Friday, September 09, 2005

Congratulations to Hawaii's gasoline price controllers!

Hawaii's astute (Democratic) politicians have gone ahead and imposed their gasoline price controls (as mentioned here previously).

Prof. Hamilton notes about the US gasoline market...

Since September 1, the retail price of gasoline fell not only in Georgia, but in every other state I checked, with the exception of Hawaii, where theory would predict that their cap on wholesale prices could easily produce an increase in retail prices.
Price controls that increase prices? Yes, the Hawaiian legislature has innovated a special kind of price control scheme, one that ties the wholesale price of gasoline to its price in three areas on the mainland -- New York, Los Angeles, and the Gulf Coast -- but without controlling retail prices. This creates two different roads to artificially zooming consumer prices.

The first is via the price controls doing what price controls are meant to do: lowering the price that producers can get for their product to below the market price level. By the law of supply-and-demand, this can't help but reduce the amount producers supply to the market -- in this case, the amount of gasoline supplied by wholesalers to retailers. And a reduction in the supply provided to retailers in a market where retail prices aren't controlled can't help but move the retail prices paid by consumers upward. Again it's just supply and demand: reduced supply = higher price, other things equal.

The second route to higher retail prices results from the fact that while the price controls tie Hawaiian wholesale prices to prices on the mainland, Hawaii actually gets its oil supplies from Alaska and Asia (not New York!). Now, imagine that gasoline distribution on the mainland is disrupted by some unforeseen event -- perhaps a major hurricane hitting the Gulf Coast refineries -- with the result that mainland prices surge upward, while Hawaii's own suppliers are left undisturbed. The islanders will get the higher posted prices determined by law in reference to the mainland, thanks to their legislators.

Gas on Maui now costs $4.20 for regular, and as prices fall on the mainland "the wholesale gas cap for all Maui zones will jump 44 cents next week" reports the Maui News. A quick scan through Google news finds various calls for investigations of "price gouging" by firms charging the government's own posted price.

Good work, guys!

And P.S., yes, of course I want politicians like these designing a nationalized health care system for us all.