also assuming that families of modest means aren’t out buying the latest high efficiency generators).

            If I can only buy 5 gallons a day because of the controls, well, I can still get 10 hours of power daily and know I have funds to buy additional days. If I can theoretically purchase any amount of $20 fuel but am realistically constrained by my $100 budget I’m then limited to a maximum of 10 hours total generation time.

            Now, I don’t deny that price controls (or odd/even rationing like NJ is using) during catastrophes means that everyone gets less in the short run. They do – you can only cut the pie pieces so small.

            But – and here is the big difference between the way we’re thinking about this – some at $5 is significantly better to those with less resources than almost none at $20, and that is where the empathy point comes into play.

            If you can explain to me how a family of modest means is better off short term with 10 hours of power generation versus 40 hours, I’d love to hear it, but I just don’t see it. Given that it’s an emergency situation, the long term case can’t really be made either – turn the electricity back on and gas flows freely (at market rates).

          2. I think the problem here is that you’re underrating the problem-solving abilities of people under constraints. Many families with a $100 budget might be able to conserve gas by reaching out to other families with $100 budgets in their neighborhood and moving under one roof during the crises–and increasing the amount of gas they can buy.

            Whereas rationing makes such problem-solving impossible. It says “leave the problem solving to your betters, because we know you don’t have anything to contribute to this process.”

            Finally, if you really strongly believe that high prices are going to screw the poor, there’s a third alternative which is far better, in my opinion, than price controls–charity, either through the government or through voluntary, civil society.

            You can’t deny the outpouring of private support during these crises, both from those outside and those more fortunate within. Manhattan is full of stories of uptown folk providing homes with power and heat for less fortunate downtown folk. The more fortunate, and government, can provision things for the less fortunate.

            But price controls and rationing limits people’s ability to do that.

          3. You still haven’t explained to me how the family is better off with 10 hours of power versus 40, you know – you completely side-stepped the issue.

            I don’t think I’m under-estimating the problem solving capabilities of income constrained people – a significant portion of our client base is at or below the median income. We went through the same Sandy scare everyone else did and I made a ton of calls to ensure people would be ok if we got badly hit, so I know what those folks were prepared to do in order to survive, and the solutions ranged from charity to collaboration, resource shifting to evacuation. I didn’t supply solutions, I just confirmed that solutions existed.

            I also don’t deny people’s charitable impulses, simply question the immediacy of relief. Nightly temperatures in NYC have been 40 or lower post-Sandy. Gas in hand leads to heat that night, but the charitable free gas still isn’t there. Certainly when it arrives it will be helpful to those who can’t afford it in the first place, but again, this is where rationing and price controls in emergencies can help spread scarce resources so they last longer. Federal aid? Sorry – I’d bet on getting a pony faster than a helicopter drop of money to middle to low income people. Too, fundraising for Sandy is significantly lower than expected – how long do you think it’ll take for that to trickle down to your average family on Staten Island, who hasn’t really even seen the Red Cross yet?

            I’m not trying to concern troll you, really I’m not. Nor am I going to accuse you of being a Randian. I simply think saying let the market dictate gas prices -during emergencies- is a very risky strategy with a high probability of bad outcomes for people with limited means. Perhaps I simply have too much empathy – I *hate* being cold!

          4. I’d be really interested to hear some stories about what lower income communities were doing to prepare for Sandy.

            To your first point, I didn’t think I side-stepped–my point was that one family having 10 hours of power could result in four families pooling their resources to have 40 hours of power together, resulting in a situation where both they and everyone else are better off (since they are helping to bring about a situation where things are eventually back to normal).

            I’m not going to deny that charity and government aid aren’t perfect, but I don’t think perfection is a good measure. The fact is that if you control prices and simply give everyone their allotment, thinking that this will result in a circumstance where the lower income families all end up with 40 hours of power when they wouldn’t have without price controls is, I think, unrealistically optimistic.

            And charity doesn’t have to take the form of giving money. Opening up your home to people without power or heat is another form of charity, as well as in-kind donations–which I have seen plenty of, though obviously I’m unable to know the overall extent of it.

            I don’t think you’re trying to troll me, I know you’re being earnest, and I apologize if I got defensive before. I really, earnestly think that Cuomo and Christie are making nearly everyone worse off with price controls, and I find it really frustrating.

          5. Maybe this is a better way to think of it: One of the things that typifies being poor or indigent is that you have low amounts of money, but large amounts of time — either because you’re unemployed, or you don’t have the money for leisure activities.

            Those same groups are the ones least capable of dealing with a storm: they tend to live on the cheapest land (which is the most low lying!), with the cheapest construction, and have limited ability to leave the area to go stay at a hotel, or travel on a long journey where other family members may live.

            So, while your system appears to be more efficient — in that allowing prices to float eliminates lines, and forces people to decide what gas is really worth to them, it ignores the plight of people who simply don’t have the money to even make that decision. To people in this situation, it makes sense to give them a distribution scheme which allows them to trade off time (long lines) for the needed resources, or lottery/even-odd style distribution schemes (where everybody gets a little). I’m sure you could express this in terms of some sort of preference function involving time vs. money, but I think it basically boils down to: “Life is way worse for the poor with no gas while the reach can more easily sustain shortages for a limited period of time”.

            There’s probably another reason to do this: If you let gas go to $100 or even $20 a gallon after it was $4 a gallon the week before, you would likely have armed mobs taking over the gas stations because gas piracy becomes a worthwhile job strategy for the poor.

          6. Other people have a lot of free time as well–especially after a disaster when so many offices are closed and people without power and excused from work anyway. Non-poor people with a lot of time when there isn’t a disaster include teenagers, college students, retired people of varying ages, the idle wealthy (who could probably hire someone to go wait in line for them), etc. In short, there is no reason to believe that on average the poorer would be more likely to end up with gas in a first come first serve, much less a lottery, basis.

            I am not denying that there would be sacrifices, and from the less fortunate, if prices were allowed to rise. What I am saying is that allowing prices to actually reflect the reality of increased scarcity lets people make use of the full information to adapt their circumstances accordingly; in other words, as I mentioned to Sue, there are problem-solving strategies that are possible under high prices that are not available under artifically low prices which simply induce shortages.

            As to your last point–there’s a lot of evidence that even in the absence of price-gouging laws, there’s only so high that gas stations are willing to go with their prices, for reasons similar to what you describe. Some companies definitely would rather run out of stock and eat the loss than be seen as taking advantage in the long run. I would prefer they be allowed to make that trade-off for themselves, however, rather than be told what price they are allowed to charge for their own property.

          7. I normally tell myself I’d rather light myself on fire than talk economics/politics with random people on the Internet. I’m breaking that rule, I probably won’t ever come back to this page/post… so there isn’t a need to reply.

            I feel like the others have done a decent job at explaining the issues, I’m also going to give it a try. This is important… because advocating the correct policy does mean a lot, people heating their homes, getting to work, etc etc.

            I really hope my message is understood… not to envoke authority… but basically every economist agrees with what Adam is saying. It’s not a libertarian thing, liberal economists, etc etc all agree price controls don’t work. So I’m going to go through a simple example I’ll make up now…

            The hurricane causes demand for gas to go up above what it normally is. When demand goes up this high to a local area say NY/NJ, the price in those areas should go up. So say in NY/NJ the price per gallon of 87 regular should go up to $5 from $4. Now let’s say in West Virginia where there is no gas shortage, they have full gas trucks that would retail for $4 per gallon. Without the price controls, when the price in NY/NJ goes up to $5… these trucks have to race each other to fill up NY/NJ to make all that profit. So the supply of NY/NJ keeps filling up with very eager truck drivers wanting to get paid. If the governments in NY/NJ says you can’t sell gas at a higher price… that extra gas in West Virginia will get to NY/NJ at a considerably slower rate than if the profits are higher, perhaps even sit idle for awhile. So NY/NJ might go a week with shortages and people being cold and not getting to work when the supply doesn’t increase fast enough because of lack of incentive from the profits. Where as if the price increased for gas in NY/NJ.. they would experience gas prices at $5 a gallon for a day perhaps, then within a week.. it would go back down to $4. All the while there is no shortage.

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