The Oil Drum

10 comments on Hawaii puts caps on gas prices

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sampo on August 25, 2005 - 9:49am

and allowing the price to rise uncontrolled just creates a different kind of spot shortage, one the affects the population quite regressively. In addition, it allows suppliers with consolidated control over market segments to take advantage of the situation by throttling supplies to just the right levels where they maximise profits.

are you saying that only the richest people should be entitled to gasoline? are you in favor of rationing in conjunction with caps?

As a Hawaii Resident: I just want to note that this gas cap story is the only thing i've heard about for going on 2 weeks (with our 12.5% excise tax hike being second). The news, local talk radio, the break room, the gym....its all anyone wants to talk about anymore.

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pbrewer on August 25, 2005 - 1:36pm

There is, of course, no good solution. Oil is just not going to be cheap any more, except for periods where demand destruction has pushed demand below the supply.

As far as making fuel available to poor people, there are any number of rationing schemes. They all work pretty poorly, but there probably needs to be some mechanism, at least for a transition period. I kind of like the one that was recently proposed in Britian as a mechanism for controlling carbon emissions. In that scheme, everyone gets a certain number of fuel purchase credits. You need to use one with each unit of fuel that you buy, but you can sell any that you don't need. Result is that fuel still sells at the market price, and the impact on the poor is ameliorated by the profit they can make selling unused credits. (I like it mostly because I use a lot less fuel than the average person, so I'd be able to sell my credits and make some money.)

But just putting a ceiling on fuel prices will have one of two results: either it will have no effect (if the ceiling is above the market-clearing price) or it will produce shortages because the quantity supplied will below the quantity demanded at that price (if the ceiling is below the market-clearing price).

It's pretty hard to produce shortages in a market economy, but if shortages are what you want, that's how to do it.