Should gas prices be soaring?

By Felix Salmon
November 1, 2012

Traffic is flowing in New York again this morning, for four reasons. First is the ban on private cars entering the island if they’re carrying fewer than three people. Second is the subways, which have started working again, in a limited manner. Third is a noticeable increase in bicyclists, even between yesterday and today: I have real hope that Sandy might persuade a whole swath of new people that bike commuting is incredibly fast and easy. And then there’s a much more mundane fourth reason: people are running out of gas.

With much critical infrastructure still out, many gas stations don’t have electricity to pump gas, and most of the rest — at least in New York and New Jersey — have sold out, as people filled up not only their cars but any other vessels they could find. Gasoline is precious right now: it powers generators which pump out flooded buildings, as well as powering the one form of transportation which is capable of getting stuff from Brooklyn or New Jersey into Manhattan. As for when new supplies might arrive, that’s extremely vague, but the consensus seems to be Saturday.

There’s something self-fulfilling about gas shortages: they’re the crisis equivalent of a bank run. So long as everybody just goes about their day in a normal manner, refilling their tank only when they get low, everything goes smoothly. But when people start thinking that there might not be enough to go around, everybody panics and rushes to the stations: while shortages in New Jersey have real Sandy-related causes, shortages in places like Westchester are essentially the product of self-fulfilling fears.

The standard econowonk response to such things (see e.g. Yglesias, or for that matter Uber, which has reverted to “surge pricing”) is that if the market were just left to its own devices, none of this would happen. Prices fluctuate in response to changes in supply and demand, so when supply goes down and demand goes up, it’s only natural that they should rise to the point at which demand starts falling off and the two finally meet again. At that point, the gas stations will still sell most of their gas, but there won’t be massive lines at the pump, and there will always be gas — at a price — for those who really need it.

It doesn’t help matters that such arguments tend to come from the kind of people who can afford to pay extra for their essentials. Crises always hit the poor worse than the rich, even when prices don’t rise: in my own NYC neighborhood, for instance, there is tragic human suffering right now, even as I have a warm and comfy office to go to, a group of rich friends with spare rooms, and enough money to pay for a hotel or Airbnb room should I need it. If the Lower East Side’s handful of open bodegas started price-gouging just because they had a captive audience, that would only exacerbate the situation — quite aside from the fact that it would also open them up to the very real risk of grievous bodily harm.

At times like this, the charitable impulse, of helping out where and when you can, is very strong: hence the articles with headlines like “Donate to Hurricane Sandy Victims with a Simple Text Message”. Even as gas stations are running dry, individuals across the northeast are siphoning out gas from their cars’ tanks to provide fuel for people who need it more than they do. They’re not charging a market-clearing price for doing so: in fact, they’re not charging any money at all. Multiplied thousands of times, such small individual acts of charity make a huge difference.

Meanwhile, during a crisis, the opportunity costs involved in sitting in a long line for gas actually fall substantially. Yglesias is right that price-gouging would reduce those costs, but they are the least of the damage that a storm like this causes. Much more important is the feeling that your neighbors are rallying together at a very hard time. If we all run out of gas, we’ll all run out of gas. But we won’t try to profiteer from that, and we’ll try to use it in as effective a way as possible, rather than just letting it get acquired by whomever happens to be most price-insensitive.

That’s why there’s something a bit distasteful about Uber’s insistence that the only way they can provide a good service these days is by charging more money. The cost of gas has not gone up: either their drivers can find the gas to drive people around or they can’t. The drivers, for their part, already make good money from Uber, whose prices are high; doubling those prices seems excessive, especially when there’s a strong impulse at times like these to help people out without charging any money at all.

I’m not taking a position here on price-gouging laws: while I don’t like the practice, I’m also not convinced that it should be made illegal. But the fact is that the benefits of price-gouging tend to accrue to a handful of merchants and the price-insensitive rich, while the costs are borne by those who can least afford it. ‘Twas always thus, or course, but during a crisis, especially, it’s a good idea to try to minimize such mechanisms, rather than trying to encourage them.

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Comments
6 comments so far

I continue to fail to understand why, if people are keen to encourage commuting by bicycle, the city or an organization like The Doe Fund does not start installing substantial numbers of bike racks in key commuting destinations like Midtown and Downtown. If I had an easily accessible, secure, public place to lock my bike I would probably commute every non-inclement day I was in town. Amsterdam, which is famously crawling with bike commuters, is loaded to the gills with public bike racks. This, as opposed to bike lanes, strikes me as a cheap, easy, and extremely effective infrastructure fix. What’s the hang up?

Posted by EpicureanDeal | Report as abusive

How about allowing gas stations to charge whatever they want, but, if it’s higher than the price gouging laws would allow, they’re only allowed to sell 3 gallons at a time. If you really need a little bit of gas, it’s likely that there will be at least somewhere where you can get it at some price, but if you’re rich and simply trying to fill your tank and happen not to care about the price, you’re not going to be able to do that without being inconvenienced in some fashion or another.

I’m a fan of public spiritedness and people helping each other, and these restaurants providing free food and charging stations and wireless are great. I would note, though, that, as you say, there are people filling gas tanks and any container they can find in addition; we cannot entirely rely on public spiritedness. People will hoard and look out for themselves, and we should design regulations in such a way that, while we always leave room for acts of kindness and community, we don’t sacrifice people to wishful thinking.

(Incidentally, I would note one of the differences between the situations: if 25% of people who are capable of offering free food etc. do so, and 75% do not, a lot of people can be helped; the 75% are not hurting other people. If 25% of people buy up as much gasoline as they can get their hands on, people are effectively shut out of the market. If I have to go to four people before I find one willing to give me something, that’s not bad; if I’m simply unable at any price to buy any gasoline, that’s a much harder constraint.)

Posted by dWj | Report as abusive

“in my own NYC neighborhood, for instance, there is tragic human suffering right now”

I clicked through the article… I have to be honest… on day 4 it seems much less serious then the ice storm that largely destroyed the electric grid in my state in 1991. My family spent 12 days without power in the heart of the states 2nd largest population center. It was also January rather than November and 400 miles north.

I don’t for a minute mean to diminish the hardship people are facing. To me “tragic human suffering” means the Syrian army launching artillery and airstrikes against population centers or the Japan tsunami which killed 18,000+ rather than Sandy which stole, so far,

Posted by y2kurtus | Report as abusive

no one has to buy gas at a given price, and no one has the right to demand that they be sold gas at a given price. think about it this way… what incentive does a gas station owner have to foot the extra price of having some gas shipped in from out of state if he can’t raise the price? what incentive do people have to not buy gas, that a lot of them don’t truly need, when the price remains the same?

the answer is, beyond altruism, there are none when a single ‘price gouging’ law removes all market forces. sure it works fine when there is plenty of gas to go around. but when the time comes that the gas supply really needs to be rationed as efficiently as possible, there is absolutely no mechanism in place. and so these people wallow in stagnation, and blame who ever the media happens to be scapegoating.

there is little to no gas, and you have to wait for hours in cold weather to get it. buy hey, at least its cheap!

Posted by ceanf | Report as abusive

The argument that people with money would benefit if you allowed prices to rise is easily countered by thinking about the status quo.

Rationing, instead of being performed through the natural pricing mechanism, is instead currently being done through:
1.) Allocating to those with an ability to wait in line for 12 hours
2.) Allocating to those who get gasoline before it runs out
3.) Allocating to those who randomly have the right license plate today (a moronic way to allocate resources, totally inefficient).

Who *has* time to wait 12 hours in line? Well, to be frank, I would hazard a guess that to a disproportionate amount it would be people with nothing better to do – i.e. perhaps people on welfare, and retired people – both groups with little important work to get done.

Who *doesn’t* have time to wait 12 hours in line? People who are trying to get the economy going again, i.e. who are busy getting things done so we can all benefit (don’t we want stores stocked, parts ordered, etc. etc.?)

Having a retired person fill up their entire tank with gas just because they have the time to wait in line doesn’t collectively help us much….but if Gas were simply allowed to rise to some natural level, say, $25/gallon, that retired person might think to themselves…

“hmmm, I guess I can get by on three gallons for a few days…I’ll just buy three gallons for $75.00″.

…and there’d be more for everyone else (such as people running off to a job to get something done so we can all benefit.)

Also note that if you allowed prices to rise, it’s as John Stossel just said recently – it’s like sending up a flare saying “Bring gasoline here” – which helps ameliorate the supply problem further. I’m up north but I would happily drive 20 gallons down there myself if I could get $25/gallon for them! But I’m sure not going to bother for $4.00 a gallon.

Posted by Ted5678 | Report as abusive

@ceanf has a good point. While paying a couple extra dollars per gallon for a couple weeks won’t kill anybody’s budget (might cost them $50 or $100?), it would be a HUGE incentive to ship in supplies. You would have gasoline trucks lining up on the highways for the chance to dump their contents at that kind of a markup (in what is normally a slim-margin distribution business).

Both supply and demand are potentially elastic, and in the absence of a real shortage a modest shift in price ought to rapidly cure any imbalance.

Posted by TFF | Report as abusive
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